Poland’s Political Shift — What Should Investors Expect?

Over the last decade Poland has made notable strides in improving local conditions for domestic and foreign businesses. In the World Bank’s Doing Business Report 2016 the country was ranked 25th globally, as opposed to 70th in 2011. That along with a massive EU fund influx €67.3 billion between 2007 and 2013 helped Poland see the levels of foreign direct investment (FDI) recover. In 2014, Poland attracted FDI of €13 billion. The year before,  foreign companies had invested a mere €112 million, according to UNCTAD’s statistics. 

In October 2015, the coalition government of the Civic Platform (PO) and the Polish Peasant Party (PSL), which led the country through the economic crisis, lost the general election to Law and Justice (PiS), eurosceptic conservatives who had been in the opposition for eight years. PiS lured voters with the most irresistible argument in politics: “Time for a change” and a wide range of economic promises including lowering the retirement age and introducing a monthly allowance of 500 złoty (€120) per child.

“Now, observers are beginning to consider the likely costs of the ambitious reform programme announced by Poland’s freshly-elected party and the likely impact on the public finances and the business environment,” says Dr Katya Kocourek, Senior Associate at Stroz Friedberg. “In the short term, investor concern that Poland may simply roll back the policy agenda pursued by the Civic Platform government (in power 2007-15) are likely to be allayed by Poland’s sturdy rate of growth in the first three quarters of this year,” she adds.

In her exposé, Prime Minister Beata Szydło announced high social spending and major investments as the government’s priority.

“Will the government adopt several costly promises it had made during the election campaign, including the monthly PLN 500 per second/following child, lowering retirement age and increasing the tax-free allowance? Their cost will amount to 45 billion złoty (€10.5 billion) in 2016/2017,” says Michael Kern, CEO at the German-Polish Chamber of Industry and Commerce (AHK Poland).

Mr Kern tells Emerging-Europe.com that approximately half of the amount could be financed with the new taxes on banks and supermarkets, which the banking and retail sectors will not welcome. The investors are rather looking forward to higher collectability of VAT as one of the right sources to cover the new social spending.

“On the other hand the spending of the PiS government will make the private consumption and the demand for B2C goods grow more than it was expected before, at least in 2016-2017. The Prime Minister also promised to increase the level of innovation in the economy, which we’re looking forward to a lot, as the share of investment in Poland’s GDP is just about 20 per cent. This would be done for example by introducing both state and private investment funds or using tax instruments as double tax deductions for investments in innovation,” Mr Kern concludes.

Martin Oxley, Strategy Adviser at UK Trade & Investment in the CEE region, is optimistic and says that over the last 10 years Poland has established itself as an economic powerhouse in Europe. “The service and manufacturing sectors are growing apace. UK companies are attracted by retail, consumer and supply chain opportunities. Innovation, technology and added value are key economic drivers. The UK is rank 2 global innovator and rank 1 in the global shared economy. We’re on the lookout for great business partnerships,” he adds.

Dr Kocourek concludes that the election came at a critical time in Poland’s economic cycle, following years of economic crisis in the euro zone. “Proposals to impose sectoral taxes on retail outlets and banks could serve to dampen business confidence, which remains fragile. PiS is nevertheless likely to look to plug any expected shortfalls in investment spending by re-activating investment vehicles, such as the PIR SA [Polish Investments for Development, a a state treasury company managing assets located in four Non-Public Assets Closed-End Investment Funds], which was put into place under the previous government to boost infrastructure investment. Similar to Hungary, PiS has indicated it is likely to introduce its own version of a “funding for growth scheme” in a bid to extend cheap loans to businesses and underpin the already impressive growth rate of SMEs,” Dr Kocourek says.

Rafał Antczak, Member of the Board at Deloitte Consulting, calms investors down and says it’s too early to comment on the government’s plans and economic strategy. “Serious investors evaluate facts, not words, even if those words are highly commented on in certain national media outlets,” he adds.

Tony Housh, Chairman of the American Chamber of Commerce in Poland shares Mr. Antczak’s opinion. “The new government is in formation and investors still are waiting to see how the key ministries are staffed, but investors have generally reacted well to the important appointments at the Ministries of Finance, Economy and Science and Higher Education as well as the special focus on EU affairs. I believe that the government understands it takes over at a time of continued strong foreign investment, economic growth and falling unemployment and will certainly want to continue or accelerate these trends. Investors are counting on the government to apply the lessons learned from the previous stint in power that business is the driver of the economy and a partner for the further growth of Poland, and not an opponent,” AmCham’s CEO tells Emerging-Europe.com.

At the moment, foreign investors as well as Polish companies are looking at the first 100 days to see the new government’s real action and hoping that the Prime Minister will take the businesses’ words to heart.

More info about what lies ahead for Polish business after the national election, as well as the investment opportunities hidden in Poland’s real estate sector during Primetime Poland in London on November 30, 2015 in London. The conference is organised by Poland Today. Emerging-Europe.com is a patron of the event.

 

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