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The Warsaw Voice » Business » May 7, 2015
Business & Economy
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Why Stability and Trust Matter
May 7, 2015   
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Deputy Prime Minister and Economy Minister Janusz Piechociński talks to Andrzej Jonas and Andrzej Ratajczyk.

What do you think of the current state of the Polish economy? How is it shaping up compared with other European economies?
The whole of Europe and, in fact, the whole world are envious of Poland’s economic performance. Poland has a very positive image as the only country in Europe to have enjoyed steady economic growth ever since 1992. Poland is a stable country and one that is politically, socially and economically predictable. Poland’s performance last year was strong testimony to the solid foundations of its economy. I’m particularly referring to growing exports, the inflow of capital, considerable investment in infrastructure and Poland’s increasingly modern and competitive industry. The country has been upgrading its power supply systems, Polish agriculture is doing phenomenally well, and we also have fantastic human capital. Last but not least, consumption and wealth are growing while unemployment is down.

All of this has been happening at a time of uncertainty in both the eurozone and the rest of the world. Entire economic systems east of Poland are at risk of being destabilized due to the escalating conflict between Russia and Ukraine as well as other factors. Given the above, the 3.3-percent growth of the Polish economy in 2014 and the equally positive forecasts for this year are something that demand respect, as shown by Poland’s high standings in different league tables of investment appeal. In one of them, 94 percent of the investors surveyed said they were willing to invest in Poland again. In this respect, Poland is far ahead of other countries in the region.

I realize, of course, that many areas of the economy need to improve. For example, cutting-edge and more profitable products should account for a larger portion of the country’s growing exports.

How is the conflict in eastern Ukraine affecting the Polish economy?
The Russia-Ukraine crisis and the resulting sanctions and trade restrictions have had a very negative effect on the food and agriculture sector, which is the branch of the Polish economy that has generated the highest exports in recent years. Thankfully, things have turned out differently than we expected. In 2014, Polish food and agricultural exports totaled 21.5 billion euros with a 6.5-billion-euro surplus, even though food and agricultural exports to Russia declined by over 376 million euros and sales became less profitable in certain groups of products. It turns out the Russian embargo can be more than compensated for on other markets, for example in Asia and Africa.

However, none of that would have been possible without measures that were taken to redirect a part of Polish exports to other markets. At the beginning of 2014, we anticipated Poland would be hit by the situation to the east. Our estimates indicate that sanctions only account for a third of the slump in exports to and investment in our neighbors to the east, while the rest has been caused by uncertainty and deteriorating economic conditions. This is true for both Ukraine and Russia, as the Russian economy has stopped growing and the demand it generates is shrinking, especially when it comes to consumption.

Not so long ago, investors were mainly drawn to Poland by its relatively cheap labor force, low energy prices and low taxes. Do you think Poland is past that phase and can now compete against other countries with quality and reliability as its selling points?
We have absolutely made progress, even if this progress is not fully satisfactory yet. No matter the circumstances, you can always do better. But Poland is no longer an economy based on simple labor, assembly rooms and so on. It’s an increasingly modern and knowledge-based economy. We need to realize, however, that a knowledge-based economy means an economy less dependent on heavy industry.

What are the priorities and key goals of the government’s economic policy?
Above all we aim to provide the best possible environment for business and enterprise in Poland. Also important is human capital, as this represents a development opportunity. A modern European economy has to be able to offer excellent employees, hence the importance of providing education at various levels.

Does this mean vocational education will be given a new lease of life in Poland?
Absolutely. In the process, we will form partnerships with universities and colleges and work with the business sector. A special role could be played here by the management boards and employees of special economic zones, as these zones always need new, highly qualified employees. Businessmen have started to do a lot in this area on their own, seeing the potential for their companies.

How can the government help enterprises?
The key issue is to deregulate the economy, improve the efficiency of the government administration and of the judiciary and reduce operating costs for enterprises, which includes the costs for enterprises in their dealings with the government and local government. It is equally important to pressure the European Commission and the European Parliament to launch deregulation in Europe to an extent that has never been seen before. We have achieved a lot in terms of deregulation so far. The most recent examples include what we call the port package, that is legislation designed to streamline inspection procedures for goods imported via Polish seaports. As a result of the package, government services work in coordination with customs services to make sure that each container exported and imported via Polish seaports is cleared within 24 hours. When I first proposed such procedures, officials were unenthusiastic and many did not believe procedures such as those could work effectively. Time has shown I was right and I now want to introduce the same procedures on land borders as of July 1. As a result, inspections will become less time-consuming, which will speed up deliveries for enterprises.

You need to foster competitiveness everywhere. You don’t do this by just changing tax laws or taking a modern approach to business regulations. You also do it through specific instructions and by making sure that border guards and customs officers are able to communicate with each other.

What do you think will drive Poland’s economic growth in the coming years? Will it be domestic consumption or the export capabilities of Polish companies? What is Poland’s biggest asset at present?
The commodity that the contemporary world lacks most is trust and I mean trust in all kinds of relations, including economic relations. In part, Poland owes its economic success over the past decade to political stability and that has mainly been made possible by the fact that the same coalition has been in power for eight years.

Is this to say that political stability is the key to increased prosperity?
It’s definitely one prerequisite for development. This is about being predictable and politically, economically and socially stable. Of course, you cannot succeed unless you become competitive and develop different skills. It is our ambition to make sure that in five years, industry accounts for 25 percent of Poland’s GDP, rising from the present 22 percent, and that the number of exporters grows from 58,000 to 150,000. We also want new jobs to be created by modern industries.

How innovative is the Polish economy? So far, Poland has been ranked near the bottom in league tables of innovation in Europe.

I believe that innovation is overrated when measured in technical terms such as the age of equipment, the degree of computerization and automation. On the other hand, we tend to underestimate the essence of innovation, which is about being ready to change your attitude. I always tell people not to focus on having better cars, but on having better drivers in the cars. Still, innovation absolutely has to be invested in and we need to seek effective ways for business and science to work together. There are many problems left to be solved, such as how to turn knowledge into profits, how to buy patents, and how to attract international research and development centers.

A lot of the EU funds available to Poland in recent years were spent on badly needed improvements to the country’s transportation and utility infrastructure. Do you think that funds under the EU’s new budget could to a larger extent be used to strengthen and modernize the Polish economy?
We have made good use of the opportunities presented by EU funds, even though several years ago the slowdown in the economy forced almost half of potential beneficiaries of financial help from Brussels, who already had contracts signed, to give up on their projects. New application procedures had to be announced. I don’t think this could happen again, as today we’re in a very good situation. I believe that halfway through this year, we will start accepting applications for funds available under the new budget. What now matters is not only what kind of projects the funds are to be spent on, but when the projects will be completed. We’re on the right track to use most of these funds in the first half of the [seven-year] period the budget covers. It also seems that decision makers at all levels have been persuaded to invest in development. We need to remember that due to Poland’s development and growing affluence, the next EU budget will no longer be so generous. With each passing year, Poland will be paying more into EU coffers and receiving less, relatively speaking. EU funds stimulate development, but they cannot replace money invested by Polish enterprises and households.
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