Polish companies upbeat despite economic gloom
Stocking up: Poland's largest companies are set to weather the present slump.
Poland's largest companies remain confident despite the country's continuing economic downturn, thanks to reserves and restructuring in previous years.
Still, a survey published this month by the Central Statistical Office (GUS) said the business climate in manufacturing, construction and retail industries is the worst it has been in seven years.
"In Poland this has been particularly exacerbated by a monetary policy involving a high zloty exchange rate, meaning that exports are not profitable," said Konrad Tomaszewski, general director of the National Forestry Authority (PGLLP). "We can all see that there is a substantial budget deficit zl. 17 billion ($4 billion). This means that the recession has hit a wide range of industries since they're not contributing taxes to the budget."
Nevertheless, all but five companies in the top 25 have shown a continuing decline in profit since 1998. According to Bohdan Wyznikiewicz of the Institute for Market Economics (IGR) in Warsaw, Poland's largest joint-stock companies have matured sufficiently to cope with tougher market conditions. "The largest companies in Poland have already been deeply restructured," Wyznikiewicz said. "They got rid of unwanted labor and are in a better condition than small and medium-size companies. They are well known; they have greater potential to survive hard times."
Political concerns have given state-owned companies less flexibility in controlling the size of their workforce but, according to Wyznikiewicz, the state will provide a safety net while the economy continues to decline. "The state sector can hope that the state will not harm them very much if they don't pay their national insurance contributions or taxes," Wyznikiewicz said. "They will have the right to pay it later or those debts will be forgotten."
According to Tomaszewski, the PGLLP's financial muscle gives it independence from the state budget. "I am convinced we have a developed financial system that anticipates downturns on the wood market," Tomaszewski said. "We are carefully initiating reserves and even expanding them. We can certainly survive even two to three years of recession."
The PGLLP, is a non-profit government organization that controls 78.4% of Poland's forests. "The combination of these two phenomena means large revenues, large costs and a substantial financial result, which we will use to develop the quality of forests," Tomaszewski said. The organization has cut employment from 83,000 in 1992 to 34,000 in 1999, with former employees setting up their own firms from which the PGLLP outsources key services.
The authority benefited from the construction industry boom in the late 1990s, contributing to a continual increase in revenue from timber sales throughout the period. The organization's annual report states that the value of wood sales rose from zl. 900 million ($209 million) in 1993 to zl. 2.9 billion ($675 million) in 1999, representing 80.99% of its revenue in 1999. Despite the cooling off of construction in Poland, the paper and chipboard industries, the biggest buyers of wood in the country, have kept the PGLLP's sales high. In 2000 companies bought around 12 million cubic meters of wood and Tomaszewski said that the PGLLP can cope with future demand. "There is an annual increase in the amount of wood between 200,000 and 300,000 cubic meters that can be cut down" he said.
According to Henryka Pieronkiewicz, chairwoman of Powszechna Kasa Oszczednosci Bank Polski (PKO BP), the economic gloom has permeated the banking sector because, "there are fewer entities that qualify for credit and the quality of loans that have already been dispensed. Because companies have problems, they cannot service their loans in line with their contracts, meaning that the bank has to increase reserves for loans where risk has increased."
PKO BP saw a rise in profits from zl. 190 million ($44.1 million) in 1999 to zl. 640 million ($148 million) in 2000 and boasts the biggest branch network in Poland with 1,250 full-service outlets and 6,000 walk-ins.
Despite its market presence, the bank now seeks different sources of revenue to offset the increasing risk of its credit portfolio. "Credit is still the main source of revenue for Polish banks, but companies and governing bodies are increasingly using other sources of financing, such as bonds," Pieronkiewicz said.
For Pieronkiewicz, the maturity of the banking sector will allow it to weather a recession. "In my opinion banks are well prepared, they can manage risk, especially credit risk, and these economic difficulties, which I hope will be merely transitional, should not significantly affect the future of banks," she said.
