Successfully investing in Poland

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​​​last updated on 7 June 2024 | reading time approx. 6 minutes

 

     

   

How do you assess the current economic situation in Poland?

Economies stagnated also in our region. Poland's GDP grew by just 0.2 percent in 2023 to show its second weakest performance in the last 30 years. We were saved from recession primarily by investments but also by a positive balance of foreign trade. This was due to a slight increase in exports amid a collapse in imports to partly reflect the slimming down of stocks.
  
The average annual inflation rate in 2023 was over 11,4 percent and most of that increase was caused, among other things, by the war in Ukraine and the resulting rise in gas prices.
  
However, experts forecast that the current year 2024 will see a rapid acceleration in economic growth, not least because of an expected rebound in consumption. With some delay, namely from 2025 onwards, the economy should see the impact of aid programmes funded by the National Recovery and Resilience Plan (NRRP), which the new government has recently successfully unlocked.
  
Please also note the impact of last year's parliamentary elections on the strong appreciation of the zloty and increased prices of Polish shares and bonds. Following the victory of the pro-EU democratic opposition, the European institutions now have more confidence in the reforms planned in Poland and, therefore, are more willing to transfer funds under the aid programmes provided for Poland.
  
Although the number of foreign direct investments in Europe fell by 4 percent and the number of new jobs by 7 percent last year, Poland remains among the top leaders in the region compared to other European countries, and Poland's rating in investor surveys has increased. This is because in these uncertain times, many investors have opted for nearshoring and reorganisation of supply chains and have moved their investments to countries that are geographically, politically and culturally close to them. Predictability and stability have become more important in many investment decisions than just lower costs. In line with this trend, Poland attracted 229 foreign direct investments in 2023, which meant a 3 percent decrease but coupled with a 21 percent increase in new jobs available compared to the previous year.
  

How would you describe the investment climate in Poland? Which sectors offer the largest potential?

Poland still receives large foreign direct investments, and the investment climate has significantly improved after last year's parliamentary elections to see a steady inflow of new foreign capital. Noteworthy is also the fact that Poland is a large domestic market with about 38 million consumers having easy access to the EU market. Labour costs and land prices are still attractive compared to other European countries. That is why, Poland remains a leader in greenfield investments in the CEE region.
  
The investment climate in Poland will most likely be influenced by the general economic uncertainty in Europe and the world which is triggered by external factors such as the war in Ukraine and the related economic sanctions. We can see businesses relocating from Russia, Ukraine and Belarus, and some of them will end up in Poland. The current geopolitical situation will also boost investments in certain areas, especially the power industry. New infrastructure will be necessary to obtain energy from new, including more eco-friendly, sources. Other industries prone to dynamic growth include hi-tech and cybersecurity.
  
In today's post-pandemic world with artificial intelligence increasingly used on a daily basis, investors will most likely want to replace the human factor with new technologies as much as possible. This is the area considered to have the greatest potential in the market. Digital competitiveness will be an important factor in determining investment decisions. There is still a noticeable trend toward investments in countering climate change and favouring energy efficiency, namely renewable energy sources. 
  
No doubt, state aid available for businesses from most industries creates added value for investors in Poland. Developers of investment projects in the Polish Economic Zone, which covers the whole country, may enjoy income tax exemption for up to 15 years. The extent of the tax exemption is calculated by multiplying total investment costs or two years' labour costs by the regional aid intensity ratio applicable to a given location. Minimum investment costs eligible for support depend on the unemployment rate in the region of investment and the status of the enterprise (small, medium or large).
As a result, small and medium-sized enterprises are in a particularly privileged situation here. This form of support is also increasingly used by companies that open Shared Services Centres in Poland.
  
Another attractive incentive for investors in key areas of the Polish economy comes in the form of government grants.
  
Regardless of the above, Poland is to be a huge beneficiary of the aid from EU funds which has been launched this year. This should be about 76 billion euro in the years 2021–2027, of which a part will be spent on business projects. Areas to be supported at the national level will include mainly innovativeness, entrepreneurship, infrastructure, environmental protection, power engineering, education and social affairs. Businesses may receive grants and preferential loans for research and development work, investments in ecological changes, including transition to renewable energy sources, as well as implementation of innovations and digitalisation.
  

What challenges do German companies face during their business ventures into Poland?

The main challenge for German companies is Polish tax law and the fact that it is constantly changing. Starting an investment project in Poland involves several key decisions that have to be made at the very beginning of the investment process and have profound consequences later on, such as which legal form is the most appropriate. This determines the future tax implications and the investor's liability – for example, the CIT Act imposes tax on limited partnerships, thus leading to double taxation of profits earned by the general partner and limited partners. Yet another cause of difficulties is the amendment to the Polish Tax Act which changed the competent tax authorities for settling flat income tax (WHT) withheld from non-residents. 
  
Importantly, considerable incentives and facilities for companies have been introduced, such as preferential conditions for investment activities, i.e. the option to choose between two alternative taxation schemes (Estonian CIT or special investment fund). 
   

Poland is by far Germany's largest trading partner in Eastern European business and Germany's fifth largest trading partner worldwide. What opportunities does this present for Polish-German cooperation?

Enormous. This is the first time we have been ranked so highly. We have overtaken even such large economies as Italy, which proves that the importance of Poland for Germany's foreign trade is growing year by year. Polish companies already see an opportunity for establishing permanent relations with the German SME (small and medium-sized enterprise) sector. This creates opportunities for the development of many industries such as power engineering, digital technology, automotive or pharmaceuticals. 
   

In your opinion, how will Poland develop?

After a year of some economic stagnation, analysts predict a significant economic recovery in 2024 – up to 3 percent (against 0.2 percent last year). The rate of investment growth between 2024 and 2025 is expected to be even higher than GDP as it will be driven by inflation and interest rates lower than in previous years, as well as the unlocking of EU funds earmarked for it.
  
There are also some changes associated with the conflict in Ukraine – an influx of new workers and the relocation of many businesses from the East to Poland. Also the high level of support recently received by Poland from EU funds should greatly stimulate domestic reform, larger and smaller investments in the energy sector, in particular renewable energy, and attract broadly defined innovation by financing research and development activities. Renewable energy sources and other eco-friendly investments, e.g. in low-emission hydrogen production, should gain much significance. Optimistic scenarios suggest significant intensification of economic activity in some sectors, especially those favoured in the European Union, namely decarbonisation, power engineering, research and development of high technologies, digitalisation, robotisation and cybersecurity. 
  
The good news for the future of the Polish economy is that managers of large companies are paying more and more attention to the digital competencies of potential employees; here, Poland has a solid technical infrastructure and a large pool of well-educated and talented engineers, IT specialists and technicians. The influx of Ukrainian citizens may also boost the supply of workers in Poland.
  
Beyond doubt, the major challenge for the government will be to bring inflation under control and stabilise interest rates so that the economic growth achieved in the past few years continues in spite of the temporary recession. 

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