HomeReportsBureau of Economic and Business Affairs2019 Investment Climate Statements…Poland

# 					2019 Investment Climate Statements: Poland			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

In the thirty years since Poland discarded communism and the fifteen years since it joined the European Union (EU), Poland’s investment climate has continued to grow in attractiveness to foreign investors, including U.S. investors.  Poland’s economy has experienced a long period of uninterrupted economic expansion since 1992. In 2018, Poland’s economy again gained momentum with approximately 5 percent growth as consumption continued to increase and spending of EU funds accelerated public investment.  Most economists, however, predict a slowdown in 2019 to around 4 percent gross domestic product (GDP) growth. Poland moved from middle to high-income status according to the FTSE Russell’s annual classification report. However, some proposed economic legislation continued to dampen optimism in some sectors (e.g. retail, media, energy, digital services), and investors have pointed to lower predictability and the outsized role of state-owned and state-controlled companies in the Polish economy as an impediment to long-term balanced growth.  

Prospects for future growth, driven by domestic demand and inflows of EU funds from the 2014-2020 financial framework, will continue to attract investors seeking access to Poland’s dynamic market of over 38 million people, and to the broader EU market of over 500 million.  Poland’s well-diversified economy reduces its vulnerability to external shocks, although it depends heavily on the EU as an export market. Foreign investors also cite Poland’s well-educated work force as a major reason to invest, as well as its proximity to major markets such as Germany.  U.S. firms represent one of the largest groups of foreign investors in Poland. The volume of U.S. investment in Poland is estimated at around USD 6 billion by the national bank of Poland in 2017, although including indirect investment flows through subsidiaries may place it as high as USD 43 billion, according to the American Chamber of Commerce in Poland.  Historically foreign direct investment (FDI) was largest in the automotive and food processing industries, followed by machinery and other metal products and petrochemicals. “Shared office” services such as accounting, legal, and information technology services, including research and development (R&D), are Poland’s fastest-growing sectors for foreign investment.  The government seeks to promote domestic production and technology transfer opportunities in awarding military tenders. There are also some investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, energy grid upgrades, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution. 

Defense is another promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for U.S. defense industry. In 2018, it signed its largest-ever defense contract when committing to purchase the PATRIOT missile defense system, and in 2019 it signed a contract to buy the High Mobility Artillery Rocket System (HIMARS).  In February 2019, the Defense Ministry announced its updated technical modernization plan listing its top programmatic priorities, with defense modernization budgets forecasted to increase from approximately USD 3.3 billion in 2019 to approximately USD 7.75 billion in 2025.  Information technology and cybersecurity along with infrastructure also show promise, as Poland’s municipalities focus on smart city networks. A USD 10 billion central airport project may present opportunities for U.S. companies in project management, consulting, communications, and construction. The government seeks to expand the economy by supporting high-tech investments, increasing productivity and foreign trade, and supporting entrepreneurship, scientific research, and innovation through the use of domestic and EU funding. 

In 2018, Poland saw significant increases in wholesale electricity prices due largely to an increase in the price of coal and EU emissions permits.  The government has proposed a new law to protect household consumers from rising electricity prices, but the bill was at odds with the European Commission (EC) for the lack of notification of what amounted to state aid measures. 

Some organizations, notably private business associations and labor unions, have raised concerns that policy changes have been introduced quickly and without broad consultation, increasing uncertainty about the stability and predictability of Poland’s business environment.  Some examples include a one-time bank holiday (to celebrate 100 years of Poland regaining independence) with less than a month warning, and a major tax overhaul passed after firms had already prepared budgets for the coming year. Previous proposals to introduce legislation on media de-concentration raised concern among foreign investors in the sector; however, these proposals seem to be stalled for the time being.  

The Polish tax system underwent many changes over the last three years with the aim of increasing budget revenues, including more effective tax auditing and collection.  The November 2018 tax bill included a number of changes important for foreign investors, such as penalties for aggressive tax planning, changes to the withholding tax, incentives for R&D, and an exit tax on corporations and individuals.  

As the largest recipient of EU funds (which contribute an estimated 1 percentage point to Poland’s GDP growth per year), any significant decrease in EU cohesion spending would have a large negative impact on Poland’s economy.  Draft EU budgets foresee a 24 percent decrease in Poland’s Cohesion funds in the next cycle. Also, observers are closely watching the European Commission’s proceedings under Article 7 of the Lisbon Treaty, initiated in December 2017, regarding rule of law and judicial reforms.  These include the introduction of an extraordinary appeal mechanism in the enacted Supreme Court Law, which could potentially affect economic interests, in that final judgments issued since 1997 can now be challenged and overturned in whole or in part, including some long-standing judgments on which economic actors have relied.  

*Table 1: Key Metrics and Rankings*