Last reviewed 6 September 2019
One of Europe’s big economic success stories since it transformed into a market economy back in the early 1990s, Poland still has plenty of room for growth yet. Martin Clark reports.
Poland delivering on its potential
A land of 38 million people, Poland has been one of the fastest developing economies in the European Union (EU) in recent years but still boasts tremendous long-term potential. Located at the centre of Europe, it’s also a country that should be very familiar in many ways, given that an estimated one million Poles now call the UK home. This migration has spawned the emergence of local high street shops up and down the UK selling Polish food and other branded products. It is also a market that has attracted major British investment too, from the likes of Tesco, Rolls Royce, Glaxo SmithKline, AVIVA Plc, HSBC, BUPA and Unilever, as well as oil giants BP and Shell. And, despite uncertain global economic conditions, growth is holding up rather well. Poland’s central bank governor Adam Glapinski said in May that he expected gross domestic product (GDP) growth to come in at over 4.5 per cent in 2019 (although the International Monetary Fund (IMF) holds a more cautious view at 3.8 per cent). That’s down from 5.1 per cent in 2018, but impressive nonetheless in comparison to the somewhat anaemic rates posted in the region’s more advanced economies. It shows that, while there is still more to come, Poland is quickly catching up with the West.
Playing catch up
Then again, this is a country that has had plenty of catching up to do. After the near total devastation of the Second World War, in which several million Poles died, half of them Jews, the country was then absorbed into the Soviet bloc. The end of communist rule brought with it a massive readjustment, as the country embraced a market economy, eventually becoming an EU member in 2004, five years after joining Nato, the Western defence pact. Much has changed since in the years since. While the national currency, the zloty, remains, Poland is in lots of ways barely recognisable from the country it was in the wake of the collapse of the Soviet Union, posting almost three decades of consecutive growth, averaging around 6 per cent over much of the last 20 years. It is now the sixth largest EU economy and the biggest among the former Eastern bloc members, with a diversified portfolio of exports reflecting its industrial strength, from machinery, automobiles and transport equipment to manufactured goods. While neighbouring Germany is the country’s standout trading partner, taking over a quarter of Polish exports, the UK is among a group of other significant EU markets.
In the other direction, Poland has likewise been a receptive market for British exporters, though there is a signifiant trade imbalance. UK exports of goods and services to Poland have more than doubled since 2005, reaching £6.87 billion in 2018, comprising a whole host of items, from highly processed, high value-added goods, mechanical and electrical equipment, to fuels, chemical and pharmaceutical products. This is half the value of imports from Poland, which have more than tripled in the same period, reaching £12.8 billion in 2016. Poland’s close proximity, with numerous airlines making the short two-hour flight each day, means it is a highly accessible market too. As well as familiarity, and enjoying the benefits of EU membership — it is the largest beneficiary of EU funds (over €105.8 billion from 2014 to 2020) — Polish officials have worked hard to reduce barriers to entry for foreign firms. In 2018, the country was ranked by the World Bank as the 33rd easiest country in which to do business globally. The bulk of investment in recent years has targeted the services and manufacturing sectors, which have been the focus for many of the large British financial and insurance players, and of course retail giant Tesco. What is appealing to these and other players is the potential of Poland to repeat its economic gains of the past few decades in the years to come. According to one consultancy, PwC, the economy has the potential to grow by around 3 per cent a year through to 2030 and by 2.5 per cent annually through to to 2050. It could be more: another consultancy, McKinsey, also tipped Poland to be Europe’s “growth engine” for the 2020s.
Trade and investment
It means there are opportunities across the board for more UK firms to get involved.
That’s a point that’s not been lost on UK-based private equity real estate fund manager, Benson Elliot, which recently acquired a newly-completed office building in Wroclaw to expand its property portfolio in the country. It marks the fifth transaction in the firm’s Polish regional office strategy, as it buys up property in this fast-growing market. “The acquisition…fits in well with our strategy of acquiring quality office assets in prime locations across Poland’s major regional markets,” said Joseph DeLeo, a senior partner at the firm. In the Brexit era, enhancing trade and investment is something both governments are keen to champion. In June, a high-profile Polish-British business, trade and investment forum took place in the capital, Warsaw, which attracted over 400 firms — an initiative started by the UK and Polish prime ministers following a joint declaration at the end of 2017. At the forum, Graham Stuart, the UK investment minister, said the government wants to encourage more firms to look at Poland, simply because it is the fastest growing major economy in Europe — he also urged Polish firms to invest in the UK. “Polish companies are doing well, their economy is growing fast, and they are building their confidence and capability. If they want to go global, the best place to come is to the UK.”
The event, held under the theme ‘Building Clean Growth Together’, covered topics such as clean growth, offshore energy, e-mobility and green finance, as well as Polish-UK trade ties. It points to a new direction for bilateral trade and investment in the years ahead. UK sustainable technology firm Johnson Matthey announced plans recently to open a new facility in the Polish city of Konin that will produce eLNO, a next generation cathode material for batteries with high energy density. New batteries based on this technology will enable a step forward in battery electric vehicle performance and contribute to the development of electro-mobility in Poland. The technology reflects not only a new commitment to clean and green technologies, but also the strength of Poland’s automobiles sector, which accounts for about 11 per cent of its industrial production or 4 per cent of GDP. Big name car and truck companies with a presence in the Polish auto market include Fiat, Volvo, Opel, Toyota, Volkswagen and and Scania. As well as trade and investment, the high-level accord signed by the British and Polish leaders in 2017 covers areas such as defence and security, reflecting the depth of the relationship. One Herefordshire-based company, Silent Sentinel, recently sold £2.5 million of surveillance equipment into Poland.
Moreover, Poland is keen to exploit opportunities in other fast-evolving areas such as the digital economy and artificial intelligence (AI), among others. Currently, Poland spends around 1 per cent of the country’s GDP on research and innovation, compared to an EU average of 2 per cent — it aims to increase this to 1.7 per cent by 2020. Science and innovation are also themes covered under the broad UK-Poland accord. These are also areas that both the UK and Poland are keen to explore together. In June, the UK’s Government Digital Service (GDS) signed an agreement with its Polish counterpart, GovTech Poland to strengthen their partnership and create a unitary European ecosystem to support innovation in the public sector. The goal is to bolster the rapidly growing technology sectors in both countries. In Poland, the emergence of the tech sector is fuelling a new wave of dynamic entrepreneurs. In the AI space, for example, the industry is characterised by predominantly smaller, younger companies, heavily concentrated in and around the Warsaw area. What is also interesting is that many global corporations have established their AI research and development centres in Poland to take advantage of the country’s huge pool of tech talent.
Growth and opportunity
There is plenty of support for new exporters targeting Poland as well, with a thriving British Polish Chamber of Commerce, among other business networks. For many first-time visitors, Poland is also a holiday destination, given its extensive city break possibilities via the route maps of Europe’s budget airlines. An estimated half a million British visitors make the trip to Poland each year. As well as thriving, energetic cities like Warsaw, Poland also offers a more sedate side, from picturesque Krakow to the Baltic port city of Gdansk, as well as a largely undiscovered countryside. Then there is the country’s moving history, including Holocaust memorials such Auschwitz. While much has moved on since those dark days, the strength and the resiliency of the Polish people remains very much intact, resulting in what is now a new and vibrant economy with a bright future. It was a point echoed in April this year when Moody’s Investors Service affirmed Poland’s strong credit ratings. “Poland's key credit strength is the country's economic resiliency, illustrated by recent years' robust and stable growth, as well as the scale and wealth of Poland's economy,” the company noted in an update. Moody's said that it assesses Poland's economic strength as “very high”. It is a place ripe for trade and investment with British companies seeking a market close to home, and one with undoubted growth upside.