Investment

A SUPPLEMENT TO EUROMONEY

Introduction

Forty million consumers make Poland a very attractive market for foreign investors. Its central location also makes it an ideal manufacturing location for companies wishing to export to surrounding countries. The decision to invest in Poland is often reinforced by Poland’s strong economic results, political stability, efficient banking system, OECD membership, World Trade Organisation membership, associate European Union membership and improving communications infrastructure.

Poland has witnessed an enormous growth in the fast moving consumer goods sector in the past five years. Investors are now moving into other industry sectors, where Poland has excellent facilities and experience and offers unparalleled opportunities for investment. In this short chapter we seek to highlight some of the investment opportunities available in a cross-section of industries, specifically those which are not concerned with marketing directly to the end user.

The automobile industry

The automobile industry is often viewed as a barometer of the economy in developed countries and the Polish automotive sector has mirrored the swift and decisive changes in the Polish economy. In seven years, the sector has moved from the rationing of a state controlled monopoly, through the 1991-1993 rejection of domestically produced consumer goods, to its current period of dynamic growth of 20%. Poland is recognised by leading automobile manufacturers for its developing domestic market and strategic location for exports. Increased productivity, adoption of quality standards and implementation of new technologies have expanded the export market.

The industry still has excess production and productivity is improving constantly. This is reinforced by improved productivity figures: the profitability rate for the first half of 1996 was 4.8% compared to 4.2% for the same period in the previous year. Manufacturers from all over the world can now be found in the Polish market. Foreign investors in the Polish market include Michelin and Goodyear, both of whom have bought into former state tyre companies; and Ford, General Motors and Daewoo who bought into the state-owned FSO. The doyen of foreign investors in the automotive sector remains Fiat, whose total value of investment in Poland is $702 million.

The automotive sector and associated automotive components industries are important elements in Polish industry. They employ over 100,000 people working in 110 companies, representing 2.8% of industry as a whole. Compared to other production locations, labour costs are low in Poland. Furthermore, salaries are about 10% lower than average earnings in the Polish manufacturing industry. In 1996 average gross salaries in the Polish automotive industry were about $353 per month, compared to $435 per month for industry as a whole.

The aviation sector

Foreign investors are attracted to many other industry sectors by the presence of highly qualified and experienced research and technical staff. The Polish aviation sector has a long tradition and a solid reputation. The industry holds a position of increasing importance in the international markets. Most Polish aircraft have American certificates and can be equipped with Western avionics and accessories. This includes the industry’s leading product range of trainers (PZL 130 Orlik, I-22 Iryda and M-26 Iskierka), helicopters (such as W-3 Sokol, Mi-2 and Kania), multipurpose airplanes (M-28 Skytruck, PZL-104 Wilga, PZL Koliber) and gliders. Airplanes for plant protection and for firefighting (the PZL-106 Turbo Kruk) are becoming more popular for export.

Poland also offers aviation services including passenger and cargo transportation, medi-care emergency systems, plant protection, fertilization and sowing, and firefighting. The aviation components sector manufactures aviation piston and turbine engines, and on board instruments for gliders and light aircraft. Several Polish aviation plants already cooperate with many well known Western firms in the USA, Canada, Italy and France.

Many investment opportunities in aviation are located in Special Economic Zones, such as the one in Mielec which offers highly advantageous terms to new investors. Such terms include tax exemption for investors creating new jobs, exporting and, for certain categories, full exemption from business income tax for up to 10 years. Companies that are not granted tax breaks have the option of using accelerated depreciation schedules for fixed assets. Exemption from real estate tax is also possible.

Polish technical capabilities

The technical and technological capabilities of the industry are broad and include a wide range of metal cutting machinery, stamping presses, non-ferrous metal foundry, heat and chemical treatment of aluminium alloys, titanium alloys and constructional steel machining. Processes based on international regulations and standards carried out by the industry are: precision casting, electron beam welding, plasma and flame spraying, spark machining and hydropolishing, electroplating, anodizing of aluminium alloys and non-destructive tests.

The shipbuilding industry

The technical capabilities of the aircraft industry are also the strengths of the Polish shipbuilding industry. During the 1980s, Polish shipyards were more famous for producing political activists than ships but the Polish shipbuilding industry is one of the few that has remained competitive in Europe. Poland has built ships for demanding owners from Germany, Norway and Britain, and 30% of the former Soviet Union naval fleet originated in Polish shipyards. Polish shipyards specialise in labour intensive construction like fishing trawlers, chemical and container vessels, and combined bulk carriers.

Achievement of economic and political changes, in which shipyard workers played an active role, has radically changed shipyards. Employment has halved over the past seven years as shipyards fight to retain their competitive position. Poland continues to offer top quality modern ships of at competitive prices and short delivery times. Szczecin Shipyard, Poland’s second largest, specialises in container vessels, producing for German, South African and Norwegian owners. Gdynia, the third largest shipyard in terms of production capacity, carries out projects for French and Greek ship owners. The largest and most famous shipyard, that of Gdansk, is following the competitive lead of its rivals.

The Polish shipbuilding industry is supported by a number of sub-suppliers, like H Cegielski Poznan and Zgoda factories that manufacture engines, and other suppliers that provide cargo handling machinery and electronic equipment. Much of the steel used in construction is produced in Poland and the Polish steel industry produces elements that can be used both in vessel construction and for the offshore oil industry.

A bright future

As Poland moves forward and consolidates the profound changes that have taken place over the past seven years, it is likely that such change will extend from the consumer goods market into those Polish industries that have a history in world markets. As demand for Polish products has remained sufficient for these industries to survive turbulence, their competitiveness is emphasised. The skilled labour force and sound research base of these industries have enabled Poland to remain one of the few countries in Europe able to compete in world markets in these industry sectors.