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Country Commercial Guides for FY 2000: Poland Report prepared by U.S. Embassy Warsaw, released July 1999

CHAPTER I:   Executive Summary

The Country Commercial Guide (CCG) presents a comprehensive look at Poland's commercial environment using economic, political, and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at American Embassies through the combined efforts of several U.S. government agencies.

Poland became a full member of NATO in March 1999 and has set an objective of joining the European Union in 2003. The Polish economy continues to grow and new investment continues to be strong. Government reforms are making progress in many areas. A growing middle class and rapidly developing distribution networks are turning Poland into a more attractive market for small and medium U.S. exporters. With a population of 39 million, Poland's market potential is huge. Many European firms have recognized this potential and are beginning to expand operations and sales in Poland. The level of American direct investment remains high, but American exporters are still not taking advantage of the market's full potential. The Commercial Service in Warsaw believes that the time is ripe for U.S. exporters to enter the Polish market and avoid being locked out by European competitors.

The Polish economy recorded strong growth in gross domestic product (GDP) in 1998 at 4.8% percent, with between 3.5 - 4% growth predicted for 1999, and predicted 5.6% growth for 2000. Other economic indicators continue to improve. The official unemployment rate edged down from 13.2 percent at the end of 1996 to 10.4 percent at the end of 1998, but it has bounced up over eleven percent in the first half of 1999, partly due to changes in registration requirements. The rate of inflation in consumer prices (on a December-to-December basis) declined to 8.6 percent in 1998 from 18.5 percent in 1996, and it is expected to be lower than seven percent for 1999. However, some budgetary concerns remain. The Finance Ministry has set a goal of balancing the budget (excluding privatization revenues) by the year 2003. The budget deficit was 2.4 percent of GDP in 1998 and the government expects to meet the 1999 budget deficit target of 2.15 percent. For the year 2000, the Finance Ministry is drafting a budget proposal to reduce further the budget deficit to 1.8 percent of GDP. Since 1995, Poland has run a steadily rising current account deficit: 1.0 percent of GDP in 1996, 3.2 percent in 1997, 4.3 percent in 1998, and an estimated 5.5-6.0 percent in 1999. The government expects the current account deficit as a percentage of GDP to start to decline in 2000. The rising deficit is not a source of concern at this time because of substantial official reserves and coverage by capital inflows, not to mention portfolio investment.

Poland has become the leader in Central Europe in attracting foreign investors. According to data collected by the Polish Agency for Foreign Investment (PAIZ), foreign direct investment (FDI) in Poland reached a record-level of USD 10 billion (6.5 percent of GDP) in 1998. Total FDI reached USD 30.7 billion (20 percent of GDP) at the end of 1998. PAIZ predicts that FDI in Poland in 1999 will easily reach the 1998 level. According to official statistics, the U.S. has fallen to second place with regard to the volume of capital invested in Poland, right behind Germany, though we estimate that correcting these figures for errors in assigning nationality would show that the U.S. is still number one. At the end of 1998, according to official figures, U.S. investments accounted for 18 percent of the total value of foreign investments in Poland. U.S. exports to Poland in 1998 increased to USD 1.79 billion, up from USD 1.17 billion in 1997.

Growth was uneven in 1998. The construction industry, automobile industry and service sector continued to do well despite the slowdown throughout much of the rest of the economy. The agriculture, textile, electronics, and furniture sectors suffered greatly from the collapse of the Russian market and stiffer competition from Asian firms. Heavy industry and coal mining remained in the doldrums. In 1998, foreign and domestic investment, credit expansion, and wage increases bolstered domestic demand and cushioned the economy from external shocks. Polish exports stagnated in 1998 and early 1999. The sharp depreciation of the Polish zloty early in 1999 against the U.S. dollar and, to a lesser extent, the Euro should spur export growth.

Poland's last parliamentary elections were in September 1997 when two parties with roots in the Solidarity movement, Solidarity Electoral Action (AWS) and the Freedom Union (UW), won 261 of the 460 seats in the Sejm and formed a coalition government. The platform of the AWS and UW supports privatization and welcomes foreign investment. All of Poland's major political parties favor foreign investment although they have, at one time or another, exhibited some reservations about allowing foreigners to acquire dominant positions in strategic firms and industries being privatized, the current government intends to allow foreign investors to compete for controlling interests in all or most of those strategic firms that are to be privatized.

Provincial and local government can play an important role in facilitating or hindering trade and investment in Poland. A key plank in the government's ambitious reform program was the decentralization of public administration and finance. This reform reduced the number of provinces from 49 to 16 and created local government bodies at the county and province level beginning January 1, 1999.

Opportunities for trade and investment continue to exist across virtually all sectors in Poland. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members. Constant economic growth, the size of the Polish market, and a high level of political stability are the top reasons U.S. and other foreign companies do business in Poland. Most believe that Poland is the best market in Central and Eastern Europe for their products and investments. U.S firms interested in entering the Polish market should contact the U.S. Commercial Service office in Warsaw at www.cscentraleurope.org/Poland or Warsaw.Office.box@mail.doc.gov.

U.S. companies doing business in Poland face strong foreign competition. Poland's domestic industry continues to develop, and sectors that have already privatized are becoming more productive and competitive.

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at http://www.stat-usa.gov and http://1997-2001.state.gov/. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS.

The CCG is prepared by the U.S. & Foreign Commercial Service, U.S. Embassy Warsaw. It is intended to provide general information on economic and political trends and guidelines for doing business in Poland. Trade regulations and legislation in Poland are subject to frequent change. Before making any decisions based on this information, specific agencies and organizations provided in the guide should be contacted.