Economic and Commercial Section

Economic and Commercial Section Jakarta, 2002.10.02 Embassy of Poland

Kiri-kanan - bendera kedua negara

Poland - A Trade Partner for Indonesia

The last decade of the previous millennium has seen Poland emerge as the best example of dynamic and successful economic and political transformation and, at the same time, as the fastest growing economy of Central and Eastern Europe.

Few countries in the world have experienced such a steady growth during this period. According to the economic report on Poland published by OECD last year: "The success of Poland's economic transformation comes from a well-orchestrated combination of sound financial policies and perseverance with structural reforms."

The present transformation of the Polish economy is aimed at strengthening of the market mechanisms and institutions. The nation's economy has been opened to all forms of economic cooperation with foreign partners. As the result, Polish companies are becoming increasingly profitable and foreign trade is booming.

These factors, together with the stability of the Polish currency (zloty) in relation to Euro and the US Dollar, have led to creation of many attractive investment opportunities for foreign capital. The end of the first and most important stage in the process of transformation - begun in 1989 - will be marked by an entrance to the European Union, which is widely expected to take place in 2004.

During the period of transition, real GDP annual growth rate averaged 5 percent. In the year 2000 it amounted to 4.1 percent, slowing to 1.0 percent in 2001, mainly as an effect of economic slowdown in Poland's major export markets. GDP per capita has in 2001 reached approximately US$4,600, or US$9,600, if an adjustment for purchasing power parity is made. Total value of GDP in 2001 amounted to US$176.3 billion. Inflation was brought down to single figures (1.2 percent August '02-to-August '01) and strong consolidated private sector was created.

Prospects for the future are good as well. Inclusion into the European Union will likely provide an additional impetus to Polish economy, accelerate a process of integration into the largest homogenous market in the world and enforce a faster rise in productivity in the competitive Union environment.

The political and economic integration with the European Union is one of the strategic goals of Polish policy. To become a fully-fledged member, Poland must not only continue to develop and transform its economy but also make its legal and economic framework compatible with the rules of the EU.

Creating favorable conditions for attracting foreign direct investment to Poland has been of paramount importance to Polish government. During the course of the last decade, total foreign investment and investment commitments in Poland have already accumulated to US$56.8 billion. The record year was 2000 which alone has contributed FDI valued at US$10.6 billion. The largest value of investment was placed in the manufacturing sector, particularly in the automotive industry, food-processing, production of non-metal goods and electrical and optical sector.

Financial services, transport and communication, trade and construction have also attracted large amounts of foreign capital.

Inflow of foreign capital helped to accelerate the transformation of the economy, speed up the privatization process, stimulate economic growth and modernization of economic structures, especially in industry and trade, inspire development of new technologies, increase productivity and develop modern management as well as better organization of production.

Looking from another perspective, foreign capital is willingly flowing to Poland because of its reputation as a booming and stable market, with a good record of macroeconomic management, highly educated workforce, good industrial infrastructure, dynamic demand and comparative advantage in relative labor costs. In view of these factors Poland is likely to remain for some time the regional leader in attracting FDI transfers.

Contemporary Poland has a very strong private sector - its share in the country's economy is constantly rising, owing both to the privatization of state-owned enterprises and to creation of new private companies. So far, since 1990, more than 10,000 state enterprises have been transferred into private hands. By the end of 2000 private sector has accounted for 70 percent of the GDP and it is estimated that by 2005 this share will further increase to 85 percent. The number of companies participating in the international market has dramatically risen from less than a hundred foreign trade operators in late eighties to over one hundred thousand business entities today. It is estimated, that more that over 84 percent of total import and almost 84 percent of export is already being handled by the private sector (data for the year 2000).

Foreign trade is an important factor in Poland's economic growth. The share of trade exchange in the GDP has grown from 35 percent in 1990 to 52 percent in 2000. Last year total exports were valued at US$36.1 billion and imports reached US$50.3 billion.

This year exports have continued to grow, while value of imports remained stable. European Union countries are the main partners of Poland in foreign trade. Their share in total Polish international commerce accounts for about 65 percent. Germany is the main single trade partner - it is the destination of 33 percent of Poland's overall exports and the source of 24 percent of Polish imports - followed by Italy, Russia and France. The above figures prove the high quality of "MADE IN POLAND" products and their competitiveness.

The commodity structure of Polish export offer underwent profound changes in recent years, marked by the shift from agricultural and primary exports to labor-intensive manufactures.

Nowadays, Poland sends abroad not only steadily increasing quantities of various engineering products, such as motor cars, ships, boats, civil engineering machines and electrical equipment but also textiles, furniture (the second largest exporter in Europe), footwear, packaging machines, as well as rich variety of food products.

The well-deserved sense of accomplishment should not prevent us from recognizing many challenges that Poland must still face. Those include foreign trade imbalance and relatively high level of unemployment. The only way to meet the former challenge is through increasing the export capacity of the economy by securing more investment, even better technology and higher productivity.

The latter is a natural effect of transformation from large, ineffective state-owned enterprises to economy run by more efficient private companies and should be resolved eventually when the workforce undergoes necessary retraining and becomes absorbed by the fast-developing private sector. However, the social implications of even temporary unemployment cannot be overlooked. Poland - Indonesia economic relations

Indonesia is an important trade partner of Poland in South- East Asia region. The mutual trade turnover shows steady growth tendency. In 1998 it reached the value of US$208.0 million, in 1999 - US$209.0 million, in 2000 - US$219 million and in 2001 - US$195 million (according to Polish statistical data).

Long tradition of commercial relations between the two countries saw Indonesia exporting to Poland mainly agricultural products and raw materials, such as natural rubber, coffee, tea and spices.

This commodity structure has undergone profound changes in recent years. The share of chemical compounds and telecommunication equipment in total Indonesian exports to Poland is rising every year. Man-made yarns, garments, cloths, footwear, rattan furniture and paper products are also exported to Poland in large quantities.

On the other hand, Polish companies supplied to Indonesia various kinds of machinery, civil engineering equipment, chemicals, steel products, powdered milk and electrical apparatus. The commodity structure of Polish exports to Indonesia is rather stable, while Polish purchases from Indonesia become every year more diversified.

Unfortunately, a considerable part of trade transactions between Poland and Indonesia is executed by intermediary companies from other countries.

Polish businessmen consider Indonesia an attractive market offering great prospect. Producers and exporters alike are looking for new opportunities to supply mining, electrical, agricultural and food processing equipment, machine tools, packaging machinery, power generation equipment, various kinds of chemicals, including fertilizers, herbicides and insecticides as well as technology, all of which are in demand in contemporary Indonesia.

High-quality "MADE IN POLAND" products can still be offered at very competitive prices, thanks to comparative advantage in labor costs.

Polish business is keen to acquire new trade partners in Indonesia and establish more direct relations with individual companies.

The legal framework provides firm basis for further development of trade and economic cooperation between Poland and Indonesia. In 1974 the countries signed the trade agreement, in 1986 an agreement on the development of economic and technical cooperation, and in 1992 two agreements - on avoidance of double taxation and on promotion and protection of investments.

Polish customs regulations offer a considerable advantage to Indonesian exporters entering the Polish market. The present system of customs duties is in line with GATT and WTO principles, and provides differentiated customs rates according to the country of origin. Indonesian products enjoy lower tariffs under the General System of Preferences (GSP).

In fact, almost all agricultural commodities imported from Indonesia may enter Polish market without payment of customs duty (zero tariff). In order to be eligible for such preferences, commodities must be sold directly to Poland.

Indonesian businessmen interested in starting their activity on the Polish market will find many attractive opportunities. They may easily open a representation office or find a partner to cooperate with. Therefore, Poland is expecting more and more Indonesian companies to visit Poland in the future, searching for trade and business opportunities. The best opportunity to get acquainted with the Polish export offer and also to present Indonesian products to many potential customers is to participate in international trade fairs and exhibitions organized in Poland.

Polish companies offer many business and cooperation opportunities for interested Indonesian partners, especially in such areas as: steel industry, shipbuilding industry (including construction of tankers, container ships, LPG and LNG ships, Ro- Ro and passenger ships, fishing boats, patrol and rescue boats), underground and open-cast mining equipment, chemical industry, machine-tool industry, building and construction machinery, food processing plants and environment protection equipment and know- how.

The prospective purchases from Poland may also include such goods as: fertilizers, pharmaceuticals, processed food, powdered milk, measuring instruments, agricultural machinery, railway equipment, energy sector equipment and fire-fighting and rescue aircraft.

In order to explore new areas of bilateral trade and to strengthen economic cooperation between Poland and Indonesia, more direct contacts between business circles are required, as well as becoming more familiar with each other's economies. Then, no doubt, mutual trade will grow to the benefit of both of our distant (only geographically) countries.