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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: 071 - (27/03/03)
Change of government
The Polish government has fallen amid a heated controversy over taxation. The government is being reconstituted, with the ex-communists of the Democratic Left Alliance Party attempting to govern as a minority administration. Previously they were in a coalition with the Peasant Party. But its two ministers have been withdrawn from the cabinet.
The economy is not doing as well in the 2000s as it did in the 1990s. But even then a lot of poverty remained for those at the bottom of the social pile, increasingly the elderly and the infirm. Hence why against the odds the ex-communists returned in an election last year, defeating and indeed obliterating their opponents, a coalition led by Solidarity, the heroes of resistance to communism.
The tax scheme concerned road traffic. The government wanted to put a tax on cars in order to finance road construction and reconstruction. The Peasant Party opposed the measure.
Problems with the EU
Their departure eases the passage of measures to enter the EU, since they opposed such entry. But there are other obstacles to it, notably the strong stand by Polish president, Alexander Kwasniewski, in favour of the US in its determination to overthrow the regime of Saddam Hussein, which is clearly behind the smokescreen of talk of weapons of mass destruction. The Poles have a long memory of what it is like to live under an oppressive totalitarian regime.
President Chirac of France and Chancellor Schroeder of Germany are adamantly opposed to war and the former has made threatening remarks about the EU entry prospects of those in Central Europe who are backing the US. There are of course a lot of Poles in the US and Canada.
Miller's Democratic Left Alliance Party holds 212 of the 460 seats in parliament. "If all parties try to paralyse the government's work, early elections will have to take place," parliament speaker and Democratic Left Alliance member, Marek Borowski, cautioned members of parliament.
The Poles are renowned for their turbulent history, also for their fractiousness in politics. They used to have an extraordinary system whereby any member of their national assembly could veto any of its motions or resolutions. Naturally foreign powers were interested in finding one such member to turn. Even in Poland, a fiercely patriotic nation, it was always possible to find at least one bad apple. And lack of decision and due procedure ensued. In three partitions from 1772 to 1795 the country ceased to exist.
Poland did as much as any country in Central Europe to end communism and the Warsaw Pact. By early 1989 it had the first non-communist government in the region. What was rather surprising is that last summer it voted the communists, suitably renamed of course, back into power. Premier Leszek Miller is very much a born - again democrat, who can hardly believe that he wiped out the Solidarity-led bloc entirely at the elections. The deep unpopularity of the previous government was unsurprising in the circumstances. Nor is that of the present government either in times that are still pretty bleak.
New agriculture minister outlines plans
In the coming weeks new Agriculture Minister, Adam Tanski, will mainly occupy himself with an intervention scheme for the government's Agricultural Market Agency (ARR) and a planned information campaign preceding the spring EU referendum, PAP News Agency has reported.
Tanski, outlining his immediate plans to reporters after the 4th March government sitting, said precise intervention purchase rulings should help pacify farmers. The minister also expressed his surprise that protesting farmers in Warsaw did not demand talks with the Agriculture Ministry.
"I and my deputies were ready for talks with farmers but they weren't interested. What they wanted was to demonstrate their strength and show their discontent. But the negotiation offer is still open and this is what we'll tell all farmer unions," Tanski said.
Tanski also stressed the importance of amending a new bio-fuels bill recently vetoed by the president and completing a law regulating Poland's agricultural system.
Bridgestone rolls along
For Bridgestone, the decision to increase production in Poznan was not a difficult one, reports the Warsaw Business Journal. In December the company announced a major programme for strengthening the operations of subsidiary Bridgestone/Firestone Europe, with the programme centring on measures to upgrade and expand production capabilities.
Bridgestone has European manufacturing plants in Spain, France and Italy. The Poznan plant, which supplies tyres to automakers and retail channels throughout Europe, is not only the company's first manufacturing facility in central and eastern Europe, but also its most modern plant anywhere in Europe, incorporating state-of-the-art technology on a par with the equipment at its plants in Japan. "So it was a logical choice to invest there," said Gert Meylemans, senior manager, corporate public relations of Bridgestone Europe.
Another factor was that the Poznan plant was built specifically for the production of high performance tyres, which are expected by 2008, to account for 70% of output. "The fact that some of our OEMs (original equipment manufacturers) have manufacturing units in Poland also influenced our decision," Meylemans said.
He pointed out that Bridgestone's Poznan investment has not been beset by any serious problems. "The Polish government and city authorities give us very good support which we really appreciate," he said.
The workforce is another positive advantage. Meylemans said: "They are smart and quickly understand what they need to do. They work seriously, respecting standards, procedures and rules. They also tackle work with a Kaizen mind." Bridgestone has introduced the concept of Kaizen, or continuous improvement, in its daily activities, along with the TeamConcept working philosophy.
As for the future, Meylemans said that it is still too early to assess what will be the impact of the country's EU entry, "But we expect it to be mainly positive, because 95% of our products are exported to EU countries." There are no plans at the moment for any more increases in production facilities at Poznan, but this may change. As Meylemans put it, "There could be in the future, but that depends on external factors such as demand, economical climate, etc." Currently there are no plans either in Poland or elsewhere in central and Eastern Europe.
And so for the Poznan plant, the future is assured. The daily production capacity will rise from the current 10,000 tyres to 15,000 in 2004, reaching 23,000 by the end of 2006. The existing investment of €120m will be increased by a further €200m. As for the workforce, it currently numbers just under 600. This is expected to double by 2008.
Polish aviation plant signs US$60m contract with UK company
PZL Swidnik aviation plant and GKN Aerospace Services of Britain signed in Swidnik on 27th February a 10-year cooperation agreement worth US$60m, Swidnik's spokesman Jan Mazur said, PAP News Agency has reported.
Under the agreement, Swidnik will supply shells for aircraft engines for the small passenger jet planes, Challenger 300, the production of which is to be started by Bombardier.
Work on the project will start immediately and the first shells will be delivered probably next year. The contract provides for the possibility of further developing the cooperation, Mazur added.
The Swidnik plant, known mainly as a producer of helicopters, has been developing its cooperation with aviation plants worldwide. It is a producer of airframes for Italian Agusta helicopters, doors for Airbus, wing elements for ATR-72 and cockpits for Mirage jet fighters.
At present the plant employs nearly 2,500 people. Last year revenues from cooperation totalled 50m zlotys, with the value of sold production at 126m zlotys. The 2002 net profit stood at 20m zlotys.
Take off for cheap flights
The prospect of cheaper flights from Warsaw appeared closer, with the news that plans are being considered for developing a new international airport to rival Okecie, Warsaw Business Journal reported recently.
A major private British airport operator is believed to be interested in developing a second international airport for Warsaw. According to air industry sources contacted by the Business Journal, the company is part of a consortium that is planning to submit a bid in a tender organised by the Military Property Agency of the sale of a former military airfield in Modlin, 38km north west of the capital and close to the main Warsaw-Gdansk expressway.
The development of a second airport for Warsaw could herald a price war that would result in cheaper tickets for travellers. The British investor's interest in Modlin follows the authorities commitment to opening the country's skies before European Union accession. A redeveloped Modlin airport is likely to attract the cut-price airlines which are already flying passengers from Prague to London for as little as €20. Low-cost carriers Ryanair and EasyJet have already expressed interest in entering the Polish market and taking on the flag carriers, principally LOT, which is one of the most expensive airlines in Europe.
One of the reasons that low-cost airlines are cheaper is that they avoid big airports like Heathrow and Gatwick in London and instead operate out of smaller ones, such as Stanstead and Luton, where the fees they are charged are much lower, said Wojciech Rydzkowski from the department of transport at Gdansk University.
But the question is, does Warsaw need another airport? Not in terms of traffic volumes, it seems. Okecie was used by 4.7m passengers in 2002, fewer than Luton, which is London's fourth airport. Zbigniew Niemczycki, co-owner of White Eagle Aviation, Poland's biggest independent carrier, says he would "immediately" move his airline's base from Okecie if he could get lower prices elsewhere.
"We can't offer different conditions to some of our clients," countered Edyta Mikolajczyk, spokeswoman for Polskie Porty Lotnicze, operator of Okecie, who pointed out that the airport survives thanks to the flag carriers, which are thus PPL's priority. But she also said that PPL is exploring fresh alternatives, such as making the old airport building available to the low-cost airlines as a terminal, where the facilities would be more basic and cheaper.
Many industry insiders believe that Modlin would be a better location for Warsaw's airport than Okecie, which currently handles all international flights to and from the capital. In the opinion of one expert, who asked not to be named, Modlin's location at some distance from the city centre is an asset, since there would be no restrictions on its further development. At Okecie, by contrast, expansion plans have been plagued by bureaucracy and problems with its location. "Okecie will be strangled by the city," the expert said.
The main runway at Modlin is, according to Henryk Zdrojkowski, head of the department at the Military Property Agency overseeing the tender, in "a good, but not excellent state." Significantly, it could be extended without problem from its present 2.5km to 3.5km, longer than the main runway at Okecie. There is even enough land available to build another, brand new runway.
One problem with Modlin is that it lacks modern navigation and landing facilities, and installing them would require investment of several million euros. Still, as Andrzej Rucinski from the department of transport at Gdansk University, said, "it will cost less than a new plane to bring Modlin up to the standard to handle Boeing 737s."
Another plus is the consideration that the investment is more than compensated for by Modlin's excellent road and rail connections.
A suggestion that Warsaw's international airport might be moved to Modlin surfaced at the beginning of the 1990s. Finally, the authorities decided to invest more in Okecie, and a modern terminal was built there. Recently, a consortium led by Budimex was awarded the €200m tender to build a second terminal. The decision to go ahead with the construction was a "big mistake," the anonymous expert told the Business Journal. "Okecie lies inside an inhabited area, and this will limit its development. In a few years it will be clear that a new airport is needed.
Polish bond auction distracts investors
Polish stocks struggled to close flat on 5th March as investor fears over the future of state-held stakes in Poland's blue-chips and heavy interest in a two-year bond auction took the shine off equities, The Financial Times has reported. Warsaw's benchmark WIG 20induex ended little changed at 1071.04.
Strategists said that while high demand for 2.5bn zlotys (US$64m) worth of two year government bonds reaffirmed investor interest in Poland, the issue took market attention away from the stock market.
The auction was more than three times oversubscribed and the finance ministry later said it would offer an additional 250m zlotys of the paper at a supplement tender on 6th March.
But blue-chip stocks were weighed down by supply fears after the government said it was considering giving shares it holds in listed companies to help fund an agency designed to help struggling shipbuilders.
Recent fears that the government would continue this policy have already hurt listed shares. Earlier in the week, the government said it would transfer as much as 3.3 per cent of the issued shares in TPSA, the telecoms operator, to a state coal holding company.
Ministry says 5-year bonds offer failed
Poland's Finance Ministry did not sell any of its supplemental non-competitive offer of 400m zlotys in five-year benchmark bonds because no offers were submitted, Interfax News Agency reported. "The additional T-bond auction was a complete failure - the ministry didn't receive any bids," Amerbank fixed income analyst, Przemyslaw Magda, said.
According to him: "the failure was not a surprise since prices on the secondary market were in fact lower by 0.10-15 zlotys compared with the auction price." The more recent auction was "non-competitive" with participation restricted to successful bidders from the February 19th sale and the price set at the 1,014.31 zlotys average recorded that day. The ministry sold its entire two billion zloty offer of the five-year bonds, with the average yield coming out at 5.420%.
Focus on construction
Fitch Ratings in a recent report on the country's construction sector says the industry will experience another difficult year, the Warsaw Business Journal reported.
The construction sector was developing rapidly throughout 1995-1999. Its average annual growth of more than 7%, stimulated by GDP growth, improved consumer confidence and raised capital expenditure. The economic slowdown of the past two years accompanied by lower investments hit the sector hard, resulting in a 2.8% decline of output in 2001 and an estimated decline of 8% in 2002, according to the report. The residential and office building sector had experienced very hard times, while the decrease in the retail and hotel sub sectors has been moderate.
Diminishing demand for construction services resulted in strong competition and low or even under-priced projects. Some of the construction market players were not flexible enough to react quickly to the deteriorating conditions. The liquidity in the sector worsened due to the payment problems. The companies found themselves in a critical situation, with some even close to bankruptcy or in negotiations to write off debt, including PIA Piasecki and Mostostal Gdansk. The five largest firms were not spared such problems and needed support from their strategic investors.
Fitch Ratings underlines that domestic construction companies operate in a highly competitive, cyclical market with too many players, which encounter massive bureaucracy, sometimes combined with corruption.
The country's construction sector is one-ninth the size of the German one, the largest market in Europe. With an annual output of €24bn, Poland's construction sector is the same size as those in Austria, Portugal or Belgium. But the slowdown of the European economy has hindered the development of the sector in European countries. The German construction sector, for example, has been declining since 2000, and Fitch Ratings does not see the possibility of any striking improvement in the near future. Only companies that will manage to adapt to the difficult economic conditions will stay on the market, the firm said.
In addition, Fitch Ratings says that the credit risk of domestic construction companies is above the country's corporate average. Among the five highest players here, Mitex is the best performing with good profitability, Budimex has a good market position, the support of an investor and a strong balance sheet. Exbud Skanska is in a worse condition with losses and financial difficulties, though its foreign investor continues to support it. Financial difficulties have also hit Mostostal Zabrze-Holding and Mostostal Export. Both companies do not have investor support and are likely to be unable to pay off their debts if the situation on the construction market does not improve.
Fitch Ratings believes 2003 will be another tough year for the construction sector with further bankruptcies. However, a turn for the better is likely to happen in 2004 following the country's EU accession, which Fitch expects to bring new investments.
Coal Company to be recapitalised, government says
The government on 4th March decided to recapitalise the Kompania Weglowa (Coal Company) with shares in Telekomunikacja Polska SA [Polish Telecommunications Joint Stock Company], government spokesman, Michal Tober, said after a cabinet meeting but did not reveal any details, PAP News Agency has reported.
The State Treasury owns 18 per cent of TP SA shares. The Treasury Ministry said that the government had decided to transfer 46m shares in TP SA to recapitalise the Coal Company.
The Treasury Ministry said it would not sell shares in Telekomunikcja Polska SA for some time after a possible sale of a package of shares in TP SA by the Coal Company. The ministry does not plan to transfer shares in TP SA to other state agencies or companies.
Kompania Weglowa SA, operating since 1st February 2003, has taken over 3.8bn zlotys of assets of 23 coal-mines with their 85,000 employees and the 4bn zloty debts of five coal companies.
Poland to earn US$850m on Yamal gas pipeline by 2022
The state and local budgets will get US$850m by 2022 from the exploitation of the Polish section of the first stretch of the Yamal gas pipeline, Deputy Prime Minister and Minister of Infrastructure, Marek Pol, said on 26th February, PAP News Agency has reported. In mid-February, Poland's and Russia's deputy prime ministers, Marek Pol and Viktor Khristenko, signed an intergovernmental protocol to decrease Russian gas supplies by 74.6bn cubic metres, or by 34.5 per cent in 2003-2020.
Under the agreement, Poland will receive 143.4bn cubic metres of gas, instead of the earlier planned 218.8bn cubic metres, in the years 2003-2020. The agreement to this effect is to be signed on 1st March. The contract also foresees that supplies will be extended by two years until 2022, which means that the total reduction will be 56.6bn cubic metres, or 26.2 per cent.
President of Polish Oil and Gas Mining (PGNiG), Michal Kwiatkowski, told the Sejm committee that gas prices will probably go down as Poland plans to increase home gas extraction from 4bn cubic metres to 6bn cubic metres.
Asked about future talks concerning the purchase of gas from Norway and Denmark, Kwiatkowski said the ratification of contracts with the two countries have been prolonged by the end of the year.
Poland says higher role of SMEs takes precedence
Poland has proposed to increase the role of small- and medium-sized enterprises (SMEs) in the economy. But the market has not been very positive in its reaction to it, New Europe reported recently. Confederation of Private Employers President, Jeremi Mordasewicz, said the plan was not given a thumb's up because it fails to reduce red tape for the small companies. It also does not address the high costs of business activity, he added. "We want to see civilised conditions," Mordasewicz said.
SMEs are the targeted groups because they represent a whopping 99.8% of all registered companies. They also employ more than two-thirds of the workforce and account for almost half of gross domestic product (GDP). Most of them are small, using less than nine employees. The majority of them also lack management know-how and state-of-the-art technology. A total of €69.25m (€55m from the government and €14.25m from the European Union's Phare Fund) has been earmarked to the new economy and labour super-ministry for spending on advisory services and an education programme in 2003 to prime SMEs for accession to the EU. About €2m will be granted in 2004-2006 to help boost the private sector. Officials admitted to a huge "grey zone," where labour rules and official record keeping are side-stepped to the extent of 20% of activity, the reports said. According to latest studies, 90% of SMEs subsidise their development from profits, while only a small 19% secure loans from banks.
FOREIGN ECONOMIC RELATIONS
Polish-Ukrainian economic cooperation agreement signed
The Confederation of Polish Employers (KPP) and the Ukrainian Union of Industrialists and Entrepreneurs (UUIE) have concluded an agreement on expanding economic cooperation between the two countries. The document was signed by KPP president, Andrzej Malinowski, and his Ukrainian counterpart, Anatoliy Kinakh, in Warsaw on 4th March, PAP News Agency has reported.
"According to various sources, 2002 Polish-Ukrainian trade turnover amounted to between US$1bn -1.5bn," Kinakh, the former Ukrainian prime minister, told a press conference. "We are not satisfied with the present level of economic cooperation between our countries because their potentials are much bigger," Kinakh added. His union is to help Polish businessmen to invest in Ukraine. According to Kinakh economic cooperation should cover above all the food and processing industries, the pharmaceutical industry, construction and roads, the steel industry, mining and transport, as well as banking services.
Ukraine has amended legislation to create better conditions for investments and assure better protection of property rights. Kinakh wants free Polish visas for Ukrainians from the border areas and border crossing facilitations for Ukrainian businessmen. He confirmed that there will be no visa duty for Poles coming to Ukraine. The ex-prime minister spoke of the necessity of completing the construction of the Odessa-Brody-Gdansk pipeline to ensure energy security for both countries.
According to the Economy Ministry here, Polish investments in Ukraine at the end of 2001 amounted to over US$69.3m. This constitutes only 1.58 per cent of foreign investments in Ukraine.
Polish-Ukrainian trade turnover reached over US$1.45b in 2001, with imports amounting to US$449m and exports to over US$1bn. Compared to 2000, mutual trade turnover in 2001 rose 14 per cent, exports went up 25.6 per cent, while imports fell 5.5 per cent.
GE shapes up for expansion
GE Poland, a subsidiary of US-based General Electric, is considering boosting the size of its investment in the country at the end of the year and opening a call centre employing as many as 400 people, the Warsaw Business Journal reported recently. The company is looking to invest more cash in the country because it provides what GE considers low-cost labour, compared with western Europe, at a time when decreasing overheads is at the top of most executives' priority lists.
GE has already invested about €360m since it opened its doors in the country in 1992, a move that has to date yielded three factories, two banks, joint ventures, sales offices and a network of distributors. By last year it was employing 4,000 nationals.
"GE is quite interested in Central Europe," said Monika Doroz, executive assistant to Leslaw Kuzaj, GE national executive for Poland, the Czech Republic, Slovakia and Lithuania. "Poland has a low-cost labour force."
She added, too, that the country had "quite a friendly business environment," before tempering her statement with the acknowledgement that the government does not always side with business. "Public relations with the government is sometimes difficult," she said. However, she noted, GE is still bullish about its operations in the country.
The company is considering Krakow, Wroclaw or Poznan as possible sites of the call centre, which would serve GE's European operations.
Doroz said that plans for further investment in the country were only at the initial stages, and declined to reveal how much of an investment the American conglomerate would make. "We are just talking about it right now," she said. "We are thinking about it."
However, she commented that if the investment did go through, the company would effectively be shifting existing call centres from Belgium and the UK into Poland. The consideration is part of GE's global strategy at the behest of CEO, Jeff Immelt, to move back-office operations, such as call centres, to countries with cheap labour. At present, the company has back-office operations in Hungary and India, two locations that have been a success.
"Last year our CEO was here for his first visit," Doroz said of the successor to world-renowned former GE chief executive, Jack Welch. She added that he took sharp notice of the viability of the business environment in the country, given the high number of western businesses present. That, she said, could lead to more future investments. Doroz declined to give financial details on GE Poland's operations.
However, the management board of GE Capital Bank, for instance, a financial subsidiary of GE Poland, predicts a two-digit sales increase for 2003 compared to last year. The bank sold credits worth €68m (zl.282m) in 2002, which was 31.5% more than the year before. What is more, last year's profit, from its 1.3m customers, is expected to be four times that of 2001.
The bank said it owes its success, especially during the country's economic slump, to its debt collection methods and accurate risk assessment.
Doroz said that "GE more or less defies the country's economic hardship is quite slow, but here in Poland for us is quite good," she commented, noting that her assertion is evidenced by its investment plans for the country.
She added that GE does not think that the country's probable accession to the EU would affect its business. A final decision on the call centre would be made by year-end, she said.
ComArch inks IP agreement
ComArch, a Polish technology company, announced it has inked an agreement with the National Bank of Poland, worth 7.1m zlotys, for the development, servicing and maintenance of an economic-education-dedicated Internet portal, according to Interfax News Agency. "Economic education of society through the creation of an advanced Internet service that will host courses for remote learning and offer a considerable choice of multimedia materials available on the Internet and on CD-ROMs is the goal of the portal's creation," ComArch was quoted as saying.
With this contract, ComArch will boost this year's revenues from 155m zlotys reported in 2002. Sales should expand by about 20%, the company said.
SMEs back off IT investment
The majority of the approximately 90,000 small and medium-sized businesses that account for around half of the country's economic output will not boost their current levels of investment in information technology during the next two years, due mainly to the discouraging economic conditions, the Warsaw Business Journal reported recently.
While there is no specific data to show how much the country's SMEs have invested in IT compared to their counterparts in Euroland countries, most observers say that Poland continues to lag behind by two or three years, which could ultimately affect the companies' competitiveness on international markets, especially those which rely heavily on exports.
"SMEs are still behind the SMEs in western Europe with some exceptions; but on average they have a long way to go," said Grzegorz Tomasiak, country general manager of IBM Polska.
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