Money hungry

The good news is that despite the global economic slump, the country managed to attract about €5.6 billion ($6.06 billion) in foreign direct investment in 2002, according to the Polish Agency for Foreign Investment (PAIZ). The bad news: it was a drop from the E6.6 billion ($7.14 billion) that the nation received in 2001.

In light of global economic decline, 2002 was one of the most overall difficult years for foreign investment worldwide. But now the question on everyone's minds is whether the nation's FDI will continue to slide over the next few years. With the war in Iraq drawing to a close, stable oil prices, tentative but encouraging signs of economic recovery and the country's planned accession to the European Union, Poland's investment prospects seem to look better.

However, we believe that the country's FDI levels will remain stagnant unless the government removes some blatant barriers that repel prospective investors and force them to head to other countries in the region.

First, the government must repair its damaged credibility with foreign investors after gaining a bad reputation in the wake of some investment fiascoes, such as the scandal with insurer PZU and its Dutch investor Eureko. That's not to mention investors' concerns about corruption, as highlighted by the World Bank, and the Rywin-gate affair, which has cast key decision-makers in a shady light.

Second, the country's lack of modern infrastructure is another roadblock for investors who are put off by uneven motorways blemished by potholes and ruts. Instead they are steering their capital to Slovakia and the Czech Republic, whose governments continue to build a network of new motorways. Meanwhile, Poland's motorway construction program has ground to a halt, which cost the country dearly last year when it lost a E700 million investment by PSA Peugeot-Citroen to Slovakia.

Third, the country's formidable legal hurdles make establishing a company a tedious and tiresome process. A foreign entity that wants to set up shop here must jump through several legal hoops, such as having a Polish embassy or consulate "legalize" its corporate documents in its home country before they can be accepted as legitimate by local authorities here.

Fourth, the government must continue to lower corporate income tax. CIT was supposed to be lowered to 24% this year from 28% in 2002, but instead has only been dropped to 27%.

Last, the government's fragmented and disorganized structures for assisting investors, now under the auspices of the ministry of economy, labor and social policy, must be combined into a single entity that provides one-stop shopping. At present, investors must scurry between PAIZ and three separate subsections of the economy ministry, which oversee special economic zones, financial support for investors and country promotion, respectively. In the Czech Republic, for instance, one agency - CzechInvest - handles and authorizes all matters related to foreign investment.

Until these formidable obstacles are removed, investors will continue to pour money into neighboring countries they see as being more investor friendly. Last year the Czech Republic, which is one quarter the size of Poland, registered more than $7 billion in FDI - a depressing yet discernible indication that investors are indeed looking elsewhere to deposit their capital.