Twilight zone
By : Juliet D. Golden
The way ahead: The Walbrzych Special Economic Zone could help bring more jobs to the region - if the EU will allow it.
For an average school leaver looking for work, a tile factory would probably not be top of the career ladder. But for graduates in Walbrzych, southwest Poland, the Cersanit tile factory represents a real opportunity in an area blighted by unemployment.
Clearly aware of the plant's importance as a center for local jobs, President Aleksander Kwasniewski turned up to set the operation in motion last week by symbolically shoving the first dozen giant floor tiles into a domino-style freefall. With a touch of the hand, the 40,000 square-meter plant in the Walbrzych Special Economic Zone (WSSE) was officially open for business.
For Cersanit, the new factory allows the company to increase its competitiveness on the bathroom market by introducing floor and wall tiles until now the missing element in the Kielce-based company's product line. But more importantly for the WSSE, this new investment makes it one of the top performing special economic zones in the country.
Once the major coal-mining center of southwest Poland, heavy industry dominated the lives of the region's inhabitants. For years, the mines, along with inefficient electric power plants and large glass works, spewed thick pollutants that obscured the picturesque surroundings and damaged the health of the local population.
"The air is completely normal now; it's not like it was 10 years ago when at times it was hard to breathe," said Stanislaw Kuzniar, the city's mayor.
But while the polluters have gone, so have the jobs they created. According to Slawomir Hunek, president of the Lower Silesian Regional Development Agency (DARR), from 1990-1994, 90,000 people were made redundant.
In this context, the WSSE has become the main economic tool for transforming the troubled region, and the companies investing there are the locals' primary hope of finding work. When Toyota recently advertised for 30 new employees for its manual transmission factory in the zone, 2,000 people applied.
"At this stage in its development, you can definitely see that most new workplaces are being created in the Walbrzych zone," said Barbara Buryta, head of the city's Euro Info Center. "Outside the zone, not many new businesses are being created. On top of this, in the first half of the year reductions have been underway."
Founded in 1997, the WSSE was part of a national government program to bring in greenfield production companies that would spur economic development in toubled areas. By the end of last year, upward of zl. 10.6 billion ($2.5 billion) in declared investments were tagged for the 15 zones. If these investments come through, they will create almost 62,000 jobs in some of the most economically depressed areas of the country, said Teresa Koryczynska, deputy director of the Economy Ministry's regional development office.
In Walbrzych alone 38 companies have declared investments of more than zl. 714 million ($166 million), providing jobs for 6,600 people. As of today, 4,000 jobs have been created in the WSSE.
While the numbers and the new investments spell success for Walbrzych, the program itself has come under heavy fire by the European Union (EU), which has criticized the zones for skewing competition and wants them closed. As a result, the program has become a major sticking point in negotiations over competition policy due to be completed this year. The question now is whether zones like Walbrzych will be forced to shut their doors or modify promises made years ago to investors.
Another problem is that the Walbrzych zone, which is looking to expand its borders to allow for new investors, has had to put its plans on hold since last winter mainly because of questions about the zones' future.
In addition, the zone has not solved the region's unemployment problem. Despite the new jobs created, unemployment is rising and at more than 30% is threatening to undermine the progress made during the past few years. Joblessness also increases expectations for the zone to solve the issue.
"One of the instruments of preventing unemployment after the mines closed was the zone," said Natalia Bartoszewicz, promotion and marketing department manager at Invest-Park, the company that manages the WSSE. "The zone is only one instrument, but often it's treated like a panacea for everything, which is just not right."
Spurring change
Frozen in time: Walbrzych with unemployment topping 30% desperately needs new investment to help rebuilt its shattered economy.
Nevertheless the zone's success in pulling in high-profile international companies such as Toyota and General Electric has turned Walbrzych into the region's car production hub.
In terms of total declared investments, Walbrzych ranks No. 4 behind the Katowice, Mielec and Legnica zones. Largely spurred on by General Motors, Katowice has brought in just under zl. 5 billion ($1.2 billion) in declared investments. In terms of projected new jobs, Walbrzych ranks No. 2 after Katowice, which is expected to create almost 15,700 or 25% of all zone jobs.
Apart from official statistics, zone managers, investors and locals in Walbrzych said the biggest changes can be seen on the ground. While Toyota's manual transmission plant is not expected to be fully operational until next April, its presence in the WSSE has already made an impact on the local economy, said Dariusz Banach, head of HR, finance and administration at Toyota Motor Manufacturing Poland.
Banach said the company's policy is to source as many services as possible from local suppliers and that slowly these companies are improving in line with international standards. As an example, he cited the local Orbis Travel office, which beat out Wroclaw travel agencies to handle the bulk of Toyota's travel arrangements.
"Everything is changing so I think a new model of services is being introduced into Walbrzych," Banach said. "The customer is put first and the customer is always right."
Criticism from the EU
For many locals the progress made in Walbrzych, coupled with the continued specter of high unemployment should be enough to convince EU officials to keep Poland's zone program intact. However, for EU officials, at issue is not whether the zones have promoted economic development, but if they will provide an unfair advantage for investors who will be selling their goods on the EU market once Poland joins the union.
"The EU is not interested in the number of jobs created in Walbrzych or the unemployment level," Koryczynska said. "They understand that Poland had to introduce instruments that will lead to development in the regions; they don't negate that, but they question how it was done."
While investors in the EU can receive up to 50-75% of their investment back in the form of subsidies or tax exemption, the exemption in Poland allows returns over an extended period of 10-20 years without regard to original investment levels. EU officials have said that could result in foreign investors seeing multiple returns.
In response to EU criticism, this year Poland introduced new legislation that would limit incentives to up to 50% of the value of an investment. The law, however, is not retroactive and does not affect the acquired rights of firms already in the zones.
While considered a step in the right direction, for EU negotiators the changes in the law fall short of putting Poland in line with EU competition policies. If reports are true, the EU is pressing Poland to revoke the promised tax holidays by the time it becomes a member of the trade bloc. To meet this requirement, Poland would have to break promises it made to some 300 companies that have invested in the zones during the last five years.
The debate over the zones has become the main obstacle to closing the EU chapter on competition. In Walbrzych, many recognize that Poland may have to give ground on the issue.
"In my opinion the government doesn't have a choice, otherwise it won't close a very important negotiation area," Hunek said. "The EU took a very principled position on the issue; they said that a wall is behind them. That's why the government has to propose something."
However, details are lacking as to how compromise can be reached. WSSE managers stress that the government must stick to its promises.
"You can't make changes to something that was already promised and guaranteed under law," Bartoszewicz said.
Growing room
Despite the uncertainty of the zones' future, investors in Walbrzych are moving forward with their development plans. However, in private, they admit to being concerned.
"Of course it makes for some uncertainty when you plan your business, because you have to know the tendencies," Banach said. "Basically we plan our activities based on the information we have."
He said Toyota is counting on WSSE management to hold its ground on the issue.
"Basically we trust the government and especially the economic zone people," Banach said. "We are relying on them."
For the zone's management, the EU question is also becoming a major obstacle preventing further development. With more than 80% of zone land occupied, WSSE management has applied to the Economy Ministry to add an additional 90 hectares to its site in Walbrzych to make room for new investors, mainly Japanese firms.
While the government was supposed to make a final decision in June, the issue just made it on its economic committee's agenda this week, leading the way for a decision later this summer.
However, WSSE managers are uncertain whether the decision will be made before this September's elections, in part due to the ongoing conflict with the EU. Economy Ministry officials and WSSE managers said last week that the government might be holding back on a decision to avoid provoking the EU at a sensitive moment in negotiations.
"Certain ministers are concerned that it might lead to the EU stiffening its position during negotiations," Koryczynska said.
This week WSSE managers are keeping their fingers crossed that their application will get a nod of approval in Warsaw. They say that if they enlarge the zone, new investors will create roughly 4,000 new jobs in Walbrzych.
"We are carrying out negotiations with several companies and just as soon as we have the land, we will have it filled," Bartoszewicz said.
