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Poland, building the economic future

Poland’s labor pains is eventually subsiding as the new republic makes a full transition to a market economy and becomes fully integrated into the international system as is being recognized by its memberships of the World Trade Organization in 1995, the OECD in 1996, NATO in 1999 and the European Union in 2004. Membership to these underline Poland’s commitment to globalization and market forces as evidenced by the move it made in dismantling the command economy after 1989 when the government made a comprehensive reform program and took its first decision to lift price controls and subsidies. Today the economy is riding sky high as measured by its increased exports, high Gross Domestic Product at $495.9 billion in 2005 and yearly raises in Foreign Direct Investment characterizing how well both the economy and the nation is doing. The Secretary-General of the OECD Angel Gurría put his finger on it, describing the last 10 years till 2006 thus: “One of the most remarkable transitions in modern history,” adding “Poland is…a potent symbol of a changing world… laying the growth for future growth and greater competitiveness to come,” and as underlined by its skilled and educated workforce that stood at around 21 million in 2005. Privatization Although at first restructuring created unemployment and high costs, this begun to stabilize in the second half of the 1990s as privatization was encouraged and many small and medium state-owned companies were being sold off and new liberal laws allowing the establishment of new firms and allowing the development of a new aggressive sector, becoming the main drive for Poland’s economic growth. Today economic restructuring is continuing and between 2007 and 2010, the government is planning to float 20 public companies on the Polish stock market, although the government has been moving slowly in privatizing what it calls as sensitive sectors like coal, steel and chemicals. However, the government has fully privatized its telecom sector Telekomunikacja Polska to France Telecom in the year 2000, and sold 30% of its shares in Poland’s largest bank, PKO Bank Polski, on the Polish stock market in 2004. Agriculture Despite the fact that privatization was relatively new to Poles who had been living under a centralized economy since the late 1940s, Poland’s agricultural sector remained in private hands and today’s the country’s two million private farms make up 90% of all farmland.
The country has the potential to become a leading producer of food in the European Union, as it is a net exporter of processed fruit and vegetables, meat, and dairy products and a leading producer of potatoes and rye and one of the world’s largest producers of sugar beets. About 16.1 percent of the labor force is concentrated in the agricultural sector, but at around 4 percent, still has a low contribution to the Gross National Product. However, this is said to change as mechanization of the sector increases, more inefficient farms are eliminated and capital investment takes hold of the sector and more credit to buy state farms become available; today state farms are leased to tenants.
Poland also is a significant producer of rapeseed, grains, hogs, and cattle. But attempts to increase domestic feed grain production are hampered by the short growing season, poor soil, and the small size of farms and domestic supplies of wheat, feed grains, vegetable oil, and protein meals are supplemented by reliance on imports to meet domestic demands.
Industry Poland has a good base of industrial development that includes heavy industry and more recently light industry. Its traditional heavy industries of coal, steel, textiles, chemicals, machinery, iron and steel and shipbuilding today is supplemented by fertilizers, petrochemicals, machine tools, electrical machinery, electronics, cars and home appliances. Poland is increasingly moving in catering for service industry through its production of office equipment and computers, manufacture of radio and television sets as well as medical and precision instruments. And besides these there is a robust aviation sector as well as a pharmaceutical sector. The products produced in Poland include clothes, glass, china (Mikasa, Waterford) electronics, cars (such as luxury Leopard car), buses (Autosan, Jelcz SA, Solaris, Solbus), helicopters (PZL Świdnik), transport equipment, locomotives, planes (PZL Mielec), ships, military engineering (including tanks, SPAAG systems), medicines (Polpharma, Polfa), food, chemical products and others. Major Polish companies include: • PKN Orlen - Petrochemical corporation • Telekomunikacja Polska(TP S.A)- Telecom • PKO BP- Banking • PKP- National railway • Poczta Polska - Polish Post • PSE- National grid • Elektrim - Diversified utilities / mobile phone service • Fiat Poland, Polish branch of Fiat Group (former FSM, Builds Panda and Seicento • KGHM Polska Miedź - Copper mines and mills • General Motors Poland • FSO Motors - Former Daewoo FSO. Produces Lanos and Matiz automobiles • Grupa Lotos- Petrochemical corporation • PZU- Insurance company • Warsaw Stock Exchange Banking and Finance Banking and finance is the key to the success of any market economy. Good banking ensure liquidity and financial stability that is today buttressed by a buoyant stock exchange in Warsaw. Today there are 103 banking institutions in the country, national banks, and European financial institutions that have branches in the country. However, the number of national banks stood at 54 in 2005 having gone down from 82 in 1994 and 77 in 1999. Experts say this is a necessarily good thing because it shows that there is a consolidation process going on that is likely to add to the financial stability in the country and financial supply in the economy. Banks also contribute to credit availability and this is always a good thing when the economy is in an expansion mode. Banking also exist side-by-side with investment and pension funds, as well as the insurance and capital markets that are today full integrated with the international system.
Trade partners Poland is a European country and this is evident because of its geographical and strategic locations as well as its trade relations. Almost two-thirds of Polish trade is with the EU. And because of its border, Poland’s biggest trading partner is Germany at 30 percent, Italy 6 percent, France 6 percent and the UK at 5.4 percent according to 2004 figures. However, and today in 2007, the last figure to Britain should rise because of the increasing number of Poles who are settling in the country and are demanding foods and other products from their own country that is already raising exports, especially foodstuffs. With the world! Under the new framework of global openness, Poland continues to have economic relations with the rest of the world. It has maintained economic relations with the Czech Republic, Russia, and China but it also wants to break new grounds. Its economic relations with the United States began right after the dismantlement of the command economy. In 1991, the American Chamber of Commerce in Poland was established as the signs of the times and to explore trade and investment opportunities between Poland and the United States across many opportunities. It started with just 7 members, today, it has more than 300 members and the number is likely to keep on growing.
Moving East: Jordan and Arab world Poland is very keen to establish greater economic relations with the Arab world and especially with Jordan that has a direct window on the rest of the region—to Syria, Lebanon, Iraq, Saudi Arabia, the Gulf countries and Yemen, further down the Arabian peninsula and Oman, to the east. As it opened up to the world, Poland has been determined to establish relations with the Arab countries, and today these are taking economic lines through trade exhibitions, expos and forums (a 4th Polish Business Forum in Amman this coming September and a Polish National Exhibition Dubai in November). They are part of a new/old vigorous strategy to start economic generation of trade and tourism through the movement of people via direct flight connection.
Such a strategy is being given new revamping. In 2004 for instance, the idea of a Polish-Arab Economic Cooperation was held in Poland to establish political and economic contacts between Poland and the Arab world and establish a strategic relationship with the Arab region.
Today part of the human traffic includes visitors, (more and more Poles are coming for their holidays to this part of the world especially to Egypt, Tunisia and to Jordan, visits through businessmen, cultural exchanges, education and so on. An environment of capital attraction This is part of the new economic environment that came to develop soon after Poland moved to a market economy. International consultancies like Ernst and Young are paying tribute to the economic performance of Poland which is attracting more direct foreign investments than ever before.
In its latest Attractiveness Survey released in June 2007, Ernst & Young say Poland is the 7th in the world in terms of attractiveness to international investors after China, USA, Germany, Russia and Britain. The survey says Poland is an unquestioned leader in Central and East European countries and part of this is because of the location of the country and its low labor costs.
As a testimony to this, the Polish Information and Foreign Investment Agency says Poland attracted $3.3 billion in FDI’s in the first quarter of 2007 and 11 billion euros in FDI flowed into the country in 2006 and a accumulative value of 90 billion euros since the fall of communism in 1989.

This is having a marked effect on the growth of the national economy. Polish Economy Minister Piotr Wozniak says that investment, mostly foreign, increased by 16.5 percent in 2006, unprecedented since 1989, and the 2.5 million companies which are mostly foreign owned, and which now exist in Poland, are staying put, not repatriated but reinvested in the country.

“Every 1 billion euros invested in Poland translates into a rise of exports by 800 million euros,” says Wozniak. “This is a positive sign, he added, as FDI in other countries in the region is primarily directed to benefit the investor country.”

Effects…

The increased confidence of the international financial community is creating a consistently high GDP.
GDP growth had been strong and steady from 1993 to 2000 with only a short slowdown from 2001 to 2002. The prospect of closer integration with the European Union has put the economy back on track, with growth of 3.7% annually in 2003, a rise from 1.4% annually in 2002. In 2004, GDP growth was 5.4%, in 2005 3.3% and in 2006 6.1%. For 2007, the government has set a target for GDP growth at between 6.5 to 7.0%. Year
Q1
Q2
Q3
Q4

2007 7.4% 7.0%(est) 6.5%(est) 6.0%(est) 2006 5.5% 5.8% 6.3% 6.7% 2005 2.1% 2.8% 3.7% 4.3% 2004 7.0% 6.1% 4.8% 4.9% 2003 2.2% 3.8% 4.7% 4.7%

Increased investments is translating into higher productivity and high exports and lowering unemployment that has consistently been between 18 percent and 20 percent however it declined from 17.6 percent in 2005 to 14.9 percent in 2006 and expected to drop below 10 percent by 2007’s end.
The future The future looks bright. Poland has become fully integrated into the world of globalization. The economic instruments of development has been set in place, its role in international financial institutions such as the WTO, the World Bank, the IMF and the OECD is opening up a wealth of opportunities not only for Poland to build bilateral economic relations based on sound judgments but better economic planning. And this is due to the knowledge-based economy the country is building as there is much investments in research and development centers being set in different towns and cities. Official figures suggest there are presently 40 R&D centers and some of these are part of production plants by IBM, Hewlett-Packard and Microsoft in cities like Cracow, Warsaw, Posnan and Lodz.
Research is very important for economic growth as Poland has the necessary scientific skills and brain manpower to sustain an economic based on product innovation and industrial development, and with backing from international companies, this can only the future of the economy is in very strong hands.