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Financial Planning > Charitable Giving

Poland Thriving Thanks to Infrastructure Investments

By Marlene Y. Satter

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Poland is an EU success story, despite the region’s financial woes, and that means the country offers opportunities for investors. However, that doesn’t mean they shouldn’t be wary of possible pitfalls, since they litter the path of progress.

While the rest of the eurozone struggled under austerity measures during the financial crisis, Poland was lucky. Government actions taken in the wake of the collapse of communism, together with the country’s entry into the European Union in 2004, had started its economy on the road to growth.

Thanks to a constitutional clause that prohibited its debt-to-GDP ratio from exceeding 60%, it had a lower level of public debt than many other European countries at the onset of the crisis. Thus, far less overextended than many of its neighbors, Poland was able not just to weather the crisis but, fueled by an injection of cash from the EU, even continue to grow its economy.

Poland was the recipient of an influx of funding from the EU under the latter’s 2007–2013 budget, receiving 101.5 billion euros ($137.9 billion). Then the country was chosen, along with Ukraine, to be a host for the 2012 European soccer championships. And that steered government spending toward improvements that the country sorely needed.

The Polish government augmented its EU windfall with spending of its own as it upgraded, refurbished and built from scratch various infrastructure projects throughout the country. Everything from soccer stadiums—many of which are sorely underutilized now that the championships are over, by the way—to railroad stations, airports and highways got makeovers or were brought into being, spurring domestic consumption and stimulating further development.

That spending, at a time when other countries were tightening their belts, gave Poland an edge that has helped it to grow despite economic troubles throughout the rest of the region. The country has attracted business investment from Germany, with numerous smaller businesses seeking out Poland as a place where the competition is less keen and there is room to grow.

Even the fact that the zloty has lost value—Poland is not a member of the eurozone—has worked in its favor, giving the country a double-edged advantage: first, in the pricing of its exports and second, in encouraging Poles to buy local and stimulate homegrown businesses in the face of higher-priced imports.

All that said, the country’s construction industry is suffering a bit. Disputes rage about underbidding to build infrastructure projects throughout the country even as companies go under.

Polish companies aren’t the only ones to suffer on that front; the country’s numerous highway projects, many built by multinational companies, have wreaked bankruptcy on several non-Polish companies and have led to protests by six European governments about Poland’s handling of their companies’ problems. Accusations of inflexibility on the part of the country’s roads agency GDDKiA, and its refusal to budge on bid prices, have been dismissed by that agency, but the European Commission is investigating the claims of Austria, France, Germany, Ireland, the Netherlands and Portugal on behalf of their contractors.

Another area of contention is the country’s coal industry. Labor disputes as some mining companies seek to cut pay and benefits have combined with arguments over lignite, a high-emissions soft coal that has risen in price. But lignite carries other price tags: it’s more polluting, so it threatens emissions reduction goals, and the fact that it’s most easily accessible in open-pit mines means that expansion of operations threatens the survival of towns that have survived all sorts of hardships for centuries. That particular debate is also raging in Germany and the Czech Republic, as mining companies seek to expand their operations in search of more lignite.

One more hiccup in Poland’s mostly cheery picture is that its purchasing managers’ index (PMI) unexpectedly fell on exports in December, according to Markit Economics, after seven months of rising. Still, economists don’t seem too worried about the slowdown in manufacturing expansion, expecting domestic demand to pick up the slack as employment improves and inflation remains under control.

Problems aside, Poland is set for another influx of EU money at the end of 2014. Although the EU cut its budget overall for 2014–2020, Poland, thanks to a number of reasons, not only stands to receive another infusion of cash, but will actually see the amount increase to 105.8 billion euros ($143.8 billion). Such stimulus is bound to drive further growth.

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