Pace of FDI flow depends on who you're talking to
Ask the National Bank of Poland (NBP) and the Polish Foreign Investment Agency (PAIZ) and you'll get two very different answers.
Last week, PAIZ announced that FDI during the first six months of 1999 had amounted to almost $5 billion. This puts the country on track to receive FDI of more than $10 billion for the year as a whole, the agency said.
But two weeks ago, the NBP painted a different picture. It said FDI during the first seven months of the year had reached just $2.6 billion. This amount is $266 million less than in the same period last year.
Economists said that despite the wide discrepancy, neither agency's calculations are wrong. They reflect differing methodologies for the calculation of FDI. "Those discrepancies have been no surprise already for some time," said Krzysztof Rybinski, chief economist at ING Barings in Warsaw. "PAIZ simply takes into account a lot more when estimating FDI."
But the agency isn't being overly optimistic, said Andrzej Paplinski, head of the analysis department at PAIZ. He said the agency follows a methodology that meets the standards of the Organization for Economic Cooperation and Development (OECD).
The NBP also follows OECD regulations, but according to Rybinski it differs in its interpretation of these standards. For instance, the central bank's calculations do not include capital-in-kind contributions to Polish companies.
In addition, PAIZ anticipates some transactions and includes some where money doesn't necessarily flow into Poland. For example, in its first-half report, PAIZ included about $1 billion from the sale of @Entertainment to United Pan-Europe Communications (UPC). However, that sale was only announced in June. The tender for all @Entertainment shares was not completed until early August. In addition, UPC was not increasing @Entertainment's capital. Rather, it was paying the company's shareholders.
"The main difference comes from the fact that the NBP reports money orders which have been already transferred to Poland, and PAIZ takes into account the level of equity capital declared in the notarial act of a company," Paplinski said.
In addition, unlike PAIZ the NBP does not report on profit reinvested by investors.
According to Rybinski, such discrepancies don't undermine the credibility of the two institutions mainly because their reports are used by investors for different purposes. "The NBP's reports are more useful when it comes to making forecasts for the Polish zloty, as they show how much real money crossed the border," Rybinski said. "PAIZ, on the other hand, reflects real involvement of foreign investors in Poland and helps to assess what the prospects for its economy are."
Not everyone agrees that the discrepancy is harmless, though. Andrzej Falinski, head of the Foreign Investors Chamber of Commerce, said that PAIZ's forecasts are too optimistic. "As long as chaos and a lack of competence in the decision-making process characteristic for the public administration exists, the pace of FDI's flow will be slower," he said. "Even if the level of investments reaches $10 billion-$11 billion, last year's figure, it will be less than expected for this year ($15 billion)."
This view would be bolstered by the NBP's numbers, which estimated the flow of investments in the first seven months of this year as being $266 million less than in the same period last year.
But Adam Pawlowicz, head of PAIZ, argued the pace of the investment flow hasn't changed and should be the same as in 1998. In addition, Poland is attracting FDI well above the norm.
An average worldwide ratio of foreign investment to gross domestic product (GDP) is 10.6%. In Poland over the past two years, this ratio has grown to 20% from 14%. Pawlowicz added that sentiment toward Poland among foreign investors has never been so good.
"The critical attitude toward Poland of countries such as Japan might be changing," he said. Pawlowicz emphasized this change in attitude by saying that on Sept. 10 Toyota is expected to close a deal with the Walbrzych special economic zone for a gear box plant.
But the final level of FDI this year will depend on the pace of privatization, Rybinski said. "They will boost the investments, so I think FDI will be at least as big as last year," he added.
Pawlowicz said the further privatization of telecom giant Telekomunikacja Polska (TPSA) and the first sell-off of a stake in insurer Powszechny Zaklad Ubezpieczen (PZU) will significantly bolster the 1999 FDI total. "We can estimate that within the next six months, the flow of investments will intensify and the figure may even top $11 billion," he added.
Last week, PAIZ announced that FDI during the first six months of 1999 had amounted to almost $5 billion. This puts the country on track to receive FDI of more than $10 billion for the year as a whole, the agency said.
But two weeks ago, the NBP painted a different picture. It said FDI during the first seven months of the year had reached just $2.6 billion. This amount is $266 million less than in the same period last year.
Economists said that despite the wide discrepancy, neither agency's calculations are wrong. They reflect differing methodologies for the calculation of FDI. "Those discrepancies have been no surprise already for some time," said Krzysztof Rybinski, chief economist at ING Barings in Warsaw. "PAIZ simply takes into account a lot more when estimating FDI."
But the agency isn't being overly optimistic, said Andrzej Paplinski, head of the analysis department at PAIZ. He said the agency follows a methodology that meets the standards of the Organization for Economic Cooperation and Development (OECD).
The NBP also follows OECD regulations, but according to Rybinski it differs in its interpretation of these standards. For instance, the central bank's calculations do not include capital-in-kind contributions to Polish companies.
In addition, PAIZ anticipates some transactions and includes some where money doesn't necessarily flow into Poland. For example, in its first-half report, PAIZ included about $1 billion from the sale of @Entertainment to United Pan-Europe Communications (UPC). However, that sale was only announced in June. The tender for all @Entertainment shares was not completed until early August. In addition, UPC was not increasing @Entertainment's capital. Rather, it was paying the company's shareholders.
"The main difference comes from the fact that the NBP reports money orders which have been already transferred to Poland, and PAIZ takes into account the level of equity capital declared in the notarial act of a company," Paplinski said.
In addition, unlike PAIZ the NBP does not report on profit reinvested by investors.
According to Rybinski, such discrepancies don't undermine the credibility of the two institutions mainly because their reports are used by investors for different purposes. "The NBP's reports are more useful when it comes to making forecasts for the Polish zloty, as they show how much real money crossed the border," Rybinski said. "PAIZ, on the other hand, reflects real involvement of foreign investors in Poland and helps to assess what the prospects for its economy are."
Not everyone agrees that the discrepancy is harmless, though. Andrzej Falinski, head of the Foreign Investors Chamber of Commerce, said that PAIZ's forecasts are too optimistic. "As long as chaos and a lack of competence in the decision-making process characteristic for the public administration exists, the pace of FDI's flow will be slower," he said. "Even if the level of investments reaches $10 billion-$11 billion, last year's figure, it will be less than expected for this year ($15 billion)."
This view would be bolstered by the NBP's numbers, which estimated the flow of investments in the first seven months of this year as being $266 million less than in the same period last year.
But Adam Pawlowicz, head of PAIZ, argued the pace of the investment flow hasn't changed and should be the same as in 1998. In addition, Poland is attracting FDI well above the norm.
An average worldwide ratio of foreign investment to gross domestic product (GDP) is 10.6%. In Poland over the past two years, this ratio has grown to 20% from 14%. Pawlowicz added that sentiment toward Poland among foreign investors has never been so good.
"The critical attitude toward Poland of countries such as Japan might be changing," he said. Pawlowicz emphasized this change in attitude by saying that on Sept. 10 Toyota is expected to close a deal with the Walbrzych special economic zone for a gear box plant.
But the final level of FDI this year will depend on the pace of privatization, Rybinski said. "They will boost the investments, so I think FDI will be at least as big as last year," he added.
Pawlowicz said the further privatization of telecom giant Telekomunikacja Polska (TPSA) and the first sell-off of a stake in insurer Powszechny Zaklad Ubezpieczen (PZU) will significantly bolster the 1999 FDI total. "We can estimate that within the next six months, the flow of investments will intensify and the figure may even top $11 billion," he added.
