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The Warsaw Voice » Business » January 27, 2011
Business & Economy
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Polish Businesses Eyeing Eastern Markets
January 27, 2011   
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After securing a stable presence on European Union markets, Polish businesses are looking for opportunities to develop trade with countries across Central and Eastern Europe and Asia.

For many years, the European Union has been Poland’s main trading partner, accounting almost 79 percent of the country’s exports and over 62 percent of imports. But a further increase in trade with EU countries will not be easy to achieve, experts say. The competitive advantage of Polish goods on EU markets, resulting from lower production costs, is gradually beginning to disappear, so Polish businesses need to look for new sales channels, especially as the lack of diversification in terms of export markets could prove to be dangerous in the long term. A sudden deterioration in economic trends, rapid exchange rate fluctuations, political turmoil or other problems on the market could be enough to bring serious problems to the Polish economy.

It comes as no surprise that Polish exporters are choosing closer, easier and safer markets within the European Union. The longer the distance from the market, the greater the risk. But this risk can be reduced by a variety of measures designed to increase the security of exports.

According to Deputy Prime Minister and Economy Minister Waldemar Pawlak, Central and Eastern Europe is one of the regions with the greatest potential for Polish exporters. Countries in Central and Eastern Europe have always been important trading partners for Poland, he says. Until 1989, business with these countries was done as part of the Comecon, also referred to as the Council for Mutual Economic Assistance. Each of the Eastern bloc countries specialized in the manufacture of products in specific industries, and then they traded these products with one another. The breakup of the former Soviet Union, the establishment of the Commonwealth of Independent States and the regaining of independence by Lithuania, Latvia and Estonia made the existing economic ties take on a completely new form. From then on, ties were based on free-market rules, because each country gradually began to open its market to foreign competition.

In the early 1990s, Polish trade was liberalized. The abolition of export restrictions encouraged Polish businesses to expand to previously inaccessible markets in Western Europe. At the same time, economic ties with Central and Eastern European countries weakened substantially. This situation changed in 1994-1997, when Poland’s exports to Russia increased more than three-and-a-half times over. But the financial crisis of 1998 caused a sharp decline in trade with that country. Another slump in trade took place 10 years later in the wake of the global crisis. Only in recent years did the situation begin to return to normal.

In 2008, Polish-Russian trade stood at $29.5 billion. In 2009, it dropped to $17.8 billion. But in 2010 an improvement was noted again. As of the end of September last year, bilateral trade reached $17.6 billion. For many years the structure of imports from Russia was dominated by mineral products—oil and natural gas. They represent a combined 73.5 percent of Poland’s imports from Russia. As a result, for many years Russia recorded a high surplus in trade with Poland. Polish imports from Russia also include chemical products, metallurgical goods and timber.

The electrical engineering sector has had the greatest contribution to the revival of Polish exports to Russia. Its share in total exports rose from 28.7 percent in 2009 to 31.7 percent in 2010. The proportion of metallurgical products also increased, accompanied by a reduced role for farm produce and foodstuffs, chemical products, wood and paper products, and light-industry goods.

Andrzej Arendarski, president of the Polish Chamber of Commerce (KIG), says the Russian economy is bound to experience recovery, and therefore Polish exports to Russia will increase with time. Arendarski says he hopes that Russia becomes a member of the World Trade Organization and that this will lead to an improvement in business ties with Poland. The latest political thaw between Warsaw and Moscow is also a positive trend, Arendarski says. But it is hard to expect a rapid reduction in Poland’s deficit in trade with Russia, he adds, because Poland will continue to buy large amounts of energy from Russia. At the same time, raw materials are likely to become more expensive in a development that will be difficult to offset with a rapid growth of exports.

Polish businesses are also pinning high hopes on ties with Ukraine, a country that has become Poland’s strategic political partner in Eastern Europe. Over the past three years, bilateral trade has grown more than 2.5-fold. In 2009, Poland’s trade of goods with Ukraine increased by 33 percent to 7.2 billion euros, with Polish exports accounting for 76 percent of the figure. Bilateral ties can be particularly productive in areas such as energy, agriculture, mining and construction. Moreover, Ukraine faces the need to quickly modernize its economy, which will require substantial investment outlays and imports of machinery, equipment and modern technology. Poland can be a valuable partner in this area, experts say.

Another promising partner for Poland is Kazakhstan. It now ranks fourth in terms of Poland’s trade with CIS countries and is Poland’s main partner among countries in Central Asia. In 2009, Polish-Kazakh trade approached $890 million. Polish exports accounted for more than 53 percent of this figure. Closer business ties are also promoted by that country’s vast oil and gas deposits, which offer an opportunity to diversify energy supplies to Poland.

Other countries east of Poland are also potentially attractive for Polish companies. However, according to Marek Kłoczko, secretary-general of the Polish Chamber of Commerce, “the countries of Southeast and Central Asia are rather risky markets.”

“There are few institutions there that could support entrepreneurs. Polish companies also need financial support instruments and loans,” Kłoczko said during a conference on ways of supporting Polish exports.

In July last year, the Polish government approved a special program to help Polish businesses win new markets. The key component of this program is Bank Gospodarstwa Krajowego (BGK), and the Export Credit Insurance Corporation also plays an important role in the project. BGK has zl.5.7 billion at its disposal until 2015, including zl.5.1 billion for long-term loans to foreign buyers of Polish goods and services and zl.600 million for short-term loans granted for a period of less than two years.

Polish exporters could also use greater political support in foreign markets, experts say. “Polish politicians are often afraid of promoting Polish business abroad, even though in other countries such a policy is the norm rather than the exception,” said Kłoczko.
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