Poland

Executive Summary

The outbreak of the COVID-19 pandemic interrupted almost 30 years of economic expansion in Poland.  In 2020, Poland experienced a recession, although one of the least severe in the European Union, as policy actions including broad fiscal measures and unprecedented monetary support cushioned the socio-economic impact of the pandemic.  Despite pandemic-related challenges and the deterioration of some aspects of the investment climate, Poland remained an attractive destination for foreign investment.  Solid economic fundamentals and promising post-COVID recovery macroeconomic forecasts continue to draw foreign, including U.S., capital.  Poland’s GDP growth declined by only 2.7 percent in 2020 and is currently projected to rebound at a rate of 3-5 percent in 2021 and 2022.  The Family 500+ program and additional pension payments continued in 2020.  The government increased the minimum wage and the labor market remained relatively strong, supported by a generous package of measures known as the “Anti-Crisis Shield.”  This package includes the “Financial Shield” introduced by the Polish Development Fund (PFR) to protect the economy, mitigate the effects of the COVID-19 pandemic, and stimulate investment.

Implemented and proposed legislation dampened optimism in some sectors (e.g., retail, media, energy, digital services, and beverages).  Investors also point 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.  Despite a polarized political environment following the conclusion of a series of national elections in 2019 and 2020 and a few less business-friendly sector-specific policies, the broad structures of the Polish economy are solid.  Prospects for future growth, driven by external and domestic demand and inflows of EU funds from the Recovery and Resilience Fund and future financial frameworks, as well as COVID-19 related government aid programs, are likely to continue to attract investors seeking access to Poland’s market of over 38 million people, and to the broader EU market of over 500 million.

The Ministry of Development, Labor, and Technology has finished public consultations on its Industry Development White Paper, which identifies the government’s views on the most significant barriers to industrial activity and serves as the foundation for Poland’s Industrial Policy (PIP) – a strategic document, setting the directions for long-term industrial development.  The PIP will focus on five areas:  digitization, security, industrial production location, the Green Deal, and modern society.

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 $5 billion by the National Bank of Poland in 2019 and around $25 billion by the Warsaw-based American Chamber of Commerce (AmCham).  With the inclusion of indirect investment flows through subsidiaries, it may reach as high as $62.7 billion, according to KPMG and AmCham.  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), is Poland’s fastest-growing sector for foreign investment.  The government seeks to promote domestic production and technology transfer opportunities in awarding defense-related tenders.  There are also investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, hydrogen, energy grid upgrades, photovoltaics, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution.  Biotechnology, pharmaceutical, and health care industries might open wider to investments and exports as a result of the COVID-19 experience.  In 2020, venture capital transactions increased by 70 percent on annual terms exceeding $500 million; a quarter of these transactions were investments in the sector of medical technologies.

Defense remains a promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for the U.S. defense industry.  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 $3.3 billion in 2019 to approximately $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 $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.  The Polish government is interested in the development of green energy, especially in the utilization of the large amounts of EU funding earmarked for this purpose in coming years and decades.

The Polish government plans to allocate money from the EU Recovery Fund to pro-development investments in such areas as economic resilience and competitiveness, green energy and the reduction of energy intensity, digital transformation, the availability and quality of the health care system, and green and intelligent mobility.  A major EU project is to synchronize the Baltic States’ electricity grid with that of Poland and the wider European network by 2025.  A government strategy aims for a commercial fifth generation (5G) cellular network to become operational in all cities by 2025, although planned spectrum auctions have been repeatedly delayed.

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.  For example, the government announced an “advertising tax” on media companies with only a few months warning after firms had already prepared budgets for the current year.  Broadcasters are concerned the tax, if introduced, could irreparably harm media companies weakened by the pandemic and limit independent journalism.  Other proposals to introduce legislation on media de-concentration and limitations on foreign ownership raised concern among foreign investors in the sector; however, those proposals seem to have stalled for the time being.

The Polish tax system underwent many changes over recent years, including more effective tax auditing and collection, with the aim of increasing budget revenues.  Through updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country.  The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies.  In the financial sector, legal risks stemming from foreign exchange mortgages constitute a source of uncertainty for some banks.  The Polish government has supported taxing the income of Internet companies, proposed by the European Commission in 2018, and considers it a possible new source of financing for the post-COVID-19 economic recovery.  A tax on video-on-demand services which went into effect on July 1, 2020, and the proposed advertising tax, which would also impact digital advertising and would go into effect on July 1, 2021, are two examples of this trend.

The “Next Generation EU” recovery package will benefit the Polish economic recovery with sizeable support.  Under the 2021-2027 European Union budget, Poland will receive $78.4 billion in cohesion funds as well as approximately $27 billion in grants and $40 billion in loan access from the EU Recovery and Resilience Facility.  The Polish government projects this injection of funds, amounting to around 4.5 percent of Poland’s 2020 GDP, should contribute significantly to the country’s growth over the period 2021-2026.  As the largest recipient of EU funds (which have contributed 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.  A December 2020 compromise on EU budget payments prevented adoption of a clause that would make some EU funds conditional on rule of law.

Observers are closely watching the European Commission’s two open infringement proceedings against Poland regarding rule of law and judicial reforms initiated in April 2019 and April 2020.  Concerns 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.  Other issues regard the legitimacy of judicial appointments after a reform of the National Judicial Council that raise concerns about long-term legal certainty and the possible politicization of judicial decisions.

While Poland, similar to other countries, will likely continue to struggle with the pandemic throughout 2021, rating agencies and international organizations, including the OECD and the IMF, agree that Poland has fared relatively well under the COVID-19 pandemic, and has good chances for successful economic growth once the pandemic is over.  The government views recovery from the pandemic as an opportunity to foster its structural reforms agenda.  In line with the ongoing implementation of the “Strategy for Responsible Development,” the government has been developing a “New Deal” package – an ambitious program of tax breaks, public investments, and social spending proposals aimed at speeding post-COVID-19 economic recovery.  The program is currently scheduled to be presented to the public in April 2021.