April 30, 2014
The Voice talks to Zeynep Holmes, Standard & Poor’s regional head for Eastern Europe, the Middle East and Africa, and to Marcin Petrykowski, the agency’s regional head for Central and Eastern Europe.
Why did Standard & Poor’s choose to open its new headquarters for Central and Eastern Europe in Warsaw?
: We took the decision to open the Warsaw office as a hub for Central and Eastern Europe back in 2011. It was a very easy decision. We recognize the rapid development in Poland. It’s a big country with a solid capital market and a local investor base. It’s an interesting country for us not just from a sales perspective—for our ratings services—but also in terms of us being part of the development of the whole region, because Poland has ambitions to be a regional financial center. We are a natural partner in that we provide transparency to capital markets.
We took our time in opening the Warsaw office because we wanted to develop something that’s right for the region. We are a global brand, but in Warsaw we will be a local business and a partner for the local community. We opened the Warsaw office in February and we have growth plans—watch this space.
: This is the first time we are physically present in the region but we have been covering the region for quite some time. We wanted to move from being a player who operates on a fly-in basis, covering the market from existing offices in other countries, to a more local presence.
What effect do you think tensions between Ukraine and Russia will have on Poland and the CEE region—especially if tensions escalate?
: The global financial crisis aside, the last 10 years created an atmosphere of comfort that is very atypical for emerging markets. And now you have something typical for emerging markets: a political crisis that is impacting the economic situation. You have uncertainty—we don’t know what will happen. I’m sure if you speak to 10 different people, you will have 10 different speculative scenarios about how the situation will play out. Of course, it will have an impact, and not just on this region. It will probably have an impact on all kinds of capital flows and investments.
: The links between Ukraine and Russia and Central and Eastern Europe are quite intense. There are two main issues. One is the question of gas dependence. historically, this region has been very gas-dependent—Hungary, Slovakia, Slovenia are 100 percent dependent on Russian gas. Poland has managed to build a bit of independence, based on gas from Norway, and is around 70 percent dependent on Russia. The Czechs are the best in the region—”only” 60 percent dependent. So any disturbances related to gas supplies will have an impact.
The second issue is trade and trade relationships. One can like Russia, one can dislike Russia, but Russia is a big partner in terms of export for the majority of CEE countries.
: These are parameters that could potentially be impacted. What we don’t know yet is how it will play out. We are at the beginning in terms of sanctions and then it’s a question of how Russia, and the rest of the world, reacts. There are a lot of unknowns. In credit risk analysis you don’t work with feelings. We watch the trends and observe the facts.
S&P on Feb. 21 lowered Ukraine’s foreign currency rating to “CCC” from “CCC+” following the escalation of political turmoil, with a negative outlook...
: Yes. Without an external source of financing, Ukraine will struggle to meet the obligations that have been created by the debt portfolio it’s built up.
What’s ahead for the Polish economy? What are the obstacles to a dynamic recovery and sustained growth?
: In early February, S&P affirmed its “A-/A-2” foreign currency rating and “A/A-1” local currency rating for Poland. The outlook is stable.
We don’t know what the potential consequences of the Ukraine crisis could be because we don’t know what the players involved will do. But we appreciate the fact the Polish economy has a balanced, diversified export base. Polish exporters through the years have managed to reduce their dependency on Germany. That gives the economy resiliency, gives it a solid base from which to develop and allows companies to flourish.
We are quite optimistic about the prospects for Polish GDP growth. We’re forecasting 2.8 percent growth this year, 3.5 percent in 2015, 4.0 percent in 2016, and 4.2 percent in 2017. Compared to what’s happening in the Western world, that’s quite an optimistic scenario. Hence our rating and outlook.
: Poland is an interesting country because it’s an emerging market but in other respects it’s a sophisticated European country, part of the EU, different to most other emerging markets in terms of infrastructure and regulation, for instance. Who’s rated “A-” and higher in the emerging world? Very few countries, and most of those are in the Middle East, with economies based on the petrol industry. Poland is driven by a diversified, very dynamic economy with growth potential.
: Distribution of wealth and Polish GDP per capita—we forecast it will be $14,127 this year—is one point that we acknowledge Poland has to work on. Overall, the macro situation is very much in Poland’s favor. If you ask what could potentially lead to Poland’s rating being lowered, I would say that we need to have confidence in the predictability of political decision-making. Not everyone predicted the recent reform of the pension system would happen so fast. The predictability of political decision-making in Poland is something we are watching.