Losing its luster

Poland plummeted 17 places, from fifth to 22nd, in the Foreign Direct Investment (FDI) Confidence Index 2007, AT Kearney's ranking of present and future prospects for international investments. The index is based on a survey of executives from large global firms, whose combined annual revenues amount to more than $3.8 (zł.9.3) trillion.

China, India and the US account for the top three positions, unchanged since the last edition of the index in 2005. Despite having plunged in the rankings, Poland remained on top in the CEE region and was the fifth-most attractive investment destination among investors from Europe, who prefer to invest "near abroad."

Global processes contributed to Poland and other CEE countries' poor positions. "The world's economic center of power continues its perceptible shift from developed to developing markets," said Paul Laudicina, managing officer and chairman of AT Kearney. Vietnam, Brazil, Malaysia and South Africa, for example, are high above Poland despite being outside the top 25 two years ago.

Good old problems

Still, analysts interviewed by WBJ said Poland is largely responsible for its own fate. It has done little to move forward, while other countries have made significant progress, they claimed. "When you don't move forward, you move backward," said Andrzej Sadowski, the vice president of the Adam Smith Research Institute.

Lack of structural reforms and persistent corruption have harmed Poland's image among businesspeople. Executives who participated in the survey named these as key threats to investment in Eastern Europe.

The uncertain situation of Poland's energy supply is another of its major problems, Aleksander Kwiatkowski, the president of AT Kearney in Poland, told WBJ. Some 66 percent of respondents saw energy instability as the main potential threat to investments globally.

Excessive bureaucracy was also seen as a significant hurdle. A heavy burden of regulations comes from EU membership, Tomasz Teluk, the president of the Foundation Globalization Institute pointed out.

"Poland follows the bureaucratic molds of countries such as France and Germany, instead of finding its own solutions," he said.

Polish efforts at self-promotion need a boost as well, especially among Asian investors, Kwiatkowski said. Investors from developing countries, including Asia, are likely to be responsible for 54 percent of investments over $500 (zł.1,221) million over the next three years, AT Kearney's analysts predict.

Unfair policies?

The state presently favors a few international giants while neglecting the smaller, but still relevant, companies, the analysts said. Huge corporations are the main beneficiaries of Special Economic Zones (SEZs), while a large number of small and medium-sized enterprises (SMEs) are offered few incentives.

Such a selective approach has nothing to do with the rules of a free market. "The rules should be the same for everybody, regardless of their nationality," Sadowski said, stressing that the prosperity of local businesses was what attracted FDI in the 1990s.

Careless FDI policy is a threat to the Polish economy in the long run. This is especially true when those companies which see Poland as just a source of cheap labor move away after production costs rise or the SEZs' mandate expires, Sadowski said.

"Such processes took place in Latin America," he added, and stressed that Poland is already heading in that direction. Poland's low place in the ranking is not a catastrophe, but should serve as a warning for the future, said AT Kearney's Kwiatkowski. 

Losing confidence

FDI Confidence Index

(numbers in parentheses indicate top 25 rating in 2005)

2007    Country Confidence rating

            1. (1)   China   2.21

            2. (2)   India    2.09

            3. (3)   United States   1.86

            4. (4)   United Kingdom          1.81

            5. (10) Hong Kong      1.78

            6. (7)   Brazil   1.78

            7. (18) Singapore        1.75

            8. (22) United Arab     1.72

                        Emirates          

            9. (6)   Russia  1.70

            10. (9) Germany          1.70

            11. (8) Australia          1.68

            12. (-)  Vietnam           1.67

            13. (14)           France 1.67

            14. (21)           Canada            1.65

            15. (15)           Japan   1.63

            16. (-)  Malaysia          1.63

            17. (-)  Other Gulf States         1.62

            18. (-)  South Africa     1.61

            19. (16)           Mexico            1.59

            20. (13)           Turkey 1.59

            21. (-)  Indonesia         1.58

            22. (5) Poland 1.58

            23. (24)           Central Asia     1.57

            24. (23)           South Korea    1.57

            25. (12)           Czech Republic            1.56