Poland celebrates 15 years in the EU
First of May marks the fifteenth anniversary of Poland’s accession into the European Union. The last 15 years is a story of growth, economic development, as well as political, social and other changes. Today, most Poles are happy to be EU citizens and the gained benefits for the Polish economy and businesses are undeniable.
First talks between Polish officials and the representatives of the European Economic Union began as early as the beginning of the 1990s. In 1994, Poland filed an official request for being admitted a member of the economic community. The next ten years was a time of difficult negotiations and numerous reforms. The country had to adapt its laws to the existing EU regulations. In a national referendum held in 2003, over 77 percent of participants voted in favour of entering the Community. Finally, at midnight between the last day of April and the first day of May 2004, Poland became a Member State of the European Union.
“From 15 years we have been members of a community which used to be a dream of an entire generation of Europeans. We have united in diversity and together we are facing new challenges” – commented Polish Prime Minister Mateusz Morawiecki. Minister of Entrepreneurship and Technology Jadwiga Emilewicz said that the 15 years of our presence in the EU is a success story of Polish entrepreneurs. She stressed that more and more businesses in Poland are do not only export goods and services to the western markets but also invest there.
Between 2004 and 2019, Poland’s GDP grew by 80 percent. Average salary in private companies employing 10 and more staff members more than doubled. Export numbers skyrocketed. Poland is currently the biggest beneficiary of EU funds. Since the accession, the country has received over 160 billion EUR. This money allowed numerous Polish business owners invest in new equipment, technology, structures and human capital.
More investment into rail in Poland
Prime Minister Mateusz Mazowiecki has recently announced that the government prepared a list of train lines of strategic importance to the country. The ruling party wants to make sure rail transportation is not neglected. On the contrary – the planned construction of Solidarity Transport Hub (knows also as Central Communication Port) is going to put trans in the spotlight after years of neglect. Heavy investment is expected in the sector in the upcoming years.
Central Communication Port is going to be a massive airport that will be located in central Poland, between Warsaw and Łódź. However, the government want it not only to be an air traffic centre, but a true travel hub, of which rail is to play an integral part. The Prime Minister announced that Port Solidarity will be connected to 1600 kilometres of rail tracks.
The rail tracks of strategic importance are to include 670 km of high-speed rail allowing trains to carry passengers with the speed of over 250 kilometres per hour. They will constitute a web that connects more than 1200 Polish cities and towns and provide cross-regional transportation for all parts of the country. “We are connecting Poland together”, officials say. Travel times between major cities are to be shorter. According to the early plans, a person getting from Warsaw to Central Communication Port will be there in merely 15 minutes.
The transport hub is to be completed in 2027. The investment into the rail network infrastructure is to cost approximately 40 billion PLN. The total, including the construction of Solidarity Port, is to be near 75 billion PLN. The first stage is to be building new rail connection between Warsaw and Łódź, followed by other region capitals.
The project is a major step in improving access to train and other types of transportation of the inhabitants of Polish towns, which in recent years witnessed a decline in bus and train routes. More and more politicians and experts begin to notice the problem of transport exclusion which affects people living in rural areas.
Open Pension Funds to be disposed of
Polish government announced its plans for a new pension system reform and intention to entirely do away with Open Pension Funds (OFE). This will be a definite end of the retirement system as we know it.
Several years ago, after the reform of 1999, OFEs were supposed to be the main pillar of the pension system, where millions of Polish workers would deposit a part of their income waiting for old age to come. Today, the lawmakers have a different vision of how the system should look like. But what about the funds deposited in the old pension accounts?
In a recent press conference, Prime Minister Mateusz Morawiecki presented how the shift from the old to the new will look like. Open Pension Funds, currently managing approximately 160 billion zlotys, will be closed and the funds will be transferred out. The government wants to give Polish citizens a choice when it comes to what will happen to their money.
The funds will be transferred either to Individual Pension Accounts (IKE), or the so-called third pillar (voluntary retirement savings), or Social Insurance Institution (ZUS), the first pillar. A transfer to IKE will entail a 15% fee. This is justified by the fact that money in Individual Pension Accounts are free from tax on capital gains, unlike funds in ZUS. The Prime Minister assured that the funds will be “100% private and inheritable”.
The lawmakers are currently working on applicable provisions. It is projected that the reform will come into effect at the beginning of 2020. Government experts estimate that majority of future pensioners will decide to move their money to IKEs instead of ZUS. This will give the state budget over 19 billion PLN in the form of the aforementioned “conversion” fee.
Energy transition – a challenge for Poland
Europe needs to move away from fossil fuels and towards renewable energy sources. The energy transition is one of the biggest challenges that current and future governments face. The change will be particularly hard for those regions whose economies are based on coal. A recent report from the European Commission experts focuses on the future of EU’s coal regions.
According to the researchers, Poland may loose over 40 thousand jobs by 2030 as a result of the energy shift. It will mostly affect the region of Silesia, a historic seat of country’s coal industry. Our power market heavily relies on fossil fuels and it is very likely the country will be hit the hardest by the upcoming transformation of the power sector.
In the European Union there are currently 128 coal mines and 207 coal-fired power plants. The coal sector employs about 237 thousand people across Europe. Most of the industry is located in Central Europe, in particular in Germany, Poland, Czech Republic and Slovakia. However, Poland is the sole Member State that generates more than 50 percent of its energy from coal and EU’s second-biggest coal producer. What is more, the country’s power plants are characterised by low efficiency.
In coal-dependent regions the transition away from coal is likely to cause a slowdown in GDP growth and a hike in unemployment figures. Equipment manufacturers and steel industry also will be affected. To counteract the negative effects of the energy switch, transmission strategies need to be implemented. Experts suggest solutions such as carbon capture and storage technology or reconversion of mining sites to renewable energy generation.
In 2017, the European Commission launched the “Coal regions in transition” platform to develop strategies for energy transition and easier switch to renewable energy sources in coal-dependent regions. The platform is a part of Clean energy for all Europeans initiative.
Will the new social transfers sink the Polish economy?
The ruling Law and Justice Party has a new idea for winning the upcoming European Parliament elections: a “Five+”, a package of five ideas that is to make voters happy, including a 13th pension for all pensioners, increased tax-deductible expenses threshold, exemption from income tax for young people, loosening the requirements for participating in the “500+” child benefit scheme and revival of bus transport in small towns. Critics say that if implemented, the program will have awful consequences for the economy.
Even though party leaders assure there will be enough funds in the next year’s budget to pay for the social transfers, there are numerous experts who warn against destabilising the state finances. It has been rumoured that the Minister of Finances Teresa Czerwińska had filed for a resignation and will soon leave the government, as she does not want to allow the country to follow in the footsteps of Greece.
The budget deficit is definitely going to go up. Poland’s GDP growth is expected to slow down as well, even though substantiable social transfers will provide some impulse for growth. The World Bank expects the country’s economy to be developing at the rate of 4 percent in 2019 and 3.6 percent in 2020, while last year it was exceeding 5 percent. Poland will be affected by an economic slowdown in Europe. There are already some worrying signs coming from the German industry.
Leszek Balcerowicz, a former Minister of Finance, warns that the upcoming regulations may be dangerous. He points to the fact that instead of preparing for tougher times, the government is spending money and increasing the budget deficit. What is likely to follow is an increase in taxation. Another option is withdrawing money from Demographic Reserve Fund, which is not good either.
“Five+” is expected to cost approximately 40 billion PLN.
Ministry presents Capital Market Development Strategy
What are the main difficulties hindering the development of capital market in Poland? How to overcome these obstacles and make investors’ lives easier and market activity more robust? These are the questions that lawmakers asked when creating Capital Market Development Strategy. The document, the draft of which has been recently presented by the Minister of Finance Teresa Czerwińska, is to help shape the future of capital markets in Poland.
The Strategy is based on four pillars: building trust in the market, protecting individual investors, stability of legal provisions and supervision regulation, and the advantage of new technology. The solutions presented in the document will improve access to financing and decrease the costs of obtaining capital.
In the course of preparing the strategy draft, Ministry experts identified 20 problems that trouble Polish investors and slow down the development of capital market in Poland. Among those 20 barriers are low level of savings, inadequate financial education, low attractiveness of IPO, outdated technology in key market segments, excessive regulation (gold-plating) on one hand and legal loopholes on the other, insufficient incentives for market participants.
The Strategy presents such solutions as numerous tax incentives for investors, financial education strategy, stricter due diligence procedures, lower IPO costs, and implementing new technology. The government want to encourage Poles to build long-term savings and also to attract investment from Poles who moved out of the country.
Capital Market Development Strategy (draft version) was moved to the consultations phase. The lawmakers are waiting for opinion and advise from financial market institutions. The Ministry of Finance stresses the fact that the plan is being created together with market participants and is designed to meet their needs and expectations.
The Strategy was prepared in cooperation with European Bank for Reconstruction and Development and constitutes a part of Responsible Development Strategy, a long-term development plan of the Polish government.
Polish meat scandal shocks Europe
Few things stir more attention and anxiety from the public than scandals involving food. Consumer panic may take a heavy toll on company profits, or even affect whole industries. Polish meat industry is going to learn this the hard way. Recent revelations from TV reporters make everybody wonder if Polish beef is safe.
An investigation conducted by journalists from TVN, one of the biggest Polish television stations, revealed shocking practices of slaughterhouses, which according to the reporters’ findings were done on a mass scale. The TV station revealed that abattoir workers killed cows which were sick and unable to move or even stand on their own. Sick animals’ meat was sold to numerous clients and reached regular consumers.
TVN broadcast footage recorded with hidden cameras that shows cows dragged with lines, killed at night and without the presence of a veterinarian (which is obligatory). Workers used a seal to mark meat as healthy, even though it can only be used by a specialist who is supposed to evaluate if the beef is safe for consumption. Eating meat of sick animals may be harmful to human health but apparently the practice of slaughtering sick animals is very profitable and according to the journalists is common in the industry.
The news was quickly picked up by international media and caught the attention of the European Commission. Not without a reason. Poland is a big exporter of beef and other meats. After the outbreak of the scandal, authorities in several European countries ordered investigation. Meat coming from the slaughterhouse in question (which was immediately closed) was found in several states, including Finland, Slovakia, Portugal and Lithuania, as well as more than 20 locations in Poland.
Chief Veterinary Officer announced widespread inspections in slaughterhouses across the country. The European Commission has announced it will send its experts to Poland to investigate the case.
What will 2019 be like for Polish economy?
2018 is finally over. For Polish economy and businesses, the past twelve months were marked by record-high employment and strong GDP growth. What can entrepreneurs expect in 2019?
Business experts are certain: next year we are going to experience a slowdown. After the good days there always come bad days. There are sign indicating that the peak of the economic cycle is already behind us. From now on, one may expect that GDP growth will cease to increase. According to the predictions, the economy will be developing at the rate of approximately 4 per cent, down one percentage point from what we witnessed in 2018.
PMI index, which reflects the state and expectations of the manufacturing industry and the services sector and serves as the litmus test for the entire economy, keeps deteriorating. The December data show a fall to 47.6 percentage points (down from 49.5 in November), while the number above 50 is considered improvement. This is bad news for the Polish industry.
Polish economy is heavily dependent on the state of foreign markets, Germany in particular. The country to the west of Poland is a big importer of our goods. The German economy, like the entire EU, is showing the signs of cooling off too. In fact, GDP slowdown is expected to be a trend for the 2019 around the globe. What we also see is the rise of protectionism, which may have negative impact on industry.
What we will likely witness in 2019 is the rise of inflation which may shake the consumer spending numbers. Polish economy is fuelled by consumption, which in 2018 rose due to low unemployment and rising salaries. This year, prices of goods and services will be affected by rising fuel and electricity prices.
One needs to remember that global economy is cyclical, and it is completely normal for periods of great expansion to be followed by times of slowdown. In 2018, Poland was among the states with the highest GDP growth in Europe. The economy will keep developing, but at a slightly slower rate.
Hike in electricity prices expected in 2019
No good news for companies in Poland. Business owners should brace themselves for a drastic increase of the price of electric energy. Some industry experts suspect the cost of electricity may go up by as much as fifty percent! If this prediction comes true, this will be a big shock for entrepreneurs, not to mention average consumers. Media in Poland keep asking whether the government is going to do something about the upcoming hike and take some steps to protect energy recipients.
Why will Poles have to pay more for electricity? All is due to the rising cost of coal (80 percent of electric power produced in the country comes from coal power stations) as well as EU carbon emissions price. The latter reached a 10-year high this year. Higher cost of energy will translate into increased cost of production of goods, so companies will be forced either to cut other costs or, what is more probable, change the prices of their products.
Another industry under pressure will be transportation. Consumers may expect higher prices of train tickets. It was recently speculated that some rail companies can receive electricity bills 80 percent higher than today. The hike in the prices of electricity is expected to have big impact on investment figures as well.
The government is urged to do something to cushion the upcoming blow. There are plans to prepare a compensation scheme that will cover some of the cost of the price hike for small and medium companies as well as certain institution, such as hospitals, hospices and other care facilities. However, the draft of the state budget for 2019 does not set aside any funds for this purpose. The Minister of Energy, Krzysztof Tchórzewski, said that next year the government intends to spend around four billion PLN on compensations.
IMF: Poland’s GDP growth at 4.4% in 2018
International Monetary Fund has recently published its annual World Economic Outlook for 2018. The report showcases the current economic situation in the world and as well as the forecasted developments. The organisation predicts that in the upcoming years Poland’s economy will face a slowdown.
International Monetary Fund experts think that Polish economy in 2018 will expand at the rate of 4.4 percent, which is the highest result among Emerging and Developing Europe states (the group that Poland belongs to), which on the whole will grow at the rate of 3.8 percent. Next year, however, the economy will start slowing down and end up with real GDP growth reaching 3.5 percent in 2019.
The downward trend will be even more visible in the medium term. IMF predicts that in 2023 Poland’s GDP will expand at the rate of 2.8 percent. At the same time, inflation rate will slightly rise from 2.1 in 2018 to 2.9 in 2023. Report authors point to the negative demographic trends that trouble the country as well as some structural bottlenecks.
Poland have also made its way to the World’s Bank’s Human Capital Index. The index measures how health and education environment translate into human productivity and identifies human capital gaps that may occur if local conditions prevent people from reaching their full potential in each of the surveyed countries. It is the first time that the World Bank has prepared such a study.
Poland was classified in the fourth, and the highest, quadrille, scoring high marks in four areas: Probability of Survival to Age 5, Expected Years of School, Harmonized Test Scores, Learning-Adjusted Years of School, and falling behind the Western standards in the field of Adult Survival Rate, as it was determined 89 percent of 15-year-olds that reach the age of 60, which is low compared to the rest of Europe.
All in all, Poland’s Human Capital Index was established at 0.75, which means a child born in Poland today will be 75 percent as productive when she grows up as she could be if she enjoyed complete education and full health.