Foreign investors last year announced financing for 373 greenfield projects – meaning completely new investments – in Poland, together worth $21.8 billion. It made Poland the third biggest destination for investment coming into Europe, according to a new report by fDi Intelligence.
Only the UK ($32.3 billion) and Russia ($23.6 billion) attracted more new financing, while Poland was followed by Germany ($19.2 billion), Spain ($19.1 billion) and France ($15.7 billion).
Poland was also fifth in Europe in terms of the number of greenfield projects, behind the UK (1271), Germany (702), Spain (658) and France (500), reports the 300Gospodarka newswire.
The number of such projects in Europe fell by 6% last year, to 6,344, while their value dropped by 11% to a total of $214 billion. In Poland the number of investments increased by 14% and their total value by 43%.
Challenges lie ahead amid the coronavirus pandemic, however, with fDi Intelligence already finding that, globally, project numbers dropped by 15% in January and February, according to inwestycje.pl.
An OECD report published this week forecast that almost a third of global FDI flows are expected to dry up in 2020 due to the coronavirus outbreak – hitting especially primary and manufacturing sectors, which feature heavily in Poland’s FDI structure.
Analysts also point out that, while Poland has a number of factors that have drawn in foreign investors, it also faces a number of obstacles as it seeks new investments with higher valued added, including underdeveloped infrastructure, lack of green energy, and politicisation of the court system.
FDI up till now
Among the features attracting foreign investors to Poland are a sizeable domestic market, access to factors of production including cheap labour and raw materials, as well as a wide array of subcontractors, says Katarzyna Bąkowska, a macroeconomist at the Polish Institute of Economics (PIE), a think tank.
“But in the long run, this will be threatened by rising labour costs, as well as changing accessibility of workers,” she adds. Investors also value accessibility of real estate, which despite rising rents has remained relatively cheap by European standards, according to a survey for the Polish Investment and Trade Agency (PAIH).
Reported bottlenecks are chiefly regulatory and legal: low judicial effectiveness, legal instability, as well as overgrown bureaucracy. Tax reporting has become more convoluted in recent years, with new rules for reporting links within capital groups. Moreover, so long as Poland remains outside of the euro, there is also notable exchange rate risk, adds Bąkowska.
In a 2019 report issued by the International Group of Chambers of Commerce in Poland, foreign investors pointed to EU membership, qualified workers and local subcontractors as Poland’s strengths. They ranked “economic policy predictability” lowest. Still, 94% of respondents said they would choose Poland again.
“Also, our infrastructure tends to be assessed quite negatively in international surveys – it is not yet at the level of developed western countries,” Bąkowska tells Notes from Poland.
“An issue which could become an investment bottleneck will be the lack of green energy,” adds Marek Bukowski, a professor of economics at the University of Warsaw and president of WiseEuropa, a think tank. “Investors demand it”. Several western companies have set targets for green energy, which they cannot obtain from the main energy providers in Poland.
Government steps to draw foreign capital have notably included extending Special Economic Zones, a government tax relief programme, to the entire country in 2018, creating a single Polish Investment Zone (PSI). In the first year of the PSI, 292 decisions were issued to support investors, who brought in a total of 16.7 billion zloty.
The PSI has been positively assessed by 52% of surveyed medium and large companies, both domestic and international, according to a recent report by PIE.
Some economists suggest a more bullish approach, arguing that the government could do more to attract “visible” investments. “Unlike other countries in the region, we are not yet ready to subsidise investments,” Bukowski tells Notes from Poland, citing the PSA (Peugeot) factory in Slovakia, the Mercedes-Benz plant in Hungary and the Tesla Gigafactory to be built in Germany.
The impact of the Polish government’s judicial overhaul is as yet unknown. Bukowski argues that Hungary has shown that it is possible to “introduce sweeping anti-democratic reforms, and at the same time be very easy on foreign investors.” However, ratings agencies have long drawn attention to the government’s judicial revamp threatening investor confidence in Poland.
“A worsening policy framework would deteriorate investor confidence, potentially weighing on economic growth”, Heiko Peter at Moody’s ratings agency told the FT in 2017. “A significant increase of political influence on the judicial system risks promoting corruption, affecting the attractiveness of Poland for investment.”
Turning to tech
Many believe that it is time for Poland to refocus its capital inflows to higher value added sectors. Change is already underway. “There is more export of services”, says Bukowski. “Initially many of the services were simple, such as call centres. Now, there are more back-offices and R&D centres.”
In recent years the main draw for greenfield projects in Poland has been into construction, information and communication technology (ICT) and the automotive sector. Transport and business services also proved to be magnets, reported fDi intelligence.
Now the government is seeking to reposition Poland as a regional centre for technology. International tech giants such as Amazon and Uber have already opened up R&D centres in Poland in recent years attracted by the country’s abundance of skilled programmers.
Earlier this week, Microsoft announced a $1 billion digital investment in Poland. It is the country’s largest ever IT investment and will feature Microsoft’s first data centre in the region, providing cloud services to business and government.
In 2019, Google too announced plans to open a cloud hub in Poland serving the CEE region. Both projects are being run in partnership with the Polish Development Fund (PFR) and PKO BP, Poland’s largest bank.
All this bodes well for Poland’s growing entrepreneurial scene. For the first time, Warsaw has burst into the top ten cities by number of Europe’s fastest growing companies, in a ranking published in March by the FT. In a success story last year, Docplanner, a Polish healthcare booking platform, raised €80m in a funding round led by Goldman Sachs Private Capital Investing.
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