World Bank criticises Poland though business says climate is improving

By bne IntelliNews December 20, 2007

Matthew Day in Warsaw -

When it comes to making life easier for Poland's businesses, the new government may well have its work cut out. A survey by the World Bank into the practicalities of doing business worldwide, published in December, rated Poland as the worst of the EU's new members and underlined that Central Europe's biggest state is still struggling to shake off the clinging legacy of communist-era attitudes and bureaucracy.

In fact the "Doing Business 2008" report, which assessed 178 countries on aspects such as the ease of paying taxes and registering a company, revealed that Poland had slipped from its previous position of 68 to 74 as other countries, waging far more successful wars on red tape and paper pushers, surged past. To add insult to injury, the report found many of Poland's Central and Eastern European peers – seemingly unfetterd by their own communist pasts – as some of the world's best reformers.

The World Bank in particular highlighted starting a business, dealing with official licenses and permits, and paying taxes as three areas that required significant reform if Poland wants to get back on track.

At face value, this shouldn't present too much of a problem to the Polish government. Always eager to champion itself as pro-business, Civic Platform, the dominant partner in the new two-party coalition government, declared its intention throughout the autumn 2007 election campaign to make life easier for Poland's business, and now seems to be putting its money where its mouth is.

A break with the past

In mid-December, the government said it would set up an extraordinary parliamentary committee to tackle the problem of excessive red tape and bureaucracy. "The committee is designed to eradicate redundant, needless and unclear regulations that hamper economic growth," said Civic Platform's Zbigniew Chlebowski at a press conference, adding that it will eventually present parliament with bills and recommendations aimed at curbing bureaucratic sloth.

Another feature of the committee will be that it will draw upon expert and independent advice, and this will no doubt come as welcome news to Poland's business community. Jeremi Mordasewicz from the Polish Confederation of Private Employers complains that the previous government led by Jarsolaw Kaczynski's Law and Justice party preferred to consult inexperienced "20-year-olds" rather than the business community.

But to say he's hopeful the government will introduce the needed reforms is misguided. Speaking at press conference on the World Bank report, he said he was "not optimistic," citing the apparent weakness of the business community to lobby government. "We just complain and don't come up with solid proposals," he sighed.

The failure to come up with concrete proposals has particular relevance to problems surrounding the Polish public procurement law. Much maligned by critics who accuse it of inflexibility and stifling rules and procedures, it has become a curse to many whom have to deal with it. "I'm concerned about public procurement projects, and this has become really frustrating," says Con Murphy, director of the PM Group, an engineering and project management company with over 10 years experience on the Polish market. "There have been some attempts to streamline it, but the bureaucracy and red tape in the public procurement sector is a real problem."

Without reform this could have serious implications for the Polish economy. Poland's backwards and shoddy infrastructure requires vast sums of investment to avoid it becoming a serious hindrance to economic development. But as infrastructure projects such as roads inevitably involve public procurement, where pitfalls of delays and extra costs have become commonplace, experts warn that unless the government introduces reforms rapidly, Poland could fall further behind its CEE neighbours.

But it's not all doom and gloom. Despite a lack of reform in key areas, the World Bank report praised Poland's progress at reducing the cost of registering property and making it easier to enforce contracts.

Anecdotal evidence from companies also suggests that Poland is moving in the right direction. "It's not really all that bad, especially when you compare the situation with three or five years ago," says Lawrence Fahrenhotz, a partner at LaCross Language Consultancy, a translation and teaching agency in Warsaw. "For example, you can now download all the different tax forms off the internet. Next year should be able to file them online. Another area where things have become easier is that you can now settle VAT on a quarterly basis whereas in the past it was monthly, which meant you were paying even though you hadn't collected all your receivables."

Even Con Murphy, despite his concerns over public procurement, believes that doing business is becoming easier in Poland. "It's getting better," he says. "The local authorities are better resourced they are coping with more private investment and are more familiar with the expectations of the clients. So I'm optimistic about the future."

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