Legal lunacy
Swedish giant IKEA has announced the suspension of most of its planned investments in Poland due to the difficulty of obtaining the necessary administrative permits. The problem, according to the retailer, stems from a law on large-space shopping centers which specifies the procedures for granting construction and operating permits for large retail facilities. Vaguely worded and unaccompanied by executive regulations, the law, which came into force last year, has effectively blocked a number of large retail projects in Poland.
Investments on ice
IKEA has so far spent zł.4 billion on shopping centers and factories in Poland - making this country the company's second-largest production center in the world - and the firm had planned to spend up to zł.5.5 billion more by 2015. Now, however, it says its expansion plans have been seriously handicapped by the restrictions of Polish law.
"Our investments in Poland have been blocked by the lack of clarity in the law as well as the lack of any executive regulations concerning it. We are currently planning from seven to eight investments, in seven to eight Polish cities, which cannot be started only because of the barrier imposed by the law," said Karolina Horoszczak, a spokesperson for Inter IKEA Centre Polska.
"We are still present in Poland, however, and have no intention of leaving it. We want to go ahead with our investments in the country as soon as the legal barrier has been removed," she added.
One of the few new investments that the firm may yet be able to realize is a large shopping center in Łód. According to Kajus Augustyniak, a spokesperson for the city's mayor, IKEA submitted the necessary application early enough to keep the investment process going in this case.
"Investors which did not submit their building permit applications before the law was implemented will have to wait," he said.
The law has hit the majority of large-space shopping center developers and operators in Poland. Representatives of the retail real estate market admit that the legislation may have already affected hundreds of retail investments in Poland, the lack of which will be keenly felt in the coming years.
"The law on large-space shopping centers has contributed to the stoppage of Groupe Carrefour's new investments in Poland. The fact that we are not investing in new projects in Poland will undoubtedly translate into the development of our investments in other countries, which is bound to have an impact on [Poland's] economic growth," said Maria Cieżlikowska, public relations director at Carrefour Polska.
She added that the company was currently realizing investments for which it had received permits before the law's implementation and that the lack of new investments would be visible as early as in 2009.
Law found lacking
The law on large-space shopping centers was enacted in May 2007 and came into force in September. The act states that a retail center whose sales area exceeds 400 sqm can only open for business after obtaining special permits from the city mayor or head of the local district, as well as receiving a favorable decision from the local district council. Investors also have to submit opinions on the planned investment's impact on the local job market, infrastructure and natural environment.
Although the law has been in force for over seven months now, the lack of executive regulations governing its implementation into practice has rendered the granting of permits for large-space shopping centers virtually impossible.
"We have not submitted building permit applications for half a year now because officials ... cannot even review them," said Dorota Karwala, corporate communications manager at Tesco Polska. "We are in a legal vacuum as there is an act but no executive regulation that would 'activate' it," she added.
To serve and protect whom?
The main rationale behind the inaction of the law on large-space shopping centers was legislators' resolve to preserve the "balance between various forms of retail." That, in theory, meant the law would protect smaller domestic retailers against large chain operators. The move has backfired, however, as large-space shopping center operators such as Carrefour and Tesco have already responded by launching smaller format stores.
"Food retail giants have admittedly suspended some of their large investments but are successfully developing the so-called 'small concept,' meaning local stores. Herein lies the greatest paradox [of the law] - small local store owners whom the act was meant to protect have been hit the hardest," said Małgorzata Trzaskowska, retail director in Colliers International's Warsaw team. She added that Warsaw had already seen at least one case of a local store shutting down due to the opening of a multinational-owned small-format store nearby.
Government inaction
Politicians of the governing coalition have listed the act among the regulations set to be scrapped. Two bills to that effect have been introduced in the Sejm but little actual action has been taken in that respect so far. There is apparently no unanimity within the coalition concerning the matter, with the Civil Platform party pushing for the legislation to be repealed and the Polish Peasants' Party refusing to take a clear stance on the issue.
In the meantime, a suit concerning the law has been filed with Poland's Constitutional Tribunal. In January the European Commission called on Poland to remove restrictions contained in the act. Business organizations have also been calling on the government to amend or repeal the law. "The current law hinders economic development and limits economic freedom," Andrzej Malinowski, president of the Confederation of Polish Employers, recently said in an open letter to Economy Minister Waldemar Pawlak.
