From this year’s edition of the State Economic Credibility Index (IWEP), it appears that Poland is increasingly falling short, especially in the fields of macroeconomics and public finances. This in turn lowers the competitiveness of the economy, affecting its financing and development capabilities and how Poland is perceived by investors. This is evident, among other things, in the decrease in the total value of foreign investment in Poland. The business community is calling for greater legal and fiscal stability, emphasizing that stimulating investment, particularly in the areas of the digital economy, is essential for economic growth.
“A group of economists and analysts under the leadership of Prof. Jerzy Hausner has been preparing the State Economic Credibility Index for three years. Our goal is to examine the reliability of the state in various areas, starting from public finance, through public services, to the shaping of law. Depending on the area, the situation varies. However, in terms of macroeconomics and transparency of public finance, the situation has been getting worse in recent years. Therefore, decisive action is needed to improve this economic credibility,” says Dr Agnieszka Chłoń-Domińczak, Prof. SGH, Vice-Rector for Science at the Warsaw School of Economics to Newseria Biznes agency.
The third edition of the economic credibility index has been prepared in a comparative layout for five countries: Poland, the Czech Republic, Romania, Slovakia, and Hungary. It was created based on 87 indicators from various databases, including Eurostat, the OECD or the World Bank, and takes into account factors such as the rule of law, stability of the financial and tax system, or the judiciary. Its results indicate a significant decrease in Poland’s economic credibility over the past year. Economists and analysts highlighted, among other things, problems with the sluggishness of the judiciary and the disastrous phenomenon of overproduction of law, which is associated with the superficiality of consultations in the legislative process. The decreased economic credibility of Poland was also caused by the significant destabilization of the separation of powers and problems with the rule of law, which is much better than in Hungary, but simultaneously worse than in the Czech Republic or Romania.
“The results show that we are clearly not leaders, and in relation to other countries of a similar level of development and similar history, we are in the back rows in most areas. There is definitely room for improvement,” says Prof. Agnieszka Chłoń-Domińczak.
Economists and SGH experts in their commentary to the latest IWEP edition emphasized that low economic credibility of the state translates into economic instability. Its tangible effects are, for example, increased profitability of treasury bonds, low effectiveness of anti-inflationary actions or fluctuations in the złoty exchange rate. For companies and entrepreneurs, this means not only a significant increase in costs but also risks, which do not favor new investments and job creation.
“The consequences of the state’s low economic credibility affect the sense of security, the trust of citizens in how public policies are shaped. They also affect how we are perceived as a credible country by external investors,” says the co-author of IWEP. “Foreign investors pay attention to what the stability of public finance looks like, what transparent state management looks like, how monetary and fiscal policy is conducted. All these elements have implications for whether investments in our country are seen as stable and safe.”
“Low economic credibility of a country means above all uncertainty. And uncertainty means higher business costs, higher borrowing costs, more uncertain return on investment, which we all make,” adds Jacek Kunicki, Board Member for Finance at Orange Polska.
Data for last year, presented in the SGH report during the September Economic Forum in Karpacz, show that the value of foreign direct investment (FDI) in Poland in 2023 amounted to $28.7 billion. This was therefore lower by almost 9% y/y ($31.5 billion in 2022). This marks the first decline in three years. According to economists, 2024 should bring a slight rebound, although on the other hand, the rise in energy prices and the minimum wage in Poland may hinder attracting large investors.
The SGH report also shows that most foreign capital flows to Poland from Germany, France, the Netherlands, the USA, and the United Kingdom. The major single investor is the French telecommunications giant Orange. It is followed in the lead by ArcelorMittal steel concern, registered in Luxembourg, and a German automotive group, which includes among others Volkswagen, MAN and Scania.
“We are a long-term, stable investor. We have many years in our sights, not just a year or two, hence our investments are based on long-term development perspectives of both the Polish economy and the digital economy, which we are an intrinsic part of,” says Jacek Kunicki. “Despite the deteriorating economic environment, we continue to invest dynamically: over the next few years we plan to invest over PLN 1bn in the development of a mobile network in Poland to provide customers with 5G services. Not to mention the costs of purchasing licenses.”
As he emphasizes, investments in telecommunications and IT infrastructure are the absolute foundation for the development of the digital economy. And this in turn is the branch with the greatest growth potential for the Polish economy.
“This is important for Poland from two perspectives. Firstly, we see other levers of the national economy gradually expiring, and the digital economy is the one that can support and drive further economic growth. Secondly, foreign investors – both current and prospective – analyze not only the classic elements of a country’s economic credibility but also the level of development of the digital economy. This is the element that allows investors to operate in their global, known to them ecosystem,” emphasizes the Board Member for Finance at Orange Polska.
Over the last 10 years, Orange’s investments in Poland have totalled approximately PLN 20bn. Last year, the operator invested nearly PLN 2.3bn (including nearly PLN 500m for the purchase of 5G licenses and about PLN 1.8bn for the development of the network and IT systems). In the first half of this year, it was nearly PLN 800m. Orange’s total expenditures on the construction of a 5G network and the costs of modernizing the radio access network in the years 2021-2023 amounted to nearly PLN 700m, and the company estimates that within the next three years, by 2026, the outlays on both these areas will reach a total of PLN 1bn.
“Our future investment plans focus on three pillars of the digital economy. Firstly, on a systematic, further development of the fiber optic network. Secondly, on the development of the 5G network, which will enable customers to have very fast internet access on mobile phones and beyond. And thirdly, on further dynamic development of ICT services,” lists Jacek Kunicki.
As he stresses, in order to stimulate further investments, the business needs legal, regulatory and tax stability, which in recent years has been decidedly lacking in Poland.
“Business is now clearly saying: we need stability of law, taxes, and para-fiscal burdens. We also need a sense that the state appreciates the special role that the digital economy plays in the further economic development of the country. This is an area where we need more activity from the state, to support the development not only of computer and IT networks but of the entire digital economy,” emphasizes the Board Member for Finance at Orange Polska.
Economists and business representatives discussed the economic credibility index during the European Forum of New Ideas, which took place on October 16-18 in Sopot.
