Poland can reverse falling investment – ING report

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Poland has an improved investment climate and access to EU funding are expected to support this revival, according to a new cautiously optimism report by ING Bank Slqski and the European Economic Congress (EEC).

The report presents a comprehensive analysis of the current state and future prospects of investment in Poland for which ING and the EEC interviewed 22 business leaders, three heads of foreign chambers of commerce, and representatives of business service leaders.

“In recent years, the Polish economy has grown mainly on the foundation of consumption. But investment has slowed down due to internal regulatory and tax impediments and the erosion of confidence in the institutions of the free-market economy,” according to the latest annual report by ING and the EEC, their third.

The report lays out risks including a shortage of skilled workers, rising labour costs, and the need for greater innovation and argues that “reviving private investment is crucial for Poland’s economic growth, but addressing the existing barriers and leveraging new opportunities will be key to achieving this goal”.

Unpredictable environment saw decline in investment rate

Poland has experienced a decline in its investment rate over the 15 years, from 23% in 2008 to 17.8% in 2023, below the EU and Central and Eastern European (CEE) average. This can be attributed to a combination of factors: regulatory and tax impediments, have hampered investment, while the Covid-19 pandemic and the Russian invasion of Ukraine have brought uncertainty and disruption.

Instability in law and rapid regulatory changes have made it challenging for businesses to plan their future activities. One interviewee noted, “The frequent changes in regulations and the lack of long-term stability make it difficult to strategize for the future.” Bureaucracy, high inflation, limited availability of well-prepared investment areas, and high financing costs have meanwhile compounded the difficulties faced by investors.

Underinvestment in critical infrastructure such as the national grids has posed a significant challenge to Poland’s long-term economic growth. While investment in express roads and motorways has increased sevenfold over the past two decades, investment in electricity grids has stagnated. The report states that Poland’s “imbalance in infrastructure investment, especially in electricity grids, needs immediate attention to support the overall economic development.

“With relatively high prices of CO2 emission allowances, the wholesale market price of electricity in Poland is recently higher than in Germany or Scandinavia,” the report wrote, adding that “for further RES expansion in Poland, it is necessary to relax grid constraints as soon as possible and to increase network capacity, especially distribution networks, energy storage, and distributed off-grid solutions”.

The report also highlights a trend of companies freezing funds in financial instruments due to legal unpredictability, leading to lower but safer returns. 

One business leader explained, “Given the unpredictable legal environment, freezing funds in financial instruments has become a necessary strategy, albeit one that yields lower returns.” In some sectors, such as ports, funds have been frozen to stay ahead of market trends, impacting the ability to finance new investments.

Opportunities for reviving investment

The report outlines several opportunities for reviving investment in Poland. The unblocking of access to EU funds and stabilizing regulations and taxes should provide a much-needed boost to domestic investment. 

Investment in zero-carbon energy, new industries, and AI solutions is seen as “essential for Poland’s sustainable future”, the report emphasizes.

The global trends of nearshoring and friendshoring, driven by disruptions in supply chains, could see Poland attract foreign investments as a favourable destination for businesses looking to relocate their operations closer to home or to friendly countries. 

“Poland stands to benefit significantly from the global shift towards nearshoring and friendshoring,” one industry expert commented.

The report concludes that “Green and digital transformation are creating demand for engineers, technicians, specialists, which requires reform of Polish vocational schools and universities. Some companies point to the need to seek skilled workers from abroad.”