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An Update on the Polish Economy

Richard J. Hunter, Jr. and Leo V. Ryan, C.S.V.

As we complete the fifteenth year of the Polish transition, the glass may appear half full or half empty. According to experts from the World Bank, Poland may need as much as thirty years to catch up with the rest of the European Union.(1) However, the general economy continues to grow at a rate of nearly 6 percent, surpassing most economic predictions and the increase of 2.4 percent registered in 2003. Morgan Stanley predicts an increase of 5.5 percent in 2005, while Merrill Lynch predicts a growth rate of 5.5-5.6 percent.(2) The zloty continues to gain against the dollar. Real salaries increased by 4 percent in 2003 and amounted to $618.5 per month in that year. Poland’s Gross National Income (formerly GDP) stands at $5,270 per capita; labor productivity in the industrial sector has increased by nearly 20 percent since the transition began. Industrial production also grew at a 21.9 percent rate, with the private sector now accounting for more than 75 percent of national income. In the first half of 2004, the production of steel rose by 25.3 percent. Other sectors which saw substantial growth included car sales (+ 76.1 percent-although there has been a recent slowdown), sales of building materials (+ 58.6 percent), and metal production (+ 43 percent).

In terms of international trade, Poland continues to expand its exports especially to the EU nations-further distancing the Polish economy from its heavy industry orientation toward the former Soviet Union. Receipts from exports expressed in the euro increased by 10.2 percent and exporters reported that their sales increased on a year-to-year basis by an impressive 39.7 percent, with three-quarters of Polish exporters reporting net profits. Exports to the EU now account for nearly 70 percent of total Polish exports. Imports increased by 33.4 percent, with 61.2 percent of Polish imports originating from the EU. Major export partners included (in statistical order): Germany, Italy, France, Great Britain, Netherlands, the Czech Republic, Sweden, Belgium, Russia and Spain. Major import partners (in statistical order) include: Germany, Italy, France, Russia, China, the Czech Republic, Netherlands, Great Britain, Sweden and Spain. Recently Polish meat products were authorized by the United States Department of Agriculture-adding hope of increased Polish agricultural exports to the United States.(3) On the macro level, the Central Statistical Office (GUS) indicated that 14,811 reporting Polish companies reached Zl.13.4 billion in profit during the first quarter of 2004-more than four times the 2003 figure for the same period (a complete listing of Poland’s 500 largest enterprises may be found at, while a full statistical review can be found at

Considering the topic of foreign direct investment (FDI) in Poland, Poland continues to be an attractive destination for worldwide foreign direct investment inflows-although at somewhat of a slower pace than during the peak years of 1998-2000. In 2003, Poland attracted more than $6 billion in FDI and the aggregate amount that has flowed into Poland since 1989 stands at more than $72 billion. (The figure may be a bit misleading since FDI is normally counted only from the 10 percent threshold or at the basic amount of $1 million.) Foreign investors from France (20 percent-93 companies), the United States (14 percent-126 companies), Germany (13 percent-128 companies), Holland (9 percent-91 companies), and Italy (6 percent-62 companies) continue to dominate the scene. Some of the leading investors for 2002-2003 included KB Bank (Belgium), EBRD (International), ITI Group (The Netherlands), Credit Agricole (France), Glaxo SmithKline (Great Britain), GAX Rail (USA), Metro AG (Germany), Guardian Industries (Spain), Carrefour (Spain), Deutsche Bank Americas (USA), Vattenfall (Sweden), Toyota (Japan), United Technologies (USA), and Ferrovial (Spain).(4)

Continued areas of concern include the poor condition of Poland’s infrastructure, including the costs of telephone and internet services, inadequate expenditures for research and development, continuing lags in patent applications, and the number of computers owned by schools, as well as the sometimes confusing requirements for licenses and permits that exist for companies that wish to penetrate the Polish market.(5) While some investors fear that the continuing political uncertainty may impact negatively on FDI, investor fears following the resignation of Prime Minister Leszek Miller seem to have ebbed with the elevation of Marek Belka to the position of Prime Minister.(6) It has not been helpful that there has been endemic instability in the important position of Minister of Finance or that the Belka government may not be able to survive past this fall. Belka was able to win confirmation by gaining the support of the Democratic Left Alliance (SLD), Labor Union (UP), Marek Borowski’s newly formed Polish Social Democracy (SDPL), and the Federative Parliamentary Caucus (FKP) of Roman Jagieliński, as well as sixteen unaffiliated deputies. The opposition was composed of Civic Platform (PO), Law and Justice (PiS), Andrzej Lepper’s Samoobrona, the League of Polish Families (LPR), and several members of other right-wing caucuses.

On the positive side of the Polish ledger have been the growth of small- and medium-sized businesses and the rise of a truly entrepreneurial business class (not just from the remnants of the former nomenklatura). Today there are more than 2.5 million small- and medium-sized businesses operating with a varied capitalist mix. Franchises continue to blossom with both international brands (McDonald’s, KFC, Wendy’s, Pizza Hut, IKEA) and a host of local Polish companies (for example, “Out of Africa” a new specialty coffee shop franchise) rushing to exploit growth opportunities.

However, while inflation had remained under control in 2002-2003, it is expected to rise to 4.4 percent in 2004 fueled by increases in fuel prices and factors having to do with Poland’s accession to the European Union (as of this writing, the confirmed figures about Polish inflation are not yet available). Poland has already seen a rise in prices for sugar, pharmaceuticals, fuel, coke, and construction materials, as well as radio and cable. (7)

The pension and health care systems are still in jeopardy, while reforms have again been delayed for political reasons or for the lack of either Presidential or Parliamentary leadership. Poland’s eastern regions, former “state-owned farms,” and regions of the “single industry” geared toward the Soviet Union, are still under the grip of unemployment. with the figure approaching an alarming 40 percent in some regions. In July 2004 aggregate unemployment stood at 19.3 percent, with as much as 10-15 percent of the population discouraged and no longer seeking employment. Poland’s debt has also increased and approaches 55 percent of gross domestic product (GDP). Poland’s investment expenditures stand at a very low 5 percent-hampering development and overburdening other financial sectors. (8)

What are the future prospects? Much may depend on settling the seemingly endemic political infighting that destroyed Prime Minister Leszek Miller who left office with an approval rating of around 8 percent. A second factor revolves around the ability of current Minister of Finance Mirosław Gronicki to reinvigorate the privatization process-yet another important lynchpin (along with foreign trade and FDI) in the process of economic transformation. Over 5,500 state-owned enterprises were subject to commercialization and privatization over the past thirteen years. However, the process has seemingly stalled and through 1 June 2004 privatization brought about Zl 1 billion into the Treasury, as opposed to Zl 8.8 billion planned in the budget.(9) As a result, former Minister Socha announced plans to speed up the privatization process by replacing many “key people” in Treasury-owned companies-especially in so-called “strategic companies” such as copper mining KGHM and energy firms NP, PKN Orlen, and PGNiG.(10)

In the second half of the year, the listing details of the largest Polish bank, PKO BP, has been filed with the Securities and Exchange Commission. The Treasury has kept a large percentage of shares for itself, while the percentage of shares available to small investors was increased to 38 percent in November 2004 (11). A “privatization adviser” was to be selected by the end of 2004 for the possible privatization of the Warsaw Stock Exchange (GPW).(12) It should also be noted that in November 2004 the Polish stock exchange’s main index, the WIG 20, was up around 30 percent since the beginning of the year.(13)

The benefits of economic transformation have not been spread evenly over Polish society. While half of the Polish population believe Poland will benefit from membership in the European Union, more than 40 percent of Poles feel that the situation in Poland has “deteriorated,” and only one-third of Poles evidence trust in the European Union to solve their major problems-identified as unemployment and a “lack of prospects for an improved economic situation.” Yet, as indicated by almost all accounts and an objective review of statistical data, progress has been steady and pronounced.

Now, as a member of both NATO and the EU (although four out of five Polish voters stayed home on election day during June 2004 elections to the European Parliament), Poland is still struggling to recapture her past and her rightful role in the “new Europe”-a past marred by the catastrophe of Yalta and the ensuing dysfunctionality of central planning.


1. The World Bank, “Poland: Convergence to Europe. The Challenge of Productivity Growth,” 2004 (, 28 June 2004).

2. Warsaw Voice, 11 July 2004, p. 29; 25 July-1 August 2004, p. 29.

3. Warsaw Voice, 22-29 August 2004, p. 29.

4. Richard J. Hunter, Robert Shapiro, and Leo V. Ryan, “Foreign Direct Investment in Poland-2003,” Polish Review, 48, (2003), 303-316.

5. Andrzej Ratajczyk, “FDI: A Need for Reform,” Warsaw Voice, 11 July 2004, p. 30.

6. Robin Shepherd, “Belka Wins Polish Premiership, For Now,” UPI, 24 June 2004.

7. Warsaw Voice, 22-29 August 2004, p. 19.

8. Central Auditing Office (NIK), as reported in Warsaw Voice, 18 July 2004, p. 32.

9. Polish Press Agency (PAP), 5 May 2004.

10. PAP (Polish Press Agency), 6 May 2004.

11. UPI, 10 November 2004.

12. PAP, 14 May 2004.

13. UPI, 10 November 2004.

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