Poland’s Capital Saturation Lower Than the Czech Republic’s

.

Marcin Diakonowicz

About Marcin Diakonowicz

Marcin Diakonowicz is CE German Desk Leader, Partner, Audit & Assurance at Deloitte. He has has extensive auditing experience obtained both in Poland and in Germany. He is a Polish Statutory Auditor and a member of FCCA. His experience includes German GAAP and International Financial Reporting Standards. He has authored numerous articles and training courses on German GAAP. He is an expert on consolidation methods.

In the 27 years since the transformation, Poland has been preoccupied with catching up with the more civilised and developed economies of Western Europe. Moreover, it has not suffered a recession since 1991, when the GDP dropped by seven per cent per annum. For these reasons, we have seen the longest period of constant and stable global economic growth ever. The economic upturn has also fostered foreign investment.

According to Deloitte’s report, “Investment in Poland: Unused Potential”, that was prepared together with the Polish-German Chamber of Industry and Commerce, the full potential of this seventh largest economy in the EU is far from being exploited. One of the reasons is considerably low productivity compared to the more developed EU economies and a low human capital base.

The Polish economy has been growing steadily for the past 26 years, which is a record high result in the EU. Moreover, the growth has been exponential: in the last twenty years GDP (at purchasing power parity) per capita has increased on average by six per cent per annum. It has been the most impressive result in Central Europe.

For OECD countries, such a long period of constant economic growth has only been observed in Australia. Unlike other economies, Poland has not been severely hit by the financial crisis or the Eurozone debt crisis. The turbulence of these events was absorbed by the size of the internal market and a responsible monetary policy, as well as an efficient supervision over the financial market and a flexible exchange rate system. The economy was further supported by the reduced tax burden, in the years 2007-2008, and EU funds.

Economic growth promotes Poland

Investment and capital inflow are the key drivers of the dynamic and stable growth of the Polish economy. From 2010 to 2015 their share in the Polish GDP was considerably higher than in the CE region (with Bulgaria being the only exception). The decrease in investment in 2016 was observed in the entire region and was attributable to a delayed allocation of EU funds and increased uncertainty. Major financial institutions predict more vigorous investment activity for 2017 and beyond.

According to most of the indices that measure economic competitiveness and social development, Poland is second in Central Europe only to the Czech Republic. Our southern neighbour has many of the attributes of a mature industrialised economy.

The Czech Republic reports the lowest investment risk in the region, but its GDP growth has been two times lower than in Poland (an average of 1.5 per cent in the years 2010-2015). On the other hand, Poland was assessed much higher for the quality of its institutions, regulations and social development compared to Bulgaria and Romania.

Innovation will drive productivity

The potential of the seventh largest EU economy is far from having been fully exploited. One of the reasons is its considerably low productivity compared to the developed EU economies and a low human capital base. In the last twenty years Poland reported a double growth of capital per one employee, having outpaced Slovakia and Hungary. Still, the capital saturation is two times lower than that of the more industrialised Czech Republic.

In the years 2004-2015 Bulgaria proved the most successful in attracting direct foreign investment, but the most advantageous foreign capital structure was seen in the Czech Republic, Poland and Slovakia. Relatively low production capital in Poland fosters high rates of return on investment. The marginal product of capital, i.e. an additional output resulting from every zloty or euro invested, is nearly four times higher than in the Eurozone, and better than in Slovakia, the Czech Republic and Hungary.

In THE other CE countries there is still a great deal of potential to improve the productivity of capital, such as attractive investment opportunities, in particular in relation to the existing market situation in the EU and the monetary policy followed by the European Central Bank.

Manufacturing and BPO/SSC

Importing innovative technologies, know-how and improving the efficiency of markets and the public sector may increase productivity of Poland. Robotics and the automation of production processes has opened up new opportunities for the Polish industry and has driven productivity. Globally, the number of industrial robots per ten thousand employees in the industrial sector reached 69, while in Poland it was only about 28 robots in 2015. Compared to other CEE countries this proportion is still low, as in the Czech Republic, Slovakia and Hungary it reached 93, 79 and 57, respectively, while in Germany it exceeded 301.

One of the most attractive Polish industries for investors is manufacturing, with nearly PLN 230 billion of foreign capital. The amount invested in the sector equals one third of the total amount of direct foreign investment in Poland. Investors were also interested in the finance, insurance and motor vehicle trade sectors.

According to the Association of Business Service Leaders in Poland the BPO/SSC sector has gained importance, in recent years, having grown by 20 per cent p.a. and employment in the sector is likely to reach 300,000 people by 2020. In 2016 ca. 1,000 BPO/SCCs operated in Poland (including 676 foreign entities) employing ca. 200 thousand people.

The German perspective

According to the German investors, participating in Deloitte’s survey, one of the priorities of the Polish government should be to remove the barriers between science and business. They emphasised that despite obvious benefits from developing the BPO/SSC sector, more advanced business services and R&D centres will refuse to move to Poland if appropriate reforms are not enacted.

Another unrealised potential, and a great potential advantage for Poland, are start-ups. Some respondents also see the unused potential of more traditional sectors, such as the food and drink or the retail industry. This stems from the Poles’ high aspirations and consumption needs accompanied with relatively low salaries.

Germany is the key provider of direct foreign investment in Poland. By the end of 2015 German companies had invested PLN 135.9 billion in Poland, which accounts for nearly one fifth of direct foreign investment. Nearly all German investors (95.6 per cent), surveyed by the Polish-German Chamber of Industry and Commerce, declared themselves willing to invest in Poland again. They greatly appreciated Poland’s membership in the EU, which considerably improves the quality and stability of the regulatory environment. Other factors attracting German investors are the qualifications, efficiency and motivation of the human capital and the service quality and capacity of local partners.

The pace of legislative changes

Investors appreciate Poland’s economic growth, its wide variety of investment opportunities and its economic stability, but they have raised concern about the unstable regulatory environment. They also worry about the highly complex tax law and tax enforcement methods; still they do not complain about the tax rates.

German investors that have been doing business in Poland, for many years, emphasised the importance of EU membership as a factor for enhancing stability of the economy. Moreover, the legal framework is similar to that of Germany, therefore our western neighbours feel quite comfortable investing in Poland. Still, they emphasise, that the pace of recent legal changes may be confusing. The planned amendments should be communicated to the public, which is not always the case.

The investment potential of Poland is still very high. Poland will strive to regain its position as the most attractive CEE investment regions, which it held in the years 2013-2015, and lost to the Czech Republic. Apart from a good economic performance, Poland’s openness to innovation and its growing hi-tech start-up market will constitute our key strengths in competing for foreign investment.

_______________

The article was co-authored by Julia Patorska, an Economist and Senior Manager at Deloitte. She has over 13 years of professional experience. While 9 years in consulting, previously appointed as a civil servant in the one of central government offices. Delivered projects within different sectors while achieving goals of both public and private entities. Julia has developed consulting services in the area of ​​economic analysis combined with sustainability issues. For two years now, she has been intensively engaged with circular economy, bio-economy and economy of resources. She is President of the board of the Association of Polish Economists and external expert of Research and Analysis Centre of Employers RP.

The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.

RELATED ARTICLES

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

Nagorno-Karabakh Conflict Moves from Frozen to Kinetic

Nagorno-Karabakh

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

When Neutrality Isn’t an Option

President of the Russian Federation Vladimir Putin

Emerging Europe Back on Track to Convergence

wiiw

Emphasising the Incongruence Between the V4 Countries

Macron emerging europe

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

Swimpassing Dniester Without Prejudice To Democracy

Parliament of the republic of moldova in chisinau, national flag, stefan cel mare street, spring time with blue sky

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

Only a United Opposition Can Defeat Poland’s Ruling Law and Justice Party

Classical building of Polish parliament. Warsaw in Poland.

Ukraine’s Economic Recovery: Good, But Slow

ukraine money

A Positive and Modern View of Entrepreneurship

Outsourcing in Germany: Stop Talking at and Start Talking to

Let’s Stop Wasting Time Redefining our Place in Europe

Partnership is the Key to CEE-Indian Business

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

Impact of Brexit on EU-CEE Not Overstated

theresa may brexit

The Right to Water: Who Can Change Today’s Situation?

Adam Smith’s Warning for Poland

The Long Tail of Global Expansion

Global Expansion in the Digital Age

Will a Two-speed European Union Side-line the Visegrad Four?

History as Destiny? Institutional Erosion in Ukraine and Poland

Not All Quiet on the Eastern Front

E-lifestyle and Cyber Security: Some Views From Estonia

Cyber Security Protection Firewall Interface Concept

How strong is V4?

Viktor Orban

The Morawiecki Plan Promises a Brighter Future for Poland

Czech Own Currency Insures Against Euro Losses

Euro Czech republic emerging europe

Euroscepticism in Serbia: An Image Problem?

January Kicks Off an Exciting Year for Emerging Europe

Old Fashioned Skulduggery Overshadows the Elections in Moldova

Breaking With Imitations of the Past

Moldova’s Briefly Suspended President is Still in Business

chisinau moldova parliament

EU-CEE Is Still Growing at a Healthy Rate

Prague emerging europe

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

The Capital Markets Union: a New Beginning in the European Financial Sector?

Belarusian Journalists Still Face Huge Problems

Is there any prospect of ‘Polexit’?

poland european union polexit

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

Good Match But Unlikely Marriage

Poland’s Confusing GDP Growth

How Will Poland Approach the Brexit Negotiations?

Czech Republic Renaming Has Real Economic Costs

Is the CEE Region About to Steal the Outsourcing Crown From India?

Amazing view on the Taj Mahal in sunset light with reflection in water. The Taj Mahal is an ivory-white marble mausoleum on the south bank of the Yamuna river. Agra Uttar Pradesh India.

After Its Significant Rise the Georgian Economy May Now Fall

Panorama of Tbilisi, Georgia in sunset rays. Vivid, saturated, splittoned image.

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

The EU’s Benign Neglect Of Eastern Europe

Are Labour Shortages Driving Economic Growth?

International Women’s Day — Let’s Take Action And Then Celebrate

Hungary and Israel: the Collision of Past and Present

Budapest synagoge

Ex-Transition Economies’ FDI Recovery

dollar euro fdi

Poland Needs to Cling to the Eurozone

zloty euro emerging europe

2018 Elections — Vital Decisions for Hungary’s Future

Victor Orban energing europe

PiS Uses Media Control to Bring Poland to Heel

Jaroslaw kaczynski pis emerging europe

CEE-Benefits and Disadvantages of Joining the Eurozone

forint zloty euro

Are Czech-EU Relations at Breaking Point?

PRAGUE, CZECH REPUBLIC - 21 JUNE 2014: People on the streets of Prague, Czech Republic. Prague is one of the most visited city in Europe with over 5 million visitors every year.

Fiscal Policy Predictability in CEE — It’s Time for Change

Central and Eastern European Consumers Are Joining the Global Trends for Change

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

Why Was Zapad-2017 So Important?

russian tank belarus zapad

Why Hungary’s New NGO Law Is Harmful for Business

Budapest, Hungary. Aerial view of the old city Budapest, Hungary with river and Parliament Building with cloudy blue sky

Is the Level of Foreign Ownership a Problem in Emerging Europe?

Flags of European countries flying from their capital cities. Viewed from the South.

Regional Relations in the Western Balkans: Moving Beyond Folklore

Bosnia and Herzegovina flag with Serbia flag, 3D rendering

How Will Trump’s Visit Affect Polish Politics?

Donald trump

People Power Reminds the Government of the Rule of Law

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Will Poland Leave the European Union?

polexit

Serbia’s New PM Is Cut From a Familiar Cloth

Serbian flag emerging europe

EU Visa-Liberalisation Strengthens Georgia’s Pro-Western Path

georgia emerging europe eu

Poland: Is it Ready, and is it Time to Adopt the Euro?

LGBT in CEE — A New Acceptance Is Being Born From Migration

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

Romania Surviving the Waves of Recent Political Tsunamis in Europe

Can Armenia Keep a Foot in Both Camps?

European union armenia russia emerging europe

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Poland’s Drift Away From Democracy

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

Albania’s Election Apathy

tirana albania

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

Azerbaijan: The Rich Get Richer and the Poor Get Nothing

Baku

‘Traditional Values’: A Potent Weapon Against LGBT Rights

gay rights putin

The EU’s Choice: Fundamental Reform Or Disintegration

The Sharing Economy Could Bring New Business Models to CEE

Europe Needs To Be More Proactive In Embracing Armenia

Why is Armenia Borrowing Another 100 Million US Dollars From Russia?

Political Tensions Rise As Croatia Allegedly Breaks the Dublin III Refugee Regulation

croatia migrants

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

Slovenia’s Presidential Election: Pahor Expected to Romp Home

Slovenia flag against blue sky waving in wind

Moldova Falls Victim to Politicising

moldova emerging europe

Defending EU Values in Poland and Hungary

Eu hungary poland

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

Prepare for a New Europe

China: A Giant That Is Hard to Crack

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

United or Divided? Europe in the Face of the Challenges of Tomorrow

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

Poland Challenges the European Identity

Poland emerging europe

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

The GREAT London Food Scene

Bakery in London

Europe at Odds over OPAL and Nord Stream 2

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

European Volatility Makes Economic Development Slower for Ukraine

Stuck in Neutral: Georgia’s Constitutional Reforms

Tbilisi Parliament Georgia

The Global Outsourcing Industry — the Rise of the Phoenix

A New Division Between Eastern And Western Europe?

Under Promise, Over Deliver: Prospects for the EU’s Eastern Partnership in 2018

Eastern partnership

Leave a Reply

Your email address will not be published. Required fields are marked *