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The Warsaw Voice » Other » May 28, 2008
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Poland Draws Investors
May 28, 2008 By Andrzej Ratajczyk   
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Poland is still popular with foreign companies. Last year they invested almost 13 billion euros here. This year, the value of foreign direct investment (FDI) may be even higher.

According to preliminary data by Poland's central bank, FDI in Poland in 2007 totaled 12.83 billion euros. Last year's figure was lower than that in 2006, when FDI reached almost 15.1 billion euros. However, 3.1 billion euros of the 2006 total was capital in transit, or money that a foreign investor in Poland received from the parent company to be invested in another country. Preliminary statistics for 2007 do not show capital in transit as a separate item. Paweł Wojciechowski, president of the Polish Information and Foreign Investment Agency (PAIiIZ), says that the value of capital in transit in 2006 as shown by preliminary statistics published last April was 20 percent lower than the final total for that year after the data was revised.

Compared with 2006, there was a clear change in the make-up of FDI last year, with a rise in the value of reinvested profit. "This shows that the Polish economy has become more credible," said Sławomir Skrzypek, head of the central bank. More than 85 percent of the FDI came from other European Union countries. As in previous years, France and Germany topped the league table, providing 17.7 percent and 17.2 percent of the total FDI respectively. They were followed by Austria, with over 8 percent, and Italy and Sweden, each with almost 7 percent. As usual, the largest investor from outside the EU was the United States, with an around 10-percent share, ahead of the Netherlands Antilles, South Korea and Japan.

With almost 13 billion euros in 2007 FDI, Poland kept its top place among new EU countries in terms of foreign investment inflow. "We are the unquestioned leader and have maintained this position for years," Skrzypek said. Poland ranks ahead of the Czech Republic, which attracted just over 6 billion euros, Bulgaria, with less than 6 billion euros, and Hungary, with around 4 billion euros. The remaining new EU countries, excluding Malta and Romania, attracted over 9 billion euros between them.

The largest amount of FDI was invested in manufacturing, business services, financial services, and trade and repairs-20 percent, almost 20 percent, over 15 percent, and almost 12 percent respectively.

At the end of last year, the government-run Polish Information and Foreign Investment Agency (PAIiIZ) handed out awards to leading foreign investors in Poland in 2007.

The Investment Project of the Year 2007 award for the country's largest investment project went to Toyota Motor Manufacturing Poland, which invested 145 million euros to make car transmissions and gasoline engines in the southern city of Wałbrzych.

Indesit Company Polska received an award for the largest number of new jobs. The company has created more than 1,300 new jobs in ŁódĽ province, where it is one of the largest employers. The company's two factories in ŁódĽ that make refrigerators and kitchen ovens have a combined work force of 2,500. Indesit also plans to open a new production facility in Radomsko, central Poland.

Reuters Europe claimed an award in the category of modern services. The company has been in Poland since 1992. Last year it decided to open a new data center in Gdańsk that will gather economic and financial data for Reuters from across Europe, the Middle East and Africa. The project will rely on state-of-the-art information technology.

Poland's increasing appeal to foreign companies is confirmed not only by the growing influx of foreign direct investment but also by international league tables. Poland has been named the most attractive destination for investors among 31 countries surveyed by the Federation of European Employers (FedEE). The survey covered 27 European Union member countries plus Iceland, Norway, Switzerland and Turkey. The ratings were based on 15 key indicators, including labor supply, human resources, employee relations and labor market flexibility, as well as inflation and labor costs. Poland's strongest points were access to a young work force, the presence of women in the labor force, and access to temporary workers, the report said.

The report took into account Poland's collective labor agreements, the position of trade unions, and the average hourly wage.

Investment in training, the opportunities of recruitment from other employers, and restrictions on companies in firing workers, as well as internet literacy were given moderate scores.

A recent report by the Ernst & Young consulting firm also shows that foreign investors give high ratings to the Polish economy. In the firm's European Attractiveness Survey for 2007, Poland was ranked seventh worldwide in terms of attractiveness to foreign investors. The global leaders in the league table are China and the United States, while Germany and Britain top the list in Europe. Poland is the leader in Central and Eastern Europe.

According to the central bank and PAIiIZ, this year Poland may attract more FDI than last year. "The strong performance in attracting foreign investment to Poland should continue in 2008," said Wojciechowski. However, he added that the recent U.S. credit crunch may have an adverse effect on FDI flows in the global economy. Investors will be more cautious in making decisions to invest abroad. According to Wojciechowski, for the first time in many years the situation in the United States has had limited direct influence on the Polish economy, although it may cause a reduction in demand for Polish exports.

Even though Poland has largely escaped the latest turmoil on international financial markets, it is unclear what the situation will be like by the end of the year. "Poland looks like a safe haven. Trends emerging in the first quarter add up to a positive picture, but the uncertainty on global markets is a big unknown," said Skrzypek.

Not only the amount but also the quality of capital invested in Poland is important. Poland is no longer interested in attracting just any investment project. It is chiefly interested in technologically advanced projects that create jobs for university graduates. Projects that meet stringent environmental protection requirements, guarantee low carbon dioxide emissions, and create competition for existing companies, for example, are particularly desirable in Poland these days.

Not all sectors are equally promising, and some investors demand excessive support from either the central government or local authorities. Especially welcome are companies that invest in research and development centers and carry out projects in sectors such as aerospace, the motor industry, engineering, biotechnology, information technology and green energy. These sectors will determine the future economic development of the country and offer the best prospects for growth.

Business Process Outsourcing (BPO) is one of the sectors that has been especially popular with investors in recent years. Analyses by the KPMG consulting firm show that large multinational corporations are especially eager to open BPO centers in Central and Eastern Europe today. Poland, as the largest country in the region, stands a chance of attracting an especially large number of BPO projects.

Shared services centers (SSCs) and outsourcing have recently become popular across the world. Major international corporations are launching such centers in order to cut costs, improve work efficiency and outsource auxiliary activities in order to focus on their core business operations. Studies by KPMG show that more than 40 percent of the world's biggest companies are planning to move, or have already moved, some of their departments to other countries that offer significantly lower operating costs.

The choice of location is of key importance to the success of a shared services center. Investors above all take into consideration macroeconomic data, and Poland is well regarded in this respect. Another important factor is access to qualified staff. Investors have high regard for the Polish education system, the number of specialists available and their foreign language skills. However, they complain about a growing shortage of labor force in some areas.

A third factor is the cost of operating shared services centers and providing outsourced services. As wages grow across Central Europe, investors increasingly seek financial incentives such as tax exemptions and state aid. Last but not least, investors look for an appropriate infrastructure such as buildings, telecommunications networks, roads, airports, air connections, and so on. In this area, Poland still has a lot to work on.

According to the Confederation of Polish Employers (KPP), the country's FDI performance would be even better were it not for Poland's poorly developed infrastructure, ailing transport systems and lack of government response to changes in the labor market. To attract more investors, the authorities should reduce bureaucracy, upgrade the court system, and create a stable and predictable political environment, the organization said. All these measures are indispensable if the government wants to avert a threat posed by the country's declining competitive advantage based on low labor costs. Other threats include growing competition from other countries in Europe; poor adaptation of the education system to what happens on the labor market; loss of human capital (chiefly due to emigration); and failure to take advantage of the country's economic growth to reform the budget and reduce taxes, the organization says.

It is necessary to make sure that foreign businesspeople perceive Poland as a stable, predictable democracy with a efficient legal system, the KPP says. At the same time, it is necessary to remember that the process of making a decision to invest in a specific country takes several years, the organization says; a certain period of time must pass before a legislative amendment or other decisions applying to the economy produce the desired results. "Poland has been successful in attracting investment; thanks to this many new jobs have been created; but now is the time for innovation," the KPP said in a statement. "The policy of attracting investors exclusively with the promise of low labor costs must be shelved. The government should encourage international corporations to establish research and development centers in Poland and stimulate the development of education, especially technological studies."
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