Jan Cienski in Wroclaw -
Hak Bong Sung didn't come to the grassy fields outside of the western Polish city of Wroclaw to enjoy the view; he came because of the business potential offered by low wages, a decent infrastructure and help offered by local and central governments. The result is an enormous factory producing flat screen LCD television sets for Korea's LGE.
That same path has been trod by companies from all over Europe, Asia and the Americas, which have made Poland the world's seventh most attractive destination for foreign investment, according to Ernst & Young, the consultancy.
For the first five months of this year, Poland has received about 4.9bn in foreign direct investment (FDI), the National Bank of Poland said on July 27. That puts Poland on track to reach about 11bn in FDI for the year, a similar amount to last year. The country has pulled in about $90bn in FDI since communism fell in 1989.
FDI at work in Wroclaw
About two-thirds of investment in Poland is in greenfield production, the kind of investment that has transformed Biskupice Podgorne from a sleepy village about 20 kilometres beyond Wroclaw into one of Europe's LCD television manufacturing powerhouses.
Within sight of the LGE plant, which opened only two years ago and is already expanding, is another factory owned by LG-Philips, a joint venture between LGE and Philips of the Netherlands producing flat screen TV panels, the most crucial and expensive part of an LCD set.
That plant in turn brought Japan's Toshiba, which opened its own flat screen plant in July. All around the three main factories, smaller plants - many of them South Korean but some of them Polish are opening up to supply the bigger plants.
"We came to Poland because the electronics industry is well developed here," says Sung.
He is echoed by Astuhiko Nozaki, vice president of Toshiba's Central Europe division, who is sitting in a container unit near the factory because the permanent offices are not yet ready. "We chose Poland because it is in the centre of Europe, because there are suppliers nearby, because we can get good staff and because we had strong support from the Polish government," he says.
Slawomir Skrzypek, Poland's central bank governor, says that the new investments are helping to keep Poland's inflation rate in check, despite a fast-growing economy, because they increase worker productivity. "If you look at FDI and the growing proportion of greenfield investments, it increases the potential of the economy," he says. FDI also created 31,000 jobs last year, the highest number in the EU.
However, there are signs that Poland's reign as one of the world's most attractive FDI destinations is in danger.
In the Ernst & Young survey, Poland placed seventh this year, but was fifth a year earlier. China was number one, followed by the US, India, Germany, Russia and the UK in overall FDI. Following Poland were Japan, Brazil and the Czech Republic, which is fast catching up to Poland. The report also found that Asian countries are gaining over Europe as FDI destinations and that Poland in particular is beginning to run into trouble.
Poland has boomed since joining the EU in 2004, when a fifth of the population was unemployed and the economy was barely ticking over. Now GDP growth in the first quarter of this year was 7.4%, and unemployment is down to 12.4%, making it no longer the highest in the EU.
A good part of the credit for the economy's performance can be attributed to FDI. But the fast economic growth and EU membership are beginning to cause problems for investors. With open borders, as many as 2m Poles have moved to Western Europe in the last three years to find work, hitting the construction industry and skilled trades particularly hard. The shortage of workers has caused a surge in salaries, which are rising at a 9.3% annual rate.
Meanwhile, the things that traditionally have made investors wary of investing in Poland - awful road infrastructure, hugely inefficient bureaucracy and court system, a disorganized foreign investment agency, frequent changes in tax laws and regulations, and weak governments afflicted by frequent crisis haven't gone away.
"For us, the biggest problem is human resources," says Sung, noting that when LGE came to the Wroclaw area two years ago, unemployment was about 10%. It is now about 1%. Workers are also demanding frequent pay raises, and those who don't get them move to the new electronics factories springing up around LGE or decamp for Western Europe.
"Salaries are a bit higher than we had planned for," says Toshiba's Nozaki. "The next two years will be difficult, and I think we will have a problem finding engineers and technical staff."
However, after spending millions to set up Polish factories to supply the whole of Europe, neither Toshiba not LGE are planning to shut down and reopen elsewhere. The pertinent question is whether they will be followed by other large investors who choose Poland over other attractive options on the continent.
Send comments to The Editor
bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more
Wojciech Kość in Warsaw - Poland’s Law and Justice (PiS) party, which won an outright majority in the parliamentary elections on October 25, has announced a hardline ... more