An Update and Analysis of the Polish Economy
Richard J. Hunter, Jr. and Leo V. Ryan, C.S.V.
The reforms initiated in the period 1989-1990 under Leszek Balcerowicz, Deputy Prime Minister and Minister of Finance, introduced a “new economic system” in Poland and involved the removal of price controls, the elimination of subsidies to many Polish industries, the opening of Polish markets to international trade and competition, and the imposition of both monetary and budgetary discipline. Poland is now a member of the European Union, the World Trade Organization, and the OECD; on the political-military side, Poland is a member of NATO and is considered as one of the United States’ main allies in Europe.
Although the economy suffered an initial sharp downturn (in the words of former member of the nomenklatura, Mieczysław Nasiłowski, society reached the “barrier of social endurance”), since 1992 it has enjoyed a period of recovery, with the private sector now accounting for more than seventy percent of Polish GDP. As a result of the adoption of “shock therapy” and sustained economic policies surrounding the privatization of the economy, according to the National Bank of Poland, Foreign Direct Investment (FDI) into the Polish economy was 14.69 billion dollars in 2006 and was boosted by considerable investments by Japanese investors in the Polish real estate market. In 2006 Bridgestone, Sharp, Toyota, Toshiba, and Orion Electric decided to invest in Poland. Companies with foreign capital involvement are the major source of growth in trade, accounting for more than 60 percent of Poland’s imports (+ 21.5 percent) and exports (+ 19.8 percent). In total, FDI in Poland now stands at 108 billion dollars, amounting to 2,800 dollars per capita. Poland remains as the region’s leader in terms of attracting FDI. According to estimates from the Ministry of the Economy, in 2007 the total value of FDI in Poland will amount to more than 15 billion dollars. Negotiations are underway concerning thirty large investment projects. Current major investors in Poland include: 3M, Basell Orlen, BP, Delphi, Fiat, IBM, IKEA, Lafarge Cement, Matsushita, Metro Group, Motorola, Sanden Mfg., Statoil, Toyota, and Whirlpool. According to the Polish Information and Foreign Investment Agency (PAIiIZ), the main reasons why Poland has been considered as an attractive sight for FDI activities include the following:
° GDP growth three times that of Western Europe° Ranked 1st in planned investments in Europe° Ranked 2nd in Europe in FDI Confidence Index° Ranked 5th in top 10 global investment destinations° Excellent productivity
° 20 million young, highly educated, multilingual people° 50 percent of the population under 35 years old° Over 2 million attending higher education structures° Nationwide network of 427 centers of higher education° Loyal and hardworking people
° In the heart of continental Europe
° Population of 250 million within a 1000 km radius
° Part of the Trans European Network° Competitive cost base offers significant location benefits
Large and Growing Domestic Market
° 38 million consumers driving 10 percent annual retail market growth
° Over 90 billion euro available for development, infrastructure and human capital° 14 Special Economic Zones and Technology Parks with incentives
Industrial Services Hub
° Regional/Global Manufacturing and Services Platform° Ranked 4th globally in terms of attractiveness for R&D investments° European shared service center
According to the Ernst & Young report, executives placed Poland third in the world when focusing on specific countries within their region of choice for investments. For foreign investors, the center of gravity for investments in Europe is now located between Poland (17 percent) and Germany (16 percent).The Polish economy may truly be termed as a “mixed” economy. Agriculture accounts for 2.8 percent of GDP (engaging 16.1 percent of the labor force); industry accounts for 31.7 percent (29 percent of the labor force); and services, an amazing 65.5 percent of GDP (or 54.9 percent of the labor force). Poland’s main industries include machine building, iron and steel production, coal mining, chemicals, shipbuilding, glass production, beverages, and textiles. Poland’s GDP grew by 6.2 percent in 2006 and estimates indicate a 7.1 percent growth in 2007. GDP per capita in terms of Purchasing Power Parity stood at 14,400 in 2006, whereas GDP in dollar terms was 8,190 dollars per capita (70th in the world), according to World Bank.
In terms of employment, the current unemployment rate stands at 13 percent falling by .7 percent alone in April 2007. While the number of unemployed stood at 1,986,400, since the beginning of 2007 that number has fallen by 322,900. Considering that as recently as 2004 the January unemployment rate was 20.6 percent, the progress on the employment front has been remarkable. Estimates from the Ministry of Finance indicate that by the end of 2008, the unemployment rate may be reduced to 9.9 percent, with the number of the unemployed falling by 1.5 million. Many Poles have recently found lucrative employment in the West-most notably Ireland and the UK.
Are there persistent problems or warning signs in the economy? As with any “normal” country, several problems may be identified in the Polish economy. Improving the account and budget deficits caused by reforms in health care, education, and the pension system remain a priority. Further progress in the area of public finance will depend on the privatization of Poland’s remaining state sector, reducing state employment, reducing corporate and individual taxation, and pursuing continued reforms aimed at easing bureaucratic bottlenecks for entrepreneurs to do business. Will those charged with making difficult decisions be able to meet the challenges of Polish society in the twenty-first century? Time will tell if intercident political squabbles will overwhelm economic policy makers and slow down Poland‘s glide-path to success and prosperity.
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Last updated 9/27/07