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Poland regained its independence in 1918 only to be overrun by Germany and the Soviet Union in World War II. It became a Soviet satellite country following the war, but one that was comparatively tolerant and progressive. Labour turmoil in 1980 led to the formation of the independent trade union "Solidarity" that over time became a political force and by 1990 had swept parliamentary elections and the presidency. A "shock therapy" program during the early 1990s enabled the country to transform its economy into one of the most robust in Central Europe, boosting hopes for acceptance to the EU. Poland joined the NATO alliance in 1999.

Update No: 061 - (23/05/02)

Depressed economy
The Poles are in the doldrums economically after experiencing rapid GDP growth in the 1990s. The Government Centre for Strategic Studies (RCSS) puts likely GDP growth this year at one per cent. The RCSS experts also expect a deeper than expected drop in domestic and foreign demand over the following months. The RCSS believes that domestic demand is likely to be curbed by the slow growth in real salaries and social benefits as well as insufficient wherewithal of the broad mass of people below the poverty line, as Polish society continues to polarise. 
Continuing high interest rates are dampening investment just as demand contracts. The tight monetary policy is being pursued by the independent Central bank headed by Leszek Balcerowicz, former finance minister and head of the Freedom Party, the coalition partner of Solidarity in government until last year's defeat of the former communists. Balcerowicz, who in the early 1990s was the architect of Polish reform from the finance ministry, is determined to bring inflation down to low single figures so that soon after EU entry in 2004-5 Poland can join Euroland. He is above all a central banker.
The government, under premier Leszek Miller, are opposed to this constraint on their policy and not a few of its members advocate rescinding the Central Bank's independence. But Miller and his top economic team know that this would be regarded as a profoundly irresponsible step by Brussels and jeopardise EU entry negotiations. 
These talks are already bedevilled enough by complex questions of when foreigners should be allowed to buy land, of the length of the delay in Polish farmers receiving subsidies and other matters. It is unthinkable, nevertheless, that Poland should not enter, which is making negotiations pretty intractable.

FDI to the rescue
The long-range prospects for growth and rising prosperity in Poland are excellent. Not only does EU membership beckon, but Poland is the favoured site for foreign investors to penetrate the market to the east, that is in the former Soviet Union, as well as Central Europe. More than US$50bn has come in so far; and well over US$5bn at least can be expected annually from now on. Both the Czech Republic and Hungary have attracted US$20bn or more apiece, but this is characteristically for projects exporting to the EU rather than eastwards across the Carpathians. The flat Polish plain, from which Western Europeans set out in hopes of conquering Russia, above all Napoleon and Hitler, is now the favoured route for capitalists wanting to conquer its markets.
The Polish Agency for Foreign Investment (PAIZ) announced that foreign direct investment (FDI) fell US$3.45bn last year from an all-time high of US$10.6bn in 2000 to US$7.15bn in 2001. PAIZ attributed the slowdown in FDI to decreases in privatisation and the global economic downturn. In 2000, FDI was largely boosted by a whopping US$4.3bn investment by France Telecom, which bought a stake of incumbent telecom operator Telekomunikacja Polska (TPSA). Cumulative investment in Poland has totalled US$56.8bn since 1990, according to PAIZ.
PAIZ's figures are drawn from surveys completed by companies investing in Poland, which may contain over-estimates or miscalculations. The National Bank of Poland releases its own FDI figures based on the capital inflows for the purchase of shares or stock, the conversion of credits into shares and reinvested profits. The NBP's calculations also reflect a drop in FDI from US$8.17bn in 2000 to US$6.5bn in 2001.
The Economy Ministry has initiated a comprehensive package to stimulate growth and attract foreign investment. There are 50 bills to be presented to parliament to improve the business environment. The "Entrepreneurship First" programme will seek to eliminate bureaucratic barriers, simplify business procedures and implement a more user-friendly tax code. The Council of Ministers, the executive body overseeing the state's domestic and foreign policy agenda, will examine a draft of more than 20 bills related to the government's economic strategy before they are submitted to Parliament. Legislation should be passed by Parliament in the second half of the year.
It is not clear how much the new package will boost the country's FDI. PAIZ's vice president Roman Kornacki said in March that FDI was expected to fluctuate between US$6bn-8bn in the years leading to Poland's accession to the European Union. PIAZ said that trade and the financial services sector would continue to be the most attractive areas for investment, while investments in production would continue to decrease.
As part of the government's plan to consolidate agencies to make them more efficient, PAIZ will be merged into the Polish Information Agency (PAI) as of January 1st 2003. The ministry would discuss the draft legislation for the new agency, which will provide services to entrepreneurs and entities with foreign investors once it was completed.

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Domestic carmakers feel the heat as imports closer

Although domestically made vehicles by Fiat and Daewoo have headed the list for new car sales in Poland over the past 10 years, 2002 is set to see foreign models speed to the top. Industry watchers have noted that cars made by Renault, Toyota, Open and Peugeot are steadily topping national rankings, New Europe has reported.
Peugeot 307, Renault Laguna, Toyota Yaris and Toyota Corolla sales climbed fastest between the first quarter of last year and the first three months of 2002, a car market report by research firm, Samar, suggested.
Fiat's Seicento sold the highest number of new units in Poland, while Mtiz and Lanos by Daewoo are still in the to 10. However, their market share has for some months now been slowing as imported models muscle them further down the list.
"I think Peugeot 307 will be the best-selling car this year in the mid-sized class," commented Jacek Lisik, president of Internet Services, operator of car web site "The 307 will repeat the success of the 206 in the compact class," Warsaw Business Journal quoted him as saying.
Peugeot 307 competes with the Toyota Corolla, Fiat Stilo, Volkswagen Golf, Opel Astra, Ford focus, Renault Megane, Nissan Almera and Honda Civic in the mid-sized category. "This clientele is less threatened by unemployment," noted Sama President Wojciech Drzewiecki, adding, "They are employed in different job positions than compact and economy car buyers. It's rather the mid-range management here."
"Corolla is made in Europe, so the customs are lower than for cars imported from Japan… Especially after January 21st, when the duties on European Union-made cars were lifted," Lisik explained.
Sales in the mid-size category dropped by an average of 16 percent over the year ending March 2002, much less than in the economy car category, which was down by 48 per cent. The latter includes the country's long-time market leaders, the Fiat Seicento and Daewoo Matiz.
Another factor bringing about Daewoo and Fiat's slide against economy car importers is the belief among Polish drivers that old and used foreign cars are better than new Polish vehicles.

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LOT eagerly awaits approval to connect with Star Alliance

Opening the way for Polish airline carrier LOT to join the international Star Alliance, LOT and Germany's Lufthansa recently signed a cooperation agreement covering flights between the two countries. Germany is LOT's main European market, reports New Europe.
The Polish airline said the linkups would support a drive that has seen it making substantial investments in efforts to promote Warsaw as a hub for travellers in Eastern and Central Europe. "This is crucial given the challenges posed by Poland's accession to the European Union and the prospect of an 'open sky' over Poland," LOT President, Jan Litwinski, noted.
LOT, which said it rejected a competing offer from British Airways' Oneworld alliance, was formerly a member of the Qualiflyer alliance, led by Swissair parent SairGroup. However, that alliance was dissolved due to the former's financial ills.
While Swissair announced it intends to sell its 25% stake in LOT as part of a restructuring drive, Polish authorities have repeatedly said a sale can only take place after LOT joins another alliance. The company said it will become a full member of the Star Alliance within weeks following official approval of the agreement with Lufthansa by all 15 members. The Polish government and Lufthansa insisted that the agreements were not related to the search for a buyer for Swissair's stake, AP quoted tem as saying.
"This opens a new phase for LOT, but isn't connected with any changes in the company's ownership structure," Poland's Treasury Minister, Wieslaw Kaczmarek, told a news conference in Warsaw. For his part, Lufthansa President, Juergen Weber, said the Polish airline's membership did not imply that "Lufthansa would take over LOT."

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Portuguese bank sells its stake in Polish Kredyt Bank

Portuguese Banco Espirito Santo (BES) has sold 19.53 per cent of shares in Kredyt Bank SA for 152m euros, BES said in a statement issued on 22nd April, PAP News Agency has reported.
KBC, Kredyt Bank's main shareholder, bought 9.3 per cent of shares. The Portuguese bank did not name the institutions that bought the remaining shares.
According to Kredyt Bank, its shares were purchased by BES Pension Fund from BES, its manager. Earlier this company had no Kredyt Bank shares. After the above mentioned deal it holds 9.93 per cent of the shares.

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Poznan PGK development attract first tenant

Germany-based AKB Marketing Services signed a lease agreement in late March for 650 sq.m. in Poznan's PKG Centrum UII, becoming the first tenant in the 10,000 sq.m project, Warsaw Business Journal has reported.
"It might not be the most spectacular transaction but for the Poznan market it is very significant because the deal was signed in the early stage of development, which wouldn't have been possible a year ago," said Michal Melaniuk, marketing and leasing director at GE Capital Golub Polska. "It's a sign that Poznan's market is maturing."
GE Capital Golub Polska is representing the building's investor, Poznan-based Poznanska Grupa Kapitalow (PGK), in property management and leasing.
Melaniuk said that negotiations with other companies are now under way. The asking rent at PGK II is US$17-20 per sq.m, plus a US$5 per sq.m service charge. Construction of the zl.40m (US49.8m) building was started last autumn and should be completed in March 2003.
"Local markets are different from Warsaw and transactions that exceed 1,000 sq.m. don't happen very often, so 650 sq.m is pretty much," said Jerzy Wsocki, head of the offer department at UK-based property consultancy, Knight Frank Nieruchomosci (KFN). "Because tenants have so many buildings from which to choose in Poznan, AKB's selection is a feather in PGK's cap," he said.

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Gas extraction to begin at new deposit in southeastern Poland

The Polish Oil & Gas Company (PGNiG) opened a natural gas mine Stezyca in Dlugowola, outside Deblin, in southeastern Poland on 18th April, PAP News Agency has reported.
According to Ewa Krol from the PGNiG Sanok branch, the mine will supply the national gas network and is scheduled to extract over 300,000 cubic metres of natural gas daily.
Natural gas extracted from the Stezyca mine is estimated to cover gas supplies to a big urban agglomeration.

Royal Dutch/Shell to pump more money in gas stations

Oil giant, Royal Dutch Shell, plans to double the number of gas stations in Poland to some 400 by 2007, the head of the group's operations for central and eastern Europe announced.
Royal Dutch/Shell, with US$330m invested in Polish gas and liquefied petroleum stations since 1994, now controls 203 outlets accounting for around six per cent of the country's retail fuels market. "For us Poland is the most important market in this part of Europe and now plans for the next five years include boosting the number of outlets to 400," Shell's Ishran Kapitany was quoted as saying by WBJ.

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EBRD invests €54m in first Polish mortgage bank

Poland's budding mortgage sector will receive a boost under a €54m equivalent agreement between the EBRD and Rheinhyp-BRE Bank Hipoteczny (RHB), the first licensed mortgage bank in Poland, an EBRD press release reported recently.
The Bank will buy up to US$25m of US dollar-denominated and €25m of Euro denominated mortgage bonds from RHB over a three-year period. BRE Bank S.A. will act as arranger, dealer and depositary for each of the bond issues. Noreen Doyle, First Vice President at the EBRD signed the agreement recently in Warsaw.
Ms Doyle said the agreement emphasises the Bank's commitment to supporting the development of the mortgage market in Poland. By supporting the issuance of mortgage bonds, the EBRD is helping RHB to make more funds available for long-term, lower cost mortgages. The creation of a thriving mortgage market is an important element for the country's ongoing development, and important as Poland approaches accession to the European Union, Ms Doyle said.
In addition to supporting the continuing growth of RHB's commercial and residential mortgage portfolio in Poland, the EBRD investment should help ensure the success of the first privately placed EUR/USD-denominated mortgage bond in the country.
Piotr Cyburt, President of RHB's management board, agreed that the EBRD investment will contribute to the development of the mortgage bond market in Poland and added that it will support RHB in maintaining a leading position in the mortgage-banking sector. He said the EBRD's engagement underscores the high level of safety characteristic to such mortgage bonds and should convince other potential investors to invest in the bonds - a new financial instrument in Poland.
RHB was created in 1999 and is equally owned by Rheinhyp-Rheinische Hypothekenbank AG and BRE Bank SA, which in turn are controlled by Germany's Commerzbank AG.
For any further information contact: Jazz Singh, EBRD, Tel: +44 20 7338 7931, E-mail:

Polish minister wants greater German investment in privatisation

In a move to adjust the Polish economy to the EU structure, the Polish government will continue privatisation so as to decrease the share of the public sector to 10-15 per cent by 2005, Treasury Minister, Wieslaw Kaczmarek, has said, PAP News Agency has reported.
The minister told journalists that this year revenues from privatisation should reach 1.8bn euros. About 200 firms are to undergo direct privatisation and 90 indirect privatisation.
"I have reached a confidential agreement with the finance minister under which during the four coming years, 1.8bn euros from privatisation will be annually directed to the state budget," the minister added.
On 24th April Kaczmarek met with representatives of German concerns interested in investing in Poland: Siemens AG, Ruhrgas Energie Beteiligungs AG, Clariant GmbH and Hochtief Polska. President Aleksander Kwasniewski also called on German businessmen for greater involvement in privatisation during his March visit to Germany.
Kaczmarek pointed at the banking sector as the most advanced in privatisation. Foreign capital has dominated 76 per cent of the sector. The state still holds four banks. The minister announced that Bank Gospodarstwa Krajowego would remain the state-owned institution as would PKO BP SA [bank].
According to the minister, the State Treasury wanted to keep no more than 30-40 per cent of shares in [Bank Gospodarki Zywnosciowej] BGZ SA with the intention of turning the bank into the main institution channelling EU structural funds to Poland.
Kaczmarek said that in 2002 his ministry would focus on the privatisation of the energy-generating, fuel and metallurgy sectors as well as the arms industry.
German concerns E.ON and BEWAG are interested in the privatisation of STOEN electricity distributor and G-8 group, scheduled for this year. As a result of this sector privatisation about 30 per cent of the electricity distributing market will go private, the minister said.

Italian firm opens new paper plant in western Poland

Prime Minister Leszek Miller attended the official opening on 28th April of a new production facility of Industrie Cartarie Tronchetti (ICT) in Kostrzyn (Lubuskie Province) in western Poland. PAP News Agency has reported. The investment, located in the Kostrzyn-Slubice special economic zone, cost US$300m to build, and will produce 65,000 tonnes of paper annually.
ICT is among major world producers of toilet paper. Its new facility is fully automated and employs 130 workers.
"I am very happy that Tronchetti Group decided to invest in the economic zone near Kostrzyn. It's a modern plant and all this is impressive, but what is most important is that it has been built in Poland," the prime minister said. The ceremony was also attended by the Italian ambassador to Poland.

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Treasury sets up Polish Steelworks company

On 6th May the State Treasury set up on the Polskie Huty Stali (PHS) company [Polish Steelworks Company] which it is planned will consolidate Poland's biggest steelworks, that is Katowice Steelworks, Sendzimir Steelworks [in Cracow], Florian Steelworks [in Swietochlowice, in Silesia] and Cedler Steelworks [in Sosnowiec, Silesia]. A company founding act was signed in Katowice, PAP News Agency reported quoting the Economy Ministry.
This marks the beginning of the process of fast consolidation, and it is hoped also privatisation, of steelworks. Thanks to this, the Polish steel industry can be included in the European and world steel market system, Andrzej Szarawarski, deputy economy minister, said.
The PHS court registration is planned to take place still in May.
The deputy economy minister said that the PHS privatisation, with a strategic investor holding 51 per cent of shares, can take place this year. A decision on whether talks will be held with investors who earlier submitted their offers (Ispat, Euroconsortium composed of Usinor, Arbed, Thyssen Krupp and Salzgitter), or whether a new tender will be announced, will be taken in late May.
Jerzy Podsiadlo, the current head of the Katowice and Sendzimir steelworks, has been appointed head of the PHS.
The consolidation of the four steelworks should facilitate rescheduling their debts. In late 2001 they totalled 4.5bn zlotys (about US$1bn ).
The combined revenue of the four works reached over 7bn zlotys last year. They reported a gross loss of 1.12bn zlotys.

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Telephony players change tactics as fixed-line market suffers

Telecommunications equipment manufacturers are slowing down production of fixed-line system components, choosing rather to concentrate on mobile technologies, as major telephone operators, led by Telekomunikacja Polska (TPSA), cut back investment in expanding their networks, New Europe has reported.
Over the last 12 years, the number of fixed lines in Poland saw a rapid increase from 3.4m subscribers in 1990 to around 11m today. Such growth attracted the world's biggest manufacturers of telecommunications equipment, including Germany's Siemens, Frances Alcatel and Lucent Technologies of the US, which invested in the domestic production of digital telephone exchanges and switching systems, predominantly for TPSA, Poland's largest operator. "There has been a significant reduction in the number of new fixed-line telephones and demand for fixed-line telephony components has fallen by a third," explained Tomasz Kulisiewicz, consultant for the Polish Chamber of IT and Telecommunications (PIIT). "For the past five years TPSA installed about a million new lines a year, while last year this was below half a million and they will probably only complete about 300,000 by the end of this year."
TPSA has reduced its investment budget from 4.8m zlotys last year to 4.3bn zlotys this year, Warsaw Business Journal reported. Analysts expect to see a steady decline in the company's fixed-line sales, from an estimated 14.3bn zlotys this year to 11.1bn zlotys by 2004.

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