Poland More Appealing to Investors
October 31, 2013
Poland is climbing international league tables and improving its position among the world’s most attractive investment destinations.
According to the Central and Eastern Europe Economic Scorecard – A Sustainable Future in a Great Region, a report by consulting firm PwC compiled together with the British embassy in Warsaw, Poland’s economic growth prospects and the size of its economy make it the most attractive market in Central and Eastern Europe. Poland owes its position chiefly to its stable macroeconomic and political situation and a competitive labor market, the report says.
According to the report, Central and Eastern Europe is increasingly popular with investors, yet a lot still remains to be done in this area.
“Central and Eastern European countries must create even better conditions for domestic and foreign investors alike,” says Prof. Witold Or³owski, chief economic adviser at PwC. “Lower labor costs will no longer be sufficient; we need strategies that build a competitive advantage over other regions.”
The PwC report analyzes various development indicators such as access to global markets and domestic market prospects, human capital, financial sector development, knowledge resources, and the relationship between labor costs and the quality of human capital. The report also looks at financial, political and environmental sustainability and evaluates the countries’ government institutions, tax systems, infrastructure and the overall transparency of the economy.
The analysis ranks Poland among markets offering the best prospects for investors. The country’s stable political situation was especially highly rated: Poland scored 8.0 on that count, on a par with the Czech Republic, and was just behind Slovenia, which scored 9.0. Poland also scored well for human resources (6.5, ranking second after Slovakia in this area, which scored 6.7). In terms of labor costs, Poland scored 8.0, the same as the Baltic states, Hungary and Bulgaria, but worse than Romania, which scored 9.0.
“Poland’s competitive advantage in Central and Eastern Europe is due to its predictable economic policy, skilled and cost-competitive labor and access to markets,” Or³owski says. “Poland’s strengths are amplified by the country’s population and size of the economy. Poland is the largest EU member country in the region.”
According to the PwC report, the biggest challenge for Poland is infrastructure; in this category Poland scored a mere 2.0, compared with Hungary’s 4.0, the Baltic states’ 4.3, and 5.0 for both Slovenia and the Czech Republic.
Meanwhile, Poland is improving its global position. For example, the country has moved up in the latest attractiveness league table compiled by the University of Navarra, Spain, in conjunction with consulting firm EY, formerly known as Ernst & Young. Countries were ranked according to their attractiveness for venture capital and private equity funds. The investment attractiveness index calculated for each country took into account factors such as the country’s economic performance, its capital market, tax regulations, corporate governance standards, and the quality of human capital.
In the latest league table, Poland was ranked 28th, a notch higher than in the previous ranking list, which was compiled in 2011, and five notches higher than in the first league table, compiled in 2009. Poland was ahead of all other Central and Eastern European countries and it also outperformed nations such as India, South Africa, Italy and Brazil. In all, the ranking list covered 118 countries.
Poland ranked higher than the countries with which it usually competes for foreign investment. For example, Turkey ranked 33rd, the Czech Republic 35th, and Hungary 42nd.
Brendan O’Mahony, Managing Partner at EY’s Transaction Advisory Services in Poland, says this country’s improved ratings in terms of attractiveness mean it has an increasingly strong business sector. With the reduced volume and value of transactions in Western Europe, the stability of the Polish economy is a contributing factor behind the increase in Poland’s attractiveness to venture capital and private equity funds, O’Mahony says. He adds that Poland is still seen as a market with potential.
Even though Poland is a smaller market for such funds than many Western European countries, it has one of the healthiest economic fundamentals and one of the most investor-friendly business environments not only in Central and Eastern Europe, but globally, the report says. According to O’Mahony, Poland is one of a few countries and the only one in the region that has improved in each successive league table. This is confirmed by the level of activity of funds in Poland, he says. The past 12 months have seen some spectacular transactions involving private equity funds, such as the purchase of shares in Eko Holding by Advent International and the sale of LuxMed by Mid Europa Partners for about 400 million euros, according to O’Mahony.
In the report, the Polish economy won the best ratings for its capital market, overall economic activity, and the tax system. In this last category, Poland received 97 points, and the friendliness of its tax system for venture capital and private equity investment was rated at a level similar to that in the United States. It is in this category that Poland recorded the biggest improvement in comparison with the first league table, which ranked the Polish economy 80th in the tax system category. Today Poland is 41st on this count (with the United States ranked 37th).
“Much still remains to be done in terms of fiscal policy,” says Marek Rozkrut, chief economist at EY in Poland. “Despite the latest commotion over the revision of the budget and the suspension of the so-called prudential threshold for the debt-to-GDP ratio, the report shows that the international community has noticed the Polish government’s efforts to straighten out public finances.”
The report says that, from the point of view of venture capital and private equity, the most remains to be done in the area of investor protection and corporate governance in Poland. The level of cooperation between business and science is also a cause for concern, according to the report. A key challenge for the Polish economy in the near future will be to introduce incentives for business to ensure better cooperation between businessmen and scientists.