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The Warsaw Voice » Politics » April 30, 2018
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Investment and Development
April 30, 2018   
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Jerzy Kwieciński, Minister of Investment and Economic Development, talks to Voice’s Juliusz Kłosowski about tasks and plans of the ministry, some internal constraints, and international contexts of Polish economic growth.

We are meeting in a building which only in January housed the Ministry of Economic Development (run by the current Prime Minister, Mateusz Morawiecki; you were his deputy). At the moment, this building houses the Ministry of Investment and Economic Development headed by you. One, quite crucial word has been added. What’s changed? What is the scope of your department’s tasks?

The most important task has not changed. It is an efficient implementation of the Government’s Strategy for Responsible Development, popularly referred to as Morawiecki’s Plan. The key activities of the Government are focused around this strategic document. The effects of implementation of this strategy are already visible. At the macro level this is well-demonstrated by economic ratios: we have a very strong economic growth, the largest among all European Union economies, of which Poland is one. Last year it was 4.6% p.a., but it is worth noting that in the third and fourth quarter the growth rate of the GDP reached 5%. This is one of the highest ratios in all the EU, twice the EU average. We have a very good position in the labour market, the best one since the economic transformation (after 1989). Not only low unemployment, but also a balanced growth of wages. Inflation has been noted at a safe level and, in accordance with the forecast of the Polish central bank NBP, this acceptable level of inflation will continue for at least the next few quarters. To simplify – we are experiencing an excellent economic situation in the country, both for entrepreneurs and for employees, as well as our citizens.

It is worth emphasising that this is the consequence of consistent implementation of the Government’s strategy recorded in the so-called Morawiecki’s Plan, whereas the Ministry of Investment and Economic Development, more generally speaking, ensures its consistent implementation.

One word was added in January to the name “Ministry of Development” and used until your nomination: Investment. What facilities may investors in Poland count on? What is the Ministry of Investment and Economic Development planning in this respect?

Firstly, we want to show the potential of the Polish economy which is growing today and also has growth perspectives. It is important for any investor. Secondly, we want to show that the legal business environment is changing for the better, is becoming more entrepreneur-friendly – both for domestic and, equally, foreign entrepreneurs. Such a breakthrough solution is the so-called Business Constitution. The five Acts which will soon come into effect will make it much easier for small, medium-size, large Polish and foreign businesses in Poland to operate.

How will it be manifested?
First of all we want to change the method of shaping relationships between entrepreneurs and the administration. For example, we introduced, or rather restored, principles which already functioned in Poland years ago, during the transformation period. However, later, as a result of many legislative changes and changes in the legal regulation application practice, they were no longer in practice. This is about such fundamental matters as presumption of the entrepreneur’s innocence used in relationships with state authorities or local administration, or recognition of a principle on the basis of – if something is not forbidden, it is permitted. The matter of clarity of the law is also important: if a regulation is not explicit in a specific context, it should lead to a decision in favour of the entrepreneur. New regulations which have already been effected also reinforce many entrepreneur support mechanisms, for example – concerning expenses on research and development. The level of those expenses still constitutes a certain problem in our economy; it is too low. Therefore, we are looking for a way to ensure that research and development gain better conditions and perspectives of development. Thanks to the changes already made in regulations, an entrepreneur may deduct up to 100 percent of such expenses from tax. As of last year it was 50%. At the moment, in certain cases when R&D constitutes the basis for the enterprises’ activity, such a deduction may even reach 150%! These are solutions similar to those operating in developed economies in Europe and elsewhere.

Another thing that is very important for us is the new Act on investment support.

Is this about changes, popularly described as extension of privileges for investors from previous special economic zones (SEZ) to the entire country?
Yes, in practice this is about extending regulations which facilitate investments and offer reliefs to investors who are economically involved in designated areas to cover the entire country. And more than that; we will also shorten onerous procedures concerning the undertaking of such investments. So far, this process has been rather prolonged. The acquisition of permits connected with the launch of such an investment in one of the SEZ took between 1.5 and 2 years for many projects. The new solution will reduce this process diametrically, and moreover not only large but also medium-size or small entrepreneurs will be able to use it. Both domestic and foreign. We believe this will also attract smaller companies from abroad, ones which previously could not afford to invest in Poland. We will also support investment projects which meet certain quality expectations. For example, we would like to get investments with a significant share of innovations or using high technology. The quality of jobs offered also counts. Moreover, we will want to direct the stream of new investments, domestic and foreign, first and foremost at areas which have been previously less popular in this respect.

When will the regulations you are talking about come into effect?
The Acts are still in the Sejm, however there are indications that they may be enacted and come into effect somewhere around the middle of the year although Initially we planned that the new regulations would come into operation at the beginning of this year. Large packages of changes, however, require more time than can originally be foreseen.

Who will provide services to those new investors?
First and foremost we want to use the institutional potential that we already have, just more effectively. Today we have fourteen operators of existing special economic zones, spread quite evenly throughout Poland. We introduced regionalisation that will rationally divide the area of the country among those investment support program operators. This territorial division of competences corresponds more or less to the division into voivodships. More or less, because we have 14 operators and 16 voivodships. When this is fully implemented, among other things, long-distance supervision of projects will end. Also other elements of previous procedures will be changed, and the procedures will be significantly shortened. What we care about in particular is to stimulate the investment activity of small and medium-size companies, both domestic and foreign, due to these changes. In many cases it is the medium-size, or even small businesses that have innovative products, services, or technologies which we will be happy to see in Poland.

Products that are best known and widely used today often started in garages.
This is true. Start-ups constitute another apple in the eye of this Government, an important point in the economic strategy. This is because we realise that the most powerful companies now, without whose products and services we cannot imagine living today, not that long ago took their first steps as those very start-ups. So we have a Government program specially dedicated to them – “Start in Poland”. In the Polish Development Fund (PFR) nearly PLN 3 billion in support funds, originating mainly from the European Fund, awaits start-ups; it will support private investments worth around PLN 2 billion. Thus, the start-up type projects may count on support of around PLN 5 billion, i.e. approximately EUR 1.2 billion.

You spoke about the satisfactory rate of economic growth and the need to support investments. While this is of benefit to Poland in its positive economic situation in the European Union and consequent development opportunities, when economists analyse the Polish GDP growth rate it turns out that the prime movers are still not investments, but consumption. So it is mainly the size of the market that determines it (fortunately we are quite a large country) and of course the pro-consumption attitude of Poles. In the longer run, however, we need development based more on investments. And investments need entrepreneurs to employ capital. So how does the Government intend to stimulate such activities further?
Here I would not agree with you. Economic growth should not be based exclusively or mainly on investments, although they are the most important engine of the economy. Why? Because the effect of economic growth caused by investments is of a long-lasting nature, persisting for a number of years. Such an effect caused by internal consumption or exports may be more short-lived if unfavourable circumstances occur. It is important, however, how the Polish economy fits into the global economy and what forces affect its development. And from this point of view I would definitely refrain from trying to diminish the importance of internal consumption. Firstly, consumption shows that the society believes in the economy. Any possible fears about further development would inhibit that consumption, causing the effect of saving funds for the expected harder times. Secondly, often when crisis comes, it immediately translates into a drop in investments. Although they are the dominant driver of the economy, this will result directly into a rapid drop in the economic growth rate. It is the consumers’ optimism that may be a saving grace in such a situation. This is what happened to the Polish economy during the last world economic crisis. We mostly weathered it with good growth rate indicators, outstripping most of the European Union economies – thanks to consumption. This is because Poles did not fully accept that the crisis concerned them directly and they continued to buy. Without this phenomenon, just like most of the European Union countries, we would have come down to negative growth rate indicators. This is why the stimulation of consumption is very important for the economy. It cannot be neglected in any way.

But you agree with the opinion that stimulation of the other important economy driver, i.e. investments, is also necessary?
Definitely. You asked me at the beginning of our conversation about the word “investments” which appeared in the name of the ministry. It is because we attach particular importance to investments we decided to transform the Ministry of Development into the Ministry of Investment and Economic Development. The Prime Minister, preparing the new Government structure at the turn of the year, decided to focus on investments even more. On the one hand, as part of the strong development process, guaranteeing among other things an improvement in the technical, transport and social infrastructure, and on the other hand – as a very important engine ensuring economic growth. But please note that this direction of changes was ensured earlier. This is evidenced by the data for the fourth quarter of last year. Clear growth of investments is visible there, even two-digit ones, year-on-year. And this was not only about the increase of public investments, as was the case in the third quarter of 2017, but also private investments which grew in the fourth quarter by around 4%.

What is your view on the share of investments in the development of the country later this year?
I think that this year will be even better. On the one hand the growing public investments will result also in investments of private entrepreneurs. On the other hand, the changes we have introduced and are continuing to introduce, including the Business Constitution and support for R&D projects, but also the accelerating Polish Development Fund, more and more intensive use of European funds and many other solutions or tools will bring the effect of reinforcement of the growing importance of investments in the development of the economy and their impact on the growth rate of Polish GDP. The Guarantee Fund that we are launching this year, constituting the expansion of the previous de minimis aid programme, implemented thanks to the utilisation of EU funds, will be of significant importance particularly for smaller entrepreneurs. Thanks to the Fund, also a small or medium-size entrepreneur will find it easier to obtain a commercial loan in order to implement investment projects.

In Poland loans constitute a particularly important tool in the implementation of all investments. Polish entrepreneurs do not have sufficient shareholders’ equity, because the free market in Poland has been developing unrestrainedly for less than 30 years. Bank loans, however, do not like risk very much, whereas dynamic economic development implies the possibility of risk. What is the idea for resolving this conundrum?
Small and medium-size entrepreneurs indeed are reluctant to reach for loans as the source of financing investments. On the other hand, the availability of funds from capital markets is not great – i.e. from the stock exchange or securities, where the inclination to incur risk is greater than in banks. The average in the European Union as regards the utilisation of these funds to finance investments of entrepreneurs is 30%. In the United States this ratio reaches even 70%. In Poland, however, we reach half of the EU’s rate. The financing of investments from capital markets is definitely too low in our case. However, this Government has been focusing on innovations and advanced technologies in its strategy, which without incurring investment risk in practice cannot be introduced into the economy. Therefore we must stimulate this capital financing. Both through the stock exchange and high-risk funds, seed funds, venture capital, or at the later stage – private equity funds. However, there is a shortage of these institutions in Poland. They have relatively small resources. We are trying to fill in this gap through public institutions united in the Polish Development Fund. We also use European Funds for this purpose. We are doing it in the current perspective, and we intend to do it in the next one.

Your department is also dealing with international economic relations. I would therefore like to ask you about consequences which the introduction of customs duties on aluminium and steel by the US President might have for Poland. Poland is not a large exporter of those metals to the US, however we export significant quantities of steel to the German market. , The possible cooling off of the economic situation in that market would have to result in the reduction of the economic growth rate in Poland. What is your opinion in regards to these threats?
I have to emphasise here that it is the European Union that is responsible for the trade policy on this scale. American duties refer to the whole of the EU, and not individual Member States. Talks concerning this matter, therefore, are conducted by the European Union. The Polish Government is not a participant of such negotiations, however it remains interested in the situation and the progress of talks. Even if the new solutions which have arisen only recently on the international scale, concern Poland only to a small degree, we are monitoring them very carefully in terms of all possible consequences.

But indirectly this can have consequences for Poland?
Of course. However, I hope that this matter will be relatively quickly resolved, with benefits for all of the interested parties. However, similar situations show that the long response time in more difficult situations demonstrate a certain disadvantage in the European Union institutions. We saw this for example, last year, in the case of imports of steel products from China into the European Union. The Americans dealt with this very quickly, and we, in the European Union, needed many months to address it. In the case of duties imposed by the US, I think that as the European Union we will soon come to an agreement with the States and there will be no greater trade or even economic perturbations as a result. However, the very appearance of this situation means that the dialogue between the European Union and the USA should be more intensive so that we do not surprise each other with similarly sudden solutions.

If you were, as the Americans say, in Brussels’ shoes, what actions would you believe to be most effective in this situation?
In my opinion, you simply have to talk. And not necessarily in front of cameras. This is not about boasting about talks but about conducting an actual dialogue. The most important thing is to pre-empt similar situations, and for this you simply have to intensify the dialogue.
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