As Poland gears up for Prime Minister Vladimir Putin’s visit to Warsaw (part of a wider international gathering to commemorate the breakout of WW II) government officials are working behind the scenes to ensure adequate Russian natural gas supplies to avoid another shut off this winter. At the same time, global climate and EU emissions standards are forcing Poland to lower the use of coal, its primary domestic energy source. In its quest for greater energy security Poland, like many other Central European countries, is looking to diversify its energy sources and suppliers. By investing in renewable energy, Poland not only stands to become a regional leader in the “green” revolution, but also strengthens its long-term growth prospects.
Poland (along with Bulgaria and the Czech Republic), is considered an up-and-coming wind energy destination. Industry insiders pinpoint good wind resources, improving energy infrastructure and EU subsidies as driving forces behind a viable wind industry, one that could eventually rival established producers such as Germany or Spain. GCube, a leading insurance underwriting agency dealing with renewable energy, has identified Central Europe as a growing market. This April, German electricity producer RWE announced plans to invest €500 (zł.2,000) million in Polish wind farms. Even the European Bank for Reconstruction and Development has stepped in to finance up to €35 (zł.143) million for the construction and operation of three wind farm projects in southeastern Poland.
The economic impact of developing a renewable energy sector in Poland is substantial. First, it sets higher standards through the application of international best practices and environmental impact assessments. This is critical to maintaining competitiveness across Poland’s SMEs, as they currently spend less on environmental compliance.
Second, it enables diversification away from higher labor- (and energy-) intensive manufacturing towards a more knowledge based “green” economy. Finally, making early investments will encourage long-term investor interest, especially as Poland seeks to attract investment and build partnerships with leading European and American environmental technology firms.
Despite current market uncertainty, Central Europe will remain an attractive business destination for Western investors. This is also true for emerging giants in Asia. Prior to the economic crisis, a number of Central European governments sought to diversify their trade relationships and lower export dependence on the EU-15. Consequently, growing Chinese and Indian business interest in the region, particularly in Poland, presents new opportunities for greater economic diversification as well as long-term growth prospects. This is key, since Asian economies are forecast to emerge as the leaders of the global recovery (while the EU-15 struggles with a lethargic recovery). Last year, Polish delegations traveled to China and India in an attempt to build foreign investment interest, stressing Poland’s competitive labor and operational costs, developing infrastructure and business law reforms.
Currently, both Chinese and Indian firms are vying to win lucrative road and infrastructure contracts in Poland. Moreover, this September Warsaw will host its inaugural LifeStyle Expo, a trade fair aimed at bringing together Chinese and Polish entrepreneurs to foster stronger business and trade relations. Indian investment is also increasing, specifically in the IT, manufacturing and biotech sectors.
As these new stakeholders increase their ties to Poland and other Central European economies, they bring additional influence on the future economic and political developments in the region. As evidenced by the overall lack of EU-wide coordinated response to the global recession, and the enduring appeal of economic nationalism in some Western member states, Poland has a clear interest in diversifying its pool of foreign investors and trading partners. Simultaneously, this will present new challenges for Western Europe and the United States. As the region’s primary investors, both can anticipate increased competition from emerging global Asian brands, especially as cash abundant economies like China continue to penetrate Central Europe’s markets with badly needed capital and business opportunities.
Last week the Polish government sold a 3.1 percent stake in Bank Pekao SA for a reported 1.08 billion złoty ($377 million) in an effort to curb the country’s swelling budget deficit. This was just one of many assets set to be put up for sale over the next few years. Earlier this year the Treasury Ministry announced that it would lead a $3.5 billion privatization program to reduce the number of state-run firms from 740 to 16 by 2011. This includes bids for controlling stakes in the Warsaw Stock Exchange as well as energy, telecommunications and chemical firms. Polish officials hope these privatizations will not only provide much-needed public sector funding but also stimulate economic recovery and re-attract investor interest into the country.
Despite the fact that Poland is one of Central Europe’s healthier economies, privatization itself will not lead to a sustained economic recovery. Instead, the country needs to carry out long-awaited structural reforms which include overhauling its pension system, streamlining tax laws and eliminating red tape and corruption. All of these reforms are critical to improving Poland’s long-term business climate and competitiveness. They are also critical to moving economic growth beyond low-cost production and into higher value-added and knowledge-based industries.
While Polish firms have formed strategic alliances and joint ventures to become part of global supply chains, as in the IT and automotive sectors, local companies need to be better integrated into actual product development. This is especially important if they are to become regionally and globally competitive. With rising energy prices, higher transport costs and growing concerns over offsetting industrial carbon footprints, organizations will look increasingly at local suppliers for innovative products and services to drive growth and increase market share. If Poland can create a business environment where these newly privatized firms can thrive, than its economy will be better positioned to weather future economic shocks.
