Poland’s resurgence

| April 4, 2015 | 0 Comments
Between 2008 and 2013, Poland’s GDP soared by 14 percent, compared to growth of -1.3 percent for the whole of the EU.

Between 2008 and 2013, Poland’s GDP soared by 14 percent, compared to growth of -1.3 percent for the whole of the EU.

“In the resigned faces of the people of Tarnopol, I felt a tragic knowledge I could not quite understand, but which touched me deeply. They knew that the Polish state was crushed. More accurately than all the ‘intelligentsia’ of Warsaw, than my friends with connections, than my highly educated fellow officers, they knew what was happening — that Poland had fallen.”
So writes Jan Karski in Story of a Secret State, a dramatic first-person account of his important role in the Second World War.
That realization is just one of many tragic happenings in the history of Poland. The word tragic is appropriate, yet it seems unfair in the face of the resilience of the Polish people. This tenacity can be seen in the Karski book; it can be seen in the incredible hope mustered by the Polish Jews during the war and particularly at Auschwitz; it can be seen in members of the resistance and Solidarnosc, the movement through which the fall of the Berlin Wall really began, and in Poland’s Nobel Prize-winning leader, Lech Walesa.
This is a country that was divided and ruled by occupiers for 150 years and, was, during the Second World War, attacked from both sides, the Nazis and Stalin. And yet, 50 years after it slipped behind the Iron Curtain, it rose again, first to regain independence and then, in 2004, to join the European Union as part of a historic 10-country expansion.
The resilience that led to those victories can still be seen today, as a thoroughly modern European country takes its place as an economic leader on its own continent and beyond. Just 25 years ago, Poland was emerging from decades of communism, inflation was hitting unthinkable highs and the future was uncertain. Since then, there has been a remarkable rebound and today, its economic strength is considerably more secure. It’s just one of the many success stories seen over and over again in Polish history.

Marek Grodzinski, a vice-president at Capgemini, says Poland has a “fantastic talent pool.”

Marek Grodzinski, a vice-president at Capgemini, says Poland has a “fantastic talent pool.”

Democratic Poland has several strong economic indicators, not least of which is GDP growth. From 2008 — yes, the year of the global economic downturn — to 2013, GDP growth has topped 14 percent compared to GDP growth of -1.3 percent for the EU as a whole over the same period. The inflation rate, which was stratospheric in March 1990, growing by 1,211 percent compared to the same month in 1989, has been under control for decades and came in at -1 percent in January 2015.
Poland’s projected GDP growth for 2014 was 3.2 percent — well ahead of its neighbours, including Germany (1.8 percent in 2014), Czech Republic (2.0), Slovakia (2.2), Romania (2.5) and Bulgaria (1.7). While comparable stats for the other countries weren’t available at press time, Poland’s actual GDP growth for 2014 outperformed expectations slightly, at 3.3 percent, while Germany’s came in at 1.6 percent.
Weathering the financial crisis was part luck and part sound economic practice, according to Ryszard Petru, economist, author and former adviser to the finance minister. Mr. Petru boils it down to three essential elements. First, the country wasn’t as leveraged as other countries, the banks were not so exposed and the mortgage loans as a percentage of GDP were 15 percent, versus 76 percent in the U.S. Second, three factors combined to save the country’s economic bacon: a flexible exchange rate meant currency easily depreciated; exports dropped by 30 percent, but the profitability of the remaining exports increased and, with such a weak currency, there wasn’t much interest in importing. That shifted the balance to higher net exports, which contributed significantly to growth.
The fact that Poland hadn’t joined the Eurozone — its currency is the zloty — and could therefore control its fluctuations, was another lucky break. Joining the Eurozone is, of course, something Poland must do as an EU member, and it’s lagging behind many of its counterparts that also joined in 2004 ­— namely Estonia, Latvia, Lithuania, Cyprus, Malta, Slovakia and Slovenia. Polish President Bronisław Komorowski is a strong proponent of joining the Eurozone, but to do so, he needs to enact a constitutional change, something that requires a two-thirds majority.
And then there was a little good timing that also could be called luck: At the moment the crisis started, Poland was receiving the first wave of funding from the European Union, a move that has greatly increased its fortunes for many reasons, not least of which has been its ability not only to effectively access discretionary EU funds, but also to spend those funds wisely.
“The EU funding was spent relatively well because it was easy to spend,” Mr. Petru said matter-of-factly. “We don’t have the problem that mature economies have on how to spend money wisely. If you need a motorway from Berlin to Warsaw, it’s obvious. It was mostly infrastructure, but it was very needed. All these factors contributed to growth in 2009, but led to significant deficit and debt.”
Still, he notes, compared to the collapse of other economies around the world, Poland fared well.
“Compared to many other countries, one can say that nothing terrible happened,” he said. “[Thanks to the flexibility of the currency], companies still managed to keep their profits high, so they were not forced to shut down.” More than that, Poland became more attractive for business. Polish companies taking advantage of the fact that many of their global competitors were weaker, started expanding to Western Europe. There weren’t hundreds of companies, but there were dozens and the fact is, such international expansion had never happened before.
Today, the favourable business climate that made Poland stand out during the crisis and beyond is also attracting investment. What attracts business giants such as IBM, 3M, Volkswagen, Capgemini and GE, not to mention Canadian companies such as Bombardier, Magna, Pratt & Whitney, Apotex and VAC Aero?
For those in the aviation sector, such as VAC Aero and Pratt & Whitney, it’s Aviation Valley, a geographic region and an industrial cluster whose Aviation Valley Association was launched in 2003 with 15 member companies, one technical university and two regional development agencies. Today, 12 years later, Aviation Valley has 120 companies on its roster.
The aviation industry has actually been in the Rzeszow region since the 1930s, when the Polish government decided to locate a central industrial region between the east and west of the country. The idea was that 50 state-owned businesses would locate there and a few did, principally those creating aircraft engines and their components, but the Second World War disrupted their operations and, because of its strategic location and resources, the parts of Rzeszow that weren’t completely destroyed were used by the Nazis for their own purposes.
In 1976, Pratt & Whitney Canada asked to become a supplier to Poland of simple components for its aircraft engines. The Communist authorities didn’t like the idea, but eventually acquiesced.
“Today, many well-known Western brands have decided to locate here because of the good environment, the skilled people and the economic zones,” said Andrzej Czarnecki, spokesman for WSK PZL-Rzeszow S.A., which began as a state-owned company in 1936 and is now owned by Pratt & Whitney. “Because of the tough situation after the Eastern markets disappeared, there was a very strong need to define the roles. The economic zone looked for a certain area with good investment potential. The special  economic zone means we’re offering you land, brownfield [investment] and certain tax relief.”
Aviation Valley is an economic driver for Poland, said Andrzej Rybka, the association’s managing director.
“[Since the transformation in 1989], we’ve been able to recover to the point where we are a very important part of the global supply chain,” Mr. Rybka said. “There’s virtually no passenger airplane without critical parts or modules produced here, especially their engines and landing gear. This is our strength and our uniqueness.”
The business services sector is another of Poland’s success stories. Eleven years ago, when French multinational Capgemini established itself in Poland, there were between 2,000 and 5,000 Poles working in the sector. Today, there are 130,000 and that number jumps by between 15,000 and 20,000 every year.
“And yet, there’s still a fantastic talent pool,” said Marek Grodzinski, vice-president of business process outsourcing at Capgemini. “The Polish education system has certain pluses. People have quite wide perspectives. If your major is accounting, you still study macro- and micro-economics.”
Tellingly, Capgemini moved to Krakow one year after Poland joined the European Union, a move that assured the company that the economy was stable.
“Poland joining the EU brought stabilization,” Mr. Grodzinski said. “It’s a stamp that the country is secure, a confirmation that you aren’t going into a wild economy. Plus, let’s be honest, Poland has received a lot of money from the EU.”
Besides the stabilizing economy, the company was drawn to Poland because while salaries are growing, they are still low, and they aren’t growing by the same percentages as they are in other cost-efficient markets such as India.
For Capgemini, there’s also a good cultural fit, Mr. Grodzinski said, and added that most of his employees speak three to four languages. In addition, he said, “Western people generally like to work with Poles — they travel a lot and know many languages.”
Finally, there’s fire in the bellies of Polish workers. “Maybe Western Europe is getting a bit lazy and the new economies, like Poland and the Czech Republic, are very hungry for success. We haven’t had many chances in the past to become managers and directors. Now people have those opportunities.”
IBM’s reasons for establishing offices in several Polish cities, but principally in Krakow, were similar. “Twenty-five years ago, when transformation started, a lot of energy was released,” said Krzysztof Fafara, director of IBM’s Krakow Delivery Centre, which offers business process outsourcing. “When the free-market economy started, this energy came out. Poland offers a pool of candidates with skills and resources and that enabled IBM to come here. Since joining EU, the Polish economy grew by 40 percent, whereas the European average was 10 percent, Germany was 12 percent. So this wealth of candidates and these skills enable us to grow as a company.”
When he started at IBM eight years ago in business process outsourcing, there were 40,000 people working across Poland. Today, the city of Krakow alone has close to that number. “Krakow is special because of universities, students and its beauty,” Mr. Fafara said, and added that in its 2015 report on the top 100 cities for global outsourcing, Tholons consulting rated Krakow No. 9, well ahead of Dublin, which is now No. 12, but was, for years, a leader. “The proper flow of candidates enables us to build good teams and good structures. This is the main driver for why companies develop in this area.”
For the salaries they pay in Poland, it’s unique to find such skilled workers, particularly workers who can speak more than one or two languages, apart from English, and who also know accounting. Salaries are about 50 percent below the European average. “It’s a good mix,” Mr. Fafara said.
Writing in Project Syndicate last fall, Günter Verheugen, former European commissioner for enlargement and for enterprise and industry, saluted Poland’s successes and drew attention to three significant anniversaries. In 2014, there was the 25th anniversary of Poland’s democracy, the 15th anniversary of its membership in NATO and the 10th anniversary of its accession to the EU. He also noted that former Polish prime minister Donald Tusk was appointed president of the European Council, making him one of Europe’s three top leaders and putting another feather in Poland’s cap.
“The Polish people deserve a bright future,” Mr. Verheugen wrote. “Their lesson for the rest of Europe is that dreams can come true if we fully engage in realizing them. And, just as [Mr.] Tusk promised to polish his English as he moves to the centre of the European stage, perhaps the rest of us should start brushing up on our Polish.”

Jennifer Campbell is Diplomat’s editor. She visited Poland in November 2014.

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