Economy of Poland

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Contents

1 Overview 2 Growth 3 Agriculture 4 Industry 5 Economic reform program 6 Foreign trade 7 Major Polish firms 8 Foreign business in Poland 9 Other statistics 10 See also 11 References

Overview

Poland has steadfastly pursued a policy of economic liberalization throughout the 1990s and today stands out as the greatest success story among the former communist states. Even so, much remains to be done. The privatization of small and medium state-owned companies and a liberal law on establishing new firms has encouraged the development of the private business sector, which has been the main drive for Poland's economic growth. The agricultural sector remains handicapped however by structural problems, surplus labor, inefficient small farms, and a lack of investment. Restructuring and privatization of "sensitive sectors" (e.g., coal), has also been slow, but recent foreign investments in energy and steel have begun to turn the tide. Recent reforms in health care, education, the pension system, and state administration have resulted in larger than expected fiscal pressures. Improving this account deficit and tightening monetary policy, with focus on inflation, are priorities for the Polish Government. Further progress in public finance depends mainly on privatization of Poland's remaining state sectors, the reduction of state employment, and an overhaul of the tax code to incorporate farmers, most of whom currently pay no taxes.

Growth

Recent GDP growth:

• Q2 2002 0.9%
• Q3 2002 1.8%
• Q4 2002 2.2%
• Q1 2003 2.3%
• Q2 2003 3.8%
• Q3 2003 4.2%
• Q4 2003 4.3%
• Q1 2004 6.4%
• Q2 2004
• Q3 2004
• Q4 2004 4.0%
• Q1 2005 2.1%

• Total 2002 1.4%
• Total 2003 3.7%
• Total 2004 5.5% (forecasts)

In February 2004, industrial output was up 18.0% annually.

Poland entered the European Union on 1 May 2004.

Agriculture

Agriculture employs 27.5% of the work force but contributes only 3.8% to the gross domestic product (GDP), reflecting relatively low productivity. Unlike the industrial sector, Poland's agricultural sector remained largely in private hands during the decades of communist rule. Most of the former state farms are now leased to farmer tenants. Lack of credit is hampering efforts to sell former state farmland. Currently, Poland's 2 million private farms occupy 90% of all farmland and account for roughly the same percentage of total agricultural production. These farms are small--8 hectares (ha) on average--and often fragmented. Farms with an area exceeding 15 ha accounted for only 9% of the total number of farms but cover 45% of total agricultural area. Over half of all farming households in Poland produce only for their own needs with little, if any, commercial sales.

Poland is a net exporter of confectionery, processed fruit and vegetables, meat, and dairy products. Processors often rely on imports to supplement domestic supplies of wheat, feed grains, vegetable oil, and protein meals, which are generally insufficient to meet domestic demand. However, Poland is the leading producer in Europe of potatoes and rye and is one of the world's largest producers of sugar beets. Poland also is a significant producer of rapeseed, grains, hogs, and cattle. Attempts to increase domestic feed grain production are hampered by the short growing season, poor soil, and the small size of farms.

Industry

Before World War II, Poland's industrial base was concentrated in the coal, textile, chemical, machinery, iron, and steel sectors. Today it extends to fertilizers, petrochemicals, machine tools, electrical machinery, electronics, cars and shipbuilding.

Poland's industrial base suffered greatly during World War II, and many resources were directed toward reconstruction. The communist economic system imposed in the late 1940s created large and unwieldy economic structures operated under a tight central command. In part because of this systemic rigidity, the economy performed poorly even in comparison with other economies in central Europe.

In 1990, the Mazowiecki government began a comprehensive reform program to replace the centralized command economy with a market-oriented system. While the results overall have been impressive, many large state-owned industrial enterprises, particularly the railroad and the mining, steel, and defense sectors, have remained resistant to the change and downsizing required to survive in an open market economy.

Economic reform program

The economic reforms introduced in 1990 removed price controls, eliminated most subsidies to industry, opened markets to international competition, and imposed strict budgetary and monetary discipline. Poland was the first former centrally planned economy in central Europe to end its recession and return to growth in the early 1990s. Since 1992, the Polish economy has enjoyed an accelerated recovery, although growth has recently slowed. The private sector now accounts for over two-thirds of GDP.

As a result of Poland's growth and investment-friendly climate, the country has received over $50 billion in direct foreign investment since 1990. However, the government continues to play a strong role in the economy, as seen in excessive red tape and the high level of politicization in many business decisions. Investors complain that state regulation is not transparent or predictable; the economy suffers from a lack of competition in many sectors, notably telecommunications. In early 2002, the government announced a new set of economic reforms, designed in many ways to complete the process launched in 1990. The package acknowledges the need to improve Poland's investment climate, particularly the conditions for small and medium-sized enterprises, and better prepare the economy to compete as an EU member. The government also aims to improve Poland's public finances to prepare for adoption of the euro (planned 2009).

Foreign trade

With the collapse of the ruble-based COMECON trading bloc in 1990, Poland scrambled to reorient its trade. As early as 1996, 70% of its trade was with EU members, and neighboring Germany today is Poland's dominant trading partner. Poland joined the EU in May 2004. Before that, it fostered regional integration and trade through the Central European Free Trade Agreement (CEFTA), which included Hungary, the Czech Republic, Slovakia and Slovenia.

Most of Poland's imports are capital goods needed for industrial retooling and for manufacturing inputs, rather than imports for consumption. Therefore, a deficit is expected and should even be regarded as positive at this point. Poland is a member of the World Trade Organization and the European Union. It applies the EU's common external tariff to goods from other countries (including the U.S.). Most Polish exports to the U.S. receive tariff benefits under the Generalized System of Preferences (GSP) program.

Opportunities for trade and investment continue to exist across virtually all sectors. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members. Strong economic growth potential, a large domestic market, EU membership, and a high level of political stability are the top reasons U.S. and other foreign companies do business in Poland.

Major Polish firms

• PKN Orlen - Petrochemical Giant
• Telekomunikacja Polska(TP S.A)- Telecom
• PKO BP- Banking
• PKP - railway system
• Poczta Polska - Polish Post
• PSE National Grid
• Elektrim - Diversified Utilities/ Mobile Phone Service
• Fiat Poland- Polish branch of Fiat Group (former FSM), Builds Panda and Seicento
• KGHM Polska Miedź - copper mines and mills
• General Motors Poland
• FSO Motors - Former Daewoo FSO. Produces Lanos and Matiz automobiles
• Grupa Lotos- Petrochemical Firm
• PZU- Insurance Company

Foreign business in Poland

Concerns. The Polish tax system is a huge factor for foreign investors. There is currently a large amount of administration involved, which makes it very likely for corruption to occur in one of the steps. Crime is another thing to worry about. There is an increase in crime while there is a decrease in resolved crimes. Especially pertinent to business, the largest increase in crime was to property. Although the government is trying to crack down on crime, there have been many cases of organized crime and computer crime.

Since World War II, Poland is extremely ethnically homogenous. 96.7% of the people consider themselves to have Polish nationality. Furthermore, they are religiously similar as well. Around 75% are practicing Catholics. As a result, there is some suspicion of foreigners.

In the past decade, Poland has seen many foreigners start businesses and control industry. For example, the Polish banking sector is 70% owned by foreigners. There is now somewhat of a backlash and Polish businesses may prefer to do business with other Poles.

Polish employment is also a concern because of inflexible employment laws, and it is also very favorable to the employee. There is recent legislation that aims to reduce overtime pay, and loosen some requirements for smaller businesses.

Other statistics

Investment (gross fixed): 18.4% of GDP (2004 est.)

Household income or consumption by percentage share:

• lowest 10%: 3.2%
• highest 10%: 24.7% (1998)

Distribution of family income - Gini index: 31.6 (1998)

Agriculture - products: potatoes, fruits, vegetables, wheat; poultry, eggs, pork

Industrial production growth rate: 10% (2004 est.)

Electricity:

• production: 133.8 TWh (2002)
• consumption: 117.4 TWh (2002)
• exports: 11.5 TWh (2002)
• imports: 4.5 TWh (2002)

Electricity - production by source:

• fossil fuel: 98.1%
• hydro: 1.5%
• other: 0.4% (2001)
• nuclear: 0%

Oil:

• production: 17,180 barrel/day (2001 est.)
• consumption: 424,100 barrel/day (2001 est.)
• exports: 53,000 barrel/day (2001)
• imports: 413,700 barrel/day (2001)
• proved reserves: 116.4 million barrel (1 January 2002)

Natural gas:

• production: 5.471 billion m³ (2001 est.)
• consumption: 13.85 billion m³ (2001 est.)
• exports: 41 million m³ (2001 est.)
• imports: 8.782 billion m³ (2001 est.)
• proved reserves: 154.4 billion m³ (1 January 2002)

Current account balance: $-3.831 billion (2004 est.)

Exports - commodities: machinery and transport equipment 37.8%, intermediate manufactured goods 23.7%, miscellaneous manufactured goods 17.1%, food and live animals 7.6% (2003)

Imports - commodities: machinery and transport equipment 38%, intermediate manufactured goods 21%, chemicals 14.8%, minerals, fuels, lubricants, and related materials 9.1% (2003)

Reserves of foreign exchange & gold: $41.88 billion (2004 est.)

Debt - external: $99.15 billion (2004 est.)

Currency exchange rates: zlotych per US dollar - 3.7 (2004), 3.8891 (2003), 4.08 (2002), 4.0939 (2001), 4.3461 (2000) note: zlotych is the plural form of zloty

See also

• Economy of Europe
• Politics of Poland
• Poland

References

• Worldmark Encyclopedia of National Economics, Volume 4 - Europe, Gale Group, 2002, ISBN 0787649554
• 2005 Economic data from Eastern European Markets (ceeMarket.com) (http://www.ceemarket.com/next.php?id=19343)

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