Ranking shocker
Poland has plummeted down the World Economic Forum's ranking for growth competitiveness.
The country now officially has a worse reputation than historically unstable and corrupt banana republics like Trinidad and Tobago, El Salvador, Uruguay and Panama.
The findings by the World Economic Forum (WEF) put Prime Minister Marek Belka on the spot immediately following his opening speech at the prestigious European Investment Bank (EIB) Forum in the capital.
Belka faced a barrage of questions on the report, which identifies corruption, bureaucracy and tax regulation as the main causes of Poland's disgrace.
When asked how he felt now that Poland has the same standing as a banana republic, Belka replied: "That is pure nonsense. These opinions and the report itself were based on other opinions from business circles before May 1 and our accession to the EU. This report reflects all the pre-accession fears and consternation that have no basis whatsoever."
Leading entrepreneurs and executives quizzed for The Global Competitiveness Report 2004-2005 detailed a litany of complaints that may cause considerable disquiet among both the authorities and potential investors alike. The obstacles most frequently encountered include corruption, inefficient bureaucracy, tax legislation and the uncertainty of constantly changing laws.
Senior economist with the WEF Jennifer Blanke says: "The problem really comes from public institutions. Here we saw a huge fall. When you look at contracts in law last year Poland was ranked 66th. This year it is ranked 88th, which is very low.
"The survey data we gather is critical because we talk to the top business leaders, and these people include CEOs and senior managers. They are the ones telling us of problems like corruption and these are the ones making the investment decisions in Poland. So it is very important what their perception is and if they suddenly feel like organized crime is a problem, then it really is a problem.
"Last year concern about organized crime was ranked 74th but this year Poland is down to 96th. This is really, really low-nearly at the bottom of the pile and only just above Zimbabwe. There is also perception that favoritism is strong in terms of the decisions of government officials for family members and friends."
However, while fears about organized crime are alarming, it is not the sector where Poland scored worst. In the area of employment for young women, the country was humiliatingly condemned to last place (104th) for the impact maternity laws have on hiring women. Poland was also ranked badly (103rd) on wage equality for women in the workplace.
The survey was based on freely available data, figures released by the International Monetary Fund and a representative survey of 48 leading figures in the business world. It appears to fly in the face of a recent World Bank report Doing Business in 2005: Removing Obstacles to Growth that named Poland as one of the top ten improving places to conduct business.
Blanke, however, says that Poland has improved in a number of fields. "Poland could be improving but it depends on what base you start from. Some things-such as the macroeconomic environment-have improved, so other research might be concentrating on this."
Blanke is keen to emphasize that her report is not all bad news: "In terms of macroeconomic stability we have seen an improvement. The country went from 62nd last year to 35th this year, so there is some positive news in here. Poland is also doing quite well in terms of innovativeness, and we can see progress in this area."
But when Poland is compared to its European counterparts, the true scale of the situation becomes apparent. Blanke says: "Poland frankly in our rankings comes in the lowest of all the EU 25 countries and we keep signalling that this is a problem because it is a huge country. When Poland has these particular problems it is going to spill over to neighboring countries.
"This is a message from the business community to the government. They are saying we need changes here. They are matters that can be changed, but one imagines it would take more than the life of one government to see it happen."
Janusz Jankowiak, chief economist at BRE Bank
"The general problem with this report is that it is based on surveys. I fill in a similar survey as well, here at the bank. The surveys are completed and sent back months before publication of the report. A large amount of these negative results is the effect of moods among businessmen in March this year, which is now out of date. And moods in March were not too good.
"Politics and corruption can be blamed for a large part of the results. Those two factors are permanent in our reality. If the buoyant attitude that is prevalent now can be sustained and we hit a peaceful time on the markets, we will improve our ranking in 2005 compared to last year's level. However, next spring is the pre-election period, which is always disturbing."
Marek Goliszewski, President of the Business Center Club
"The report of course will have a negative effect on Poland and its promotion in the world. Despite economic growth and rising exports, the Polish economy has no long-lasting foundation.
"Tax levels need to be reduced more, instead of being raised. Labor costs are still very high in Poland. Thirty percent of it is the employees' wages, while 70 percent are payments to the authorities. Polish entrepreneurs have no trust in the economic policy of the government. The state budget is wasting money and the Hausner plan is an example of this waste. It looked good at the start, but then politics interfered. Enterprise law is incoherent. I can get a medal for something in Warsaw and then be arrested for the same thing in some other place. The cases of Mr Kluska or JTT [ed. who were both driven to bankruptcy by the legal onslaught from tax authorities despite widespread agreement on their innocence] are perfect examples of all I have said.
"Corruption can be found in public bids, under-the-table deals and the mix of politics in state-owned enterprises.
"This is a tragic signal for Poland and the entire world. Polish companies are systematically transferring to the Czech Republic and other countries. They are investing in the Ukraine and Belarus. Slovakia is also starting to get ahead of us. Hyundai located its production site there and not in Poland.
"We have the parliament and government that we have, and we have no other. What we should do is sound the alarm and conduct early parliamentary elections because what happens now is a simple election game anyway.
"At BCC we have an interventions bureau and calls are received daily. I am travelling around Poland now and it is hard to believe how local officials can be so heartless, how law is interpreted against an entrepreneur and not in his favor. This is a common phenomenon and we are only damaging ourselves."
Henryka Bochniarz, president of the Polish Confederation of Private Employers
"The list of problems that are an everyday challenge for Polish entrepreneurs has not changed for years: Inefficient authorities, corruption, tax laws and the instability of law in general. Thus it is hard to be surprised that in an atmosphere of political instability Polish businessmen are giving low marks to our country's competitiveness.
"This is a serious warning for politicians. If they do not change significantly their way of thinking about businessmen and the economy, if we do not have stable governance, stable law, reasonable authorities, it may turn out that not only will foreign investors pass by Poland [but domestic ones too.] We are at an extraordinary moment, we have a serious economic boost. Entrepreneurs are delaying investments, however, because of this instability. I do not blame them. Moreover, I would not have the guts to talk somebody into investing in Poland because we cannot guarantee that it won't become more difficult to do business here."
Hubert Janiszewski, vice president of the Polish Business Roundtable
"Well, statistics can sometimes be misleading-the survey might not be representative. I would argue with the statement that the authorities are inefficient and incapable, especially in the context of the recently approved enterprise law.
"I admit there is some truth as far as taxes are concerned. The inaccessible funds are a bizarre category in this ranking, as we now have huge access to EU funds. I agree with the infrastructure condition category, especially the roads.
"Fiscal authorities are more busy tracking down tax criminals with spectacular actions by the secret service and inefficient courts.
"A whole group of businessmen have decided to transfer production abroad. Entrepreneurs cannot change their negative image in society because of their negative light in the media and the government. The politicians do not like businessmen, although they live from them. An important part of the economy is still controlled by the government and there should be more privatization. Several of our colleagues have invested in Russia and in the Ukraine, but that is mainly because of economical reasons."
The country now officially has a worse reputation than historically unstable and corrupt banana republics like Trinidad and Tobago, El Salvador, Uruguay and Panama.
The findings by the World Economic Forum (WEF) put Prime Minister Marek Belka on the spot immediately following his opening speech at the prestigious European Investment Bank (EIB) Forum in the capital.
Belka faced a barrage of questions on the report, which identifies corruption, bureaucracy and tax regulation as the main causes of Poland's disgrace.
When asked how he felt now that Poland has the same standing as a banana republic, Belka replied: "That is pure nonsense. These opinions and the report itself were based on other opinions from business circles before May 1 and our accession to the EU. This report reflects all the pre-accession fears and consternation that have no basis whatsoever."
Leading entrepreneurs and executives quizzed for The Global Competitiveness Report 2004-2005 detailed a litany of complaints that may cause considerable disquiet among both the authorities and potential investors alike. The obstacles most frequently encountered include corruption, inefficient bureaucracy, tax legislation and the uncertainty of constantly changing laws.
Senior economist with the WEF Jennifer Blanke says: "The problem really comes from public institutions. Here we saw a huge fall. When you look at contracts in law last year Poland was ranked 66th. This year it is ranked 88th, which is very low.
"The survey data we gather is critical because we talk to the top business leaders, and these people include CEOs and senior managers. They are the ones telling us of problems like corruption and these are the ones making the investment decisions in Poland. So it is very important what their perception is and if they suddenly feel like organized crime is a problem, then it really is a problem.
"Last year concern about organized crime was ranked 74th but this year Poland is down to 96th. This is really, really low-nearly at the bottom of the pile and only just above Zimbabwe. There is also perception that favoritism is strong in terms of the decisions of government officials for family members and friends."
However, while fears about organized crime are alarming, it is not the sector where Poland scored worst. In the area of employment for young women, the country was humiliatingly condemned to last place (104th) for the impact maternity laws have on hiring women. Poland was also ranked badly (103rd) on wage equality for women in the workplace.
The survey was based on freely available data, figures released by the International Monetary Fund and a representative survey of 48 leading figures in the business world. It appears to fly in the face of a recent World Bank report Doing Business in 2005: Removing Obstacles to Growth that named Poland as one of the top ten improving places to conduct business.
Blanke, however, says that Poland has improved in a number of fields. "Poland could be improving but it depends on what base you start from. Some things-such as the macroeconomic environment-have improved, so other research might be concentrating on this."
Blanke is keen to emphasize that her report is not all bad news: "In terms of macroeconomic stability we have seen an improvement. The country went from 62nd last year to 35th this year, so there is some positive news in here. Poland is also doing quite well in terms of innovativeness, and we can see progress in this area."
But when Poland is compared to its European counterparts, the true scale of the situation becomes apparent. Blanke says: "Poland frankly in our rankings comes in the lowest of all the EU 25 countries and we keep signalling that this is a problem because it is a huge country. When Poland has these particular problems it is going to spill over to neighboring countries.
"This is a message from the business community to the government. They are saying we need changes here. They are matters that can be changed, but one imagines it would take more than the life of one government to see it happen."
Janusz Jankowiak, chief economist at BRE Bank
"The general problem with this report is that it is based on surveys. I fill in a similar survey as well, here at the bank. The surveys are completed and sent back months before publication of the report. A large amount of these negative results is the effect of moods among businessmen in March this year, which is now out of date. And moods in March were not too good.
"Politics and corruption can be blamed for a large part of the results. Those two factors are permanent in our reality. If the buoyant attitude that is prevalent now can be sustained and we hit a peaceful time on the markets, we will improve our ranking in 2005 compared to last year's level. However, next spring is the pre-election period, which is always disturbing."
Marek Goliszewski, President of the Business Center Club
"The report of course will have a negative effect on Poland and its promotion in the world. Despite economic growth and rising exports, the Polish economy has no long-lasting foundation.
"Tax levels need to be reduced more, instead of being raised. Labor costs are still very high in Poland. Thirty percent of it is the employees' wages, while 70 percent are payments to the authorities. Polish entrepreneurs have no trust in the economic policy of the government. The state budget is wasting money and the Hausner plan is an example of this waste. It looked good at the start, but then politics interfered. Enterprise law is incoherent. I can get a medal for something in Warsaw and then be arrested for the same thing in some other place. The cases of Mr Kluska or JTT [ed. who were both driven to bankruptcy by the legal onslaught from tax authorities despite widespread agreement on their innocence] are perfect examples of all I have said.
"Corruption can be found in public bids, under-the-table deals and the mix of politics in state-owned enterprises.
"This is a tragic signal for Poland and the entire world. Polish companies are systematically transferring to the Czech Republic and other countries. They are investing in the Ukraine and Belarus. Slovakia is also starting to get ahead of us. Hyundai located its production site there and not in Poland.
"We have the parliament and government that we have, and we have no other. What we should do is sound the alarm and conduct early parliamentary elections because what happens now is a simple election game anyway.
"At BCC we have an interventions bureau and calls are received daily. I am travelling around Poland now and it is hard to believe how local officials can be so heartless, how law is interpreted against an entrepreneur and not in his favor. This is a common phenomenon and we are only damaging ourselves."
Henryka Bochniarz, president of the Polish Confederation of Private Employers
"The list of problems that are an everyday challenge for Polish entrepreneurs has not changed for years: Inefficient authorities, corruption, tax laws and the instability of law in general. Thus it is hard to be surprised that in an atmosphere of political instability Polish businessmen are giving low marks to our country's competitiveness.
"This is a serious warning for politicians. If they do not change significantly their way of thinking about businessmen and the economy, if we do not have stable governance, stable law, reasonable authorities, it may turn out that not only will foreign investors pass by Poland [but domestic ones too.] We are at an extraordinary moment, we have a serious economic boost. Entrepreneurs are delaying investments, however, because of this instability. I do not blame them. Moreover, I would not have the guts to talk somebody into investing in Poland because we cannot guarantee that it won't become more difficult to do business here."
Hubert Janiszewski, vice president of the Polish Business Roundtable
"Well, statistics can sometimes be misleading-the survey might not be representative. I would argue with the statement that the authorities are inefficient and incapable, especially in the context of the recently approved enterprise law.
"I admit there is some truth as far as taxes are concerned. The inaccessible funds are a bizarre category in this ranking, as we now have huge access to EU funds. I agree with the infrastructure condition category, especially the roads.
"Fiscal authorities are more busy tracking down tax criminals with spectacular actions by the secret service and inefficient courts.
"A whole group of businessmen have decided to transfer production abroad. Entrepreneurs cannot change their negative image in society because of their negative light in the media and the government. The politicians do not like businessmen, although they live from them. An important part of the economy is still controlled by the government and there should be more privatization. Several of our colleagues have invested in Russia and in the Ukraine, but that is mainly because of economical reasons."
