Poland -- A solid partner for Indonesia

Poland -- A solid partner for Indonesia

Poland was the first country in Central and Eastern Europe to embark upon the breakthrough transition from a planned economy to a market system.

This transition began under the extremely difficult conditions of high inflation, a scarcity of consumer goods and highly concentrated production. The Polish economy entered the 1990s as the weakest in Central Europe. It emerged in the new millennium as one of the strongest. Although the first couple of years of the millennium have brought an economic slowdown, in 2003 economic growth was back to 3.7 percent and reached 6.5 percent, 6.1 percent and 5 percent in first three quarters of 2004, respectively.

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

These factors, together with the steady appreciation of the Polish currency (zloty) against the euro and the US dollar, have led to the creation of many attractive investment opportunities for foreign capital. The end of the first and most important stage in the process of transition -- begun in 1989 -- was marked by entrance to the European Union on May 1, 2004.

The most important fact concerning Poland's accession to the EU is the unification of the conditions for business activities in the European market. This means that any product granted permission to be sold in one EU market can also be sold in any of the other 24 markets.

Poland's domestic market has now taken on the system of EU regulations, and due to this fact Poland's terms of trade with the rest of the world have changed. According to EU regulations, Polish manufacturers and exporters can launch antidumping and antisubsidy investigations involving the entire EU market against countries outside the EU.

Poland's GDP per capita in 2002 was US$4,940 -- or about $10,600 with adjustments for purchasing power parity. Total value of GDP in 2003 amounted to $216 billion. Inflation in 2003 was brought down to about 1 percent, and although EU accession has created higher demand it remains under control at about 4 percent.

The strong condition of the Polish economy is evidenced by rapidly growing levels of trade exchange. Joining the common EU market has also increased the share of trade with the EU, as all limitations on access to goods, including administrative barriers and customs duties on agricultural goods, have been removed.

Compared to the first six months of 2003, exports have grown by 38.4 percent to $34.5 billion, while imports have increased by 32.3 percent to $41.8 billion. Of all exports, 87.4 percent are directed to developed countries (82.1 percent to the EU) and 77.4 percent of imports come from these countries (70.0 percent from the EU).

An important trend in Poland's foreign trade is the steady decrease of the trade deficit, which has fallen for six year in a row. The largest deficit in the first half of 2004 was recorded in trade with developing countries -- $4 billion.

Poland's main export markets are: Germany, France, Italy, Great Britain, the Czech Republic, Russia and the Netherlands, while imports mainly come from Germany, Italy, Russia, Netherlands, France and China.

The commodity structure of Polish exports have undergone profound changes in recent years, marked by the shift from agricultural and primary exports to labor-intensive manufactured goods.

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

One of the reasons for the success of the Polish economy during the transition period has been the rapid growth of the private sector. Its share in the country's economy is constantly rising, owing both to the privatization of state-owned enterprises and to the creation of new private companies. Since 1990, more than 10,000 state enterprises have been transferred into private hands. In 2002, the private sector accounted for 77.6 percent of industrial output and it is estimated that by 2005 this share will increase to 85 percent.

The number of companies participating in the international market has dramatically risen from less than 100 foreign trade operators in the late '80s to over 100,000 business entities today. It is estimated that 92.3 percent of total imports and 88.7 percent of exports are already being handled by the private sector. Furthermore, nearly all of the agriculture, retail, wholesale (94.1 percent) and construction (98 percent) sectors are in private hands.

Creating favorable conditions for attracting foreign direct investment (FDI) to Poland has been of paramount importance to the Polish government. In 2003, the inflow of FDI to Poland amounted to $6.42 billion. Since the beginning of the economic transformation the accumulated value of FDI has reached $72.71 billion. France is the leading cumulative foreign investor in Poland with US$13.857 billion, followed by the Netherlands ($9.863 billion), the United States ($8.689 billion) and Germany ($8.415 billion).

A growing number of investors with headquarters in the United States and Asia (mainly Japan and South Korea) invest through their European subsidiaries. The Netherlands plays an important role in this process, acting as an intermediary for a number of American as well as Japanese investments.

The majority of the investment has been placed in the manufacturing sector, particularly in the automotive industry, food and food-processing, the production of non-metal goods, chemicals, electrical and optical appliances and furniture. Financial services, retail trade, telecommunications services and construction have also attracted significant amounts of foreign capital.

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

Seen from another perspective, foreign capital is willingly flowing into Poland because of its reputation as a booming and stable market, with a good record of macroeconomic management, a highly educated workforce, good industrial infrastructure, dynamic demand and a 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.

The well-deserved sense of accomplishment should not prevent us from recognizing many challenges that Poland must still face. These include foreign trade imbalance and a relatively high level of unemployment.

The only way to meet the former challenge is by increasing the export capacity of the economy by securing more investment, better technology and higher productivity.

The latter is a natural effect of transformation from large, ineffective state-owned enterprises to an economy run by more efficient private companies, and should be resolved eventually when the workforce undergoes the necessary retraining and becomes absorbed by the fast-developing private sector.

However, the social implications of even temporary unemployment cannot be overlooked. As can already be seen, accession to the European Union is contributing to the expansion of the Polish economy and to Poland becoming an even more attractive partner on the international market.