Foreign Direct Investments of the European Union in Poland

A C T A U N I V E R S I T A T I S L O D Z I E N S I S FOLIA OECONOMICA 182, 2004

P aw eł K ow alik *, Agnieszka P ietrza k*

F O R E IG N D IR E C T IN V E S T M E N T S O F T H E E U R O P E A N U N IO N IN P O L A N D

1. In trod u ction

Foreign investm ents are an important factor which increases economic connections on the world scale. They influence the developm ent o f international trade and the acceleration o f economic growth. The governm ents o f developing as well as developed countries are facing the problem o f creating such conditions which will be propitious for investments on their local markets. Investors have to decide on a kind o f investment on international markets. Stream s o f foreign capital which pour into a given country can have different forms and they are entered in the books in a given item of the capital turnover account o f the balance of payment. The main elem ents of this account are direct investm ents and portfolio investments. Credits which raise the level of a given country’s debts are an additional source o f foreign capital. Joint venture, fusions, takeovers or licensing can be alternative activities (Kowalik, K wiedorowicz 2003, p. 407).

Investor’s decisions depend on an estim ation o f the credibility o f a country. That estim ation is form ed by international rating institutions. If it gets w orse it leads to the loss o f confidence am ong foreign investors causing that they becom e less interested in conducting direct investm ents. It has also an effect on decreasing opportunities to take new credits or gain m eans through the issue of bonds on international financial m arkets.

In practice we can observe both positive and negative attitudes tow ards foreign investm ent. In the article its authors will try to answ er the question: have direct investm ent from the E uropean Union countries affected the econom ic developm ent o f Poland? T he authors are not going to deal with the estim ation o f this phenom enon from the political and sociological point o f view.

* PhD., Department o f Financial M anagement o f Enterprise, W roclaw U niversity o f Econom ics.

2. D irect in v estm en t

Direct investm ents consist in investing a capital in an enterprise o f a foreign country to get perm anent influence on its functioning and this way to draw profits. The investm ents take the form o f a com plete or partial share in an already existing enterprise. They can also consist in establishing, building and providing a new enterprise alone or together with other econom ic units. This kind o f capital flow is perceived as the most profitable considering its close connection with the real sphere o f econom y and the lack o f threat for the balance o f paym ent. H ow ever, we som etim es take note o f a given less positive aspect of the direct investm ents inflow which is connected w ith the danger o f the increase o f the balance o f paym ent deficit. The direct investm ents, after all, do not have to be a safe com pensation o f the negative balance o f current turnovers unless they are m ainly invested in the sector o f production o f renew able goods which are to be exported. Profits which are transferred abroad can later contribute to the deficit increase on the account o f the current turnover and as a result they can increase the risk o f the loss o f credit credibility o f a debtor country (Goetz- -K ozierkiew icz 2002, p. 130). Furtherm ore, the influx o f direct investm ents increases the rate o f foreign investors trust tow ards a given econom y m aking it more attractive for the short-term capital (Chrzan 1999, p. 28).

3. T h e d irect foreig n in vestm en ts in the w orld

In 2000 the world receipts o f the direct foreign investments reached the record level o f alm ost 1,5 trillion USD. The main driving forces o f this process were international fusions and takeovers and the liberalising policy o f the foreign capital influx (K. D ziw orska, K. Szczepaniak 2003, p. 206). In 2001 and 2002 a slum p on the direct foreign investments market was observed. In 2001 the volume of the capital influx decreased by 50% in comparison with the record 2000 year. In 2002 according to the prognoses of the United Nations C onference o f Trade and Development (U N CTA D ) the volume of influx o f these investments decreased by another 27% , i.e. by 200 billion USD. It is probably connected with the slackening of the growth rate o f the world economy, the increase o f the investm ent risk and the decrease o f the fusions and takeovers number.

T en o rist attacks, the slackening of the biggest econom ies and financial crises do not help foreign investments. Corporations have becom e more careful, they have problem s with their resources sales and they do not expand on new markets. In connection with the slump in the market, concerns have financial problems.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002P

Fig. 1. The influx o f the direct foreign investm ents in the world in m illions o f U SD S o u r c e : Own study on the basis o f the U N C TA D data (P - Prognosis).

4. T h e d irect foreign investm ents in E a st-C en tra l and E astern E urope

T he decrease o f the direct foreign investm ents value affected m ainly developed countries. Trends on the world market had also som e consequences in E ast-C entral and Eastern Europe. In 2002, for the first tim e since 1996, the decrease o f the investm ents influx by 200 m illion USD was observed. The dynam ics o f the direct investm ents influx to this region was much low er than in the world. T he contribution o f this region in the w orld capital flow s is also low. It reached about 5% in 2002 and less than 2% in the discussed record 2000 year.

In respect o f invested capital in east-cen tral and Eastern E urope, Poland has taken the lead. H ow ever, in com parison with the num ber o f inhabitants, it is not the first. T he countries from our region still need direct investm ents, but they still cannot get enough o f them.

30 000 25 000 20000 15 000 10 000 5 000 30 000 25 000 20000 15 000 10000 5 000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002P

Fig. 2. The influx o f the direct foreign investments to east-central and east European countries in m illions o f USD

5. T h e d irect in v estm en ts o f the E u rop ean U n ion m em b ers in Poland

At the beginning o f the nineties Poland had to create regulations protecting itself from the capital outflow . It was connected with the econom ic and social transform ations, and thereby high level o f indebtedness, low level o f official gross reserves and fixed exchange rate. The first reform s w ere introduced in Poland in 1999-1994. T heir results - the inflation decrease, and the im provem ent o f other m acroeconom ic rates - caused the increase o f investm ents level, though it was not high enough.

10 000 9 000 8 000 7 000 6000 5 000 4 000 3 000 2000 1 000 0

Fig. 3. The influx o f the direct foreign investm ents to Poland in m illions o f U S D

S o u r c e : Own study on the basis o f W orld Investm ent P rospects. The Econom ist Intelligence Unit Limited 2 0 0 3 , p. 69.

O ur country acquired a better international reputation after having signed in the Paris and London Clubs agreem ents to reduce and restructure its indebtedness. Since 1994 the rate o f the investm ent outlays increase had been bigger and bigger. In 1995 for the first tim e the investm ent risk in Poland was estim ated by international rating agencies. T he barriers lifting w ere accelerated in 1996 after Poland jo in ed OECD. The consolidation o f geopolitical situation

owing to the accession to NA TO in 1999 influenced also the decrease o f risk o f investm ents in Poland. N ow adays, in connection with the accession to EU, no restraints on capital flux are in practice. All these changes caused that foreign investors becam e m ore interested in our market.

T he influx o f investm ents to Poland had been increasing to 2000. It was a record year in respect o f the influx o f the direct foreign investm ents to Poland. The dynam ics o f the direct investm ents influx on the Polish m arket, like on the world m arket, slum ped. A ccording to the EU data in 2001 there was the decrease o f their influx by 40% and according to the Państw ow a A gencja Inw estycji

Z agranicznych SA (the State Agency o f Foreign Investm ents Jo in t-S to ck

C om pany [S A F I|) by 33%. At the end o f 2002 there was also an unfavourable dynam ic o f the direct investm ents influx. T he decrease o f the investm ents influx to Poland results from the poor economic situation in the world, including EU countries, w here the biggest num ber o f investm ents com es from , as well as because o f privatisation processes slowdown.

A ccording to the U N C TA D data, the European U nion is the main foreign investor in Poland. Its participation in direct foreign investm ents in Poland increased from 78% in 1996 to 94.5% in 2000. The main investor from outside the E uropean Union is the United States o f Am erica. N evertheless, the participation o f this country on our m arket decreases from 10.2% in 1996 and

14.2% in 1997 to 3.5% in 2000 (Fig. 4). □ UE IUSA □ others 2000 1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 6 . . . - J --- 1 --- ---

II

M

J

Fig. 4. The influx o f the direct foreign investments to Poland from 1996 to 2 0 0 0 from EU, U SA and other countries (with the exception o f international corporations)

In the first part o f 2002 the greatest num ber o f investm ents cam e from the European Union countries - 81%, in com parison with 10% from international corporations, 4% from North Am erica, 3% from Asia and 2% from other countries, m ainly European ones'.

979 firm s, from which 733 com e from the European Union countries, are on the list o f the biggest foreign investors in Poland from the end o f 2002, prepared by the SAFI.

Investors from F rance are first with regard to the invested capital value - over 12 billion USD, from which 3,2 billion USD was invested by the France Telecom . T hat way at the end o f 2002 it becam e the biggest foreign investor. It was possible ow ing to the involvem ent o f that firm in the Telekom unikacja

Polska SA privatisation. Vivendi Universal invested over 1,2 billion o f USD.

Both o f these firm s invested in the telecom m unication sector. T he French firm C arrefour invested much in the trade sector.

Table 1. Accum ulated value o f the direct foreign investm ents from the European Union in Poland according to a country o f capital origin. The state on Decem ber, 31 20 0 2

Position

on the list Country

Capital invested in m illions o f U SD

Investment plans in m illions o f U S D

Number o f firms on the list o f the biggest investors o f the SAFI 1 France 12172.1 22 6 1 .2 93 3 Germany 7841.0 1672.3 231 4 Dutch 5846.2 728.3 91 5 Great Britain 4051.8 515.8 45 6 Italy 3696.2 1085.5 62 7 S ,veden 2788.8 334.7 57 9 Denmark 1839.2 303 .0 43 10 Belgium 1645.4 205.8 23 13 Ireland 1059.7 31.2 2 16 Austria 795.3 81.1 39 17 Spain 592.2 38.5 13 18 Portugal 560.2 6 6 .6 4 19 Greece 5 58.0 4.0 4 20 Finland 405 .6 102.8 16 25 Luxemburg 143.3 23.3 10

S o u r c e : Own study on the basis o f SAFI data, May 2003.

1 B ezpośredn ie inw estycje zagran iczne w P olsce w I p ó łro c zu 2 0 0 2 r., M inisterstwo

Table 2. The biggest investors from the European Union in Poland. The state on December, 31 2002

Position Capital invested

Country o f

on the Inwestor in m illions o f Sector

list USD origin

1 France Telecom 3 199.4 France Telecom m unication

2 Fiat SpA 1 749.3 Italy M otor industry

4 H VB Group 1 336 .0 Germany Banking, finance and insurance 7 Vivendi Universal 1 243.4 France T elecom m unication

U nited Pan-Europe

1 200.0 8

C om m unications Dutch M edia and entertainment UniCredito Italiano

1 200.0 9

SpA Italy Finance

11 KBC Bank N.V. 1 146.0 Belgium Banking, finance and insurance

12 Metro AG 1 125.0 Germany Trade and repairs

14 Casino 923 .0 France Trade and repairs

15 T esco Pic 850.0 Great Britain Trade and repairs

16 Carrefour 814.7 France Trade and repairs

18 A llied Irish Bank Pic 746.7 Ireland Banking, finance and insurance

19 Credit Agricole S.A. 740.0 France Banking, finance and insurance

20 ING Group NV 677.0 Dutch Banking, finance and

insurance

22 Auchan 658.5 France Trade and repairs

Production o f goods from 23 Saint-Gobain 6 10.0 France the remaining non metallic

raw materials

24 Vattenfall AB 533.0 Sweden Supply o f electric energy, gas and water

25 Electricite de France 523.0 France

Production o f goods from

Internationale (EDF) the remaining non metallic

raw materials CC HBC (C oca-C ola

26 H ellenic Bottling Com pany)

513.0 G reece Production o f foodstuffs

29 Imperial Tobacco Pic 500.0 Great Britain Production o f tobacco products Production o f goods from 30 CBR Baltic BV 496.5 Dutch the remaining non metallic

raw materials S o u r с e: A s same as Tab. 1.

T he G erm an investors w ho held the first position were outdistanced by the French ones in 1999. T he D utch have been placed third since 1999. Investors from G reat B ritain and Italy changed their positions w ith each other in com parison with 2001 (Polak 2003, p. 109).

Among ten biggest investors in regard to accum ulated value o f invested capital, six com e from the European Union countries. The aforem entioned France T elecom holds the first position. The Italian Fiat, which increased its capital investm ents to 1749,3 million USD, is placed second on the m arket. B esides the m otor sector, this firm also invests in banking and insurance sectors. The HVB G roup from G erm any, the main shareholder o f the BPH P B K SA (over 70% o f shares) is fourth. T he Vivendi U niversal, the second investor from France, is seventh. It invested the capital worth over 1,2 billion USD. (It invested am ong others in the Elektrim Telekom unikacja SA and the C yfra Canal

Plus Polska). T he D utch United P an-E urope C om m unications (m edia industry)

and the Italian U niC redito Italiano (the main shareholder o f the PeK aO SA), two firms with the sam e value o f invested capital, are respectively eight and ninth. Out of the next tw enties firms, fifteen com e from the E uropean Union market.

Table 3. Investment outlays according to sectors from 1993 to 20 0 2 (current prices)

Year

Total Public sector Private sector

In m illion o f Polish zloty In per cent o f a total 1993 13 848.5 9 387.2 4 461 .3 32.2 1994 19 3 87.2 13 115.7 6 271.5 32.3 1995 28 537.2 1831 7 .1 10 220.1 35.8 1996 41 277.9 24 204.2 17 0 73.7 4 1 .4 1997 56 9 6 0 .0 27 340.8 29 619 .2 52.0 1998 7 4 6 07.2 29 6 99.6 4 4 9 0 7 .6 60.2 1999 83 664.3 30 479.9 53 184.4 63.6 20 0 0 81 529.2 26 986.2 54 543 .0 66.9 2001 63 979.3 18 373.2 45 606.1 71.3 I-IV 2001 2 6 2 1 4 .3 6 628 .6 19 585.7 74.7 I-IV 2002 22 2 89.9 6 245.8 16 044.1 72.0

S o u r c e : Own study on the basis o f N akłady inw estycyjn e w sektorze p rze d się b io rstw

w 1 p ó łro c zu 2 0 0 2 r The Ministry o f Econom y - Analysis and Prognoses Department, Warsaw

200 2 , p. 13.

The contribution o f the private sector in the total o f outlays changed in the last decade. N ow adays it exceeds 70% o f all investm ents. T he table below presents the exact structure.

So far foreign investm ents have been mainly concentrated in a production activity (24 753.3 m illion USD) and financial exchange (13 393.2 m illion o f

USD). T he trade and repairs sector, the third one taking the scale o f investm ents into consideration, m akes up over 1 2% o f all foreign investm ents.

From the total sum o f 24 753.7 million o f USD, w hich was invested in the production activity, the greatest am ount o f resources was allocated for the production o f transport equipm ent (25% ), foodstuffs, beverages and tobacco (24% ) and the other non-m etallic raw m aterials (13.7% ).

Table 4. Accum ulated value o f foreign investments in Poland according to the European Activity Classification EAC. The state on December, 3 1 2002

EKD Capital invested in million o f USD Investment plans in m illion o f U SD Capital invested share in % 1 Production activity 24 753.7 5 475.3 4 0.28 II Financial exchange 13 393.2 197.4 2 1.8 0

III Trade and repairs 7 586.3 9 08.5 12.35

IV Transport, stock management and com munication

6 251.4 6 25.9 10.17

V C ivil engineering 3 274.8 I 225 .7 5.33

VI Supply o f electric energy, gas and water

2 272.2 1 306.1 3.70

VII The other service, municipal and social activity

1 825.7 535.9 2.97

VIII

Property service, activity connected with doing business

1 174.2 2 2 61.2 1.91

IX Hotels and restaurants 652.6 301.2 1.06

X M ining 218.5 13.0 0.3 6

XI Agriculture 44.8 16.3 0.07

Investments over 1 million

Estimated value o f investm ents b elow 1 million US dollars

61 447.4 3 667.2

12 866.5 100.00

Total 65 114.6

S o u r c e : Own study on the basis o f SAFI data. May 2003.

Favourable changes take place in the structure o f direct investm ents in Poland. Investm ents from the very beginning, so called green f i e l d m ake up over one fourth (27% ) o f new investm ents in 2002. They form the greatest num ber o f vacancies. In com parison with the last year their share increased by

14 percentage points2.

2 B ezpośredn ie in w estycje zagran iczn e и> P olsce w I p ó łro c zu 2 0 0 2 r. M inisterstwo

6. S u m m ary

It is difficult or maybe even im possible to present an unam biguous evaluation o f costs and advantages o f direct foreign investm ents influx to Poland. N obody has even tried to m ake assessm ents w hich aim is to present the balance o f positive and negative influence of these investm ents on Poland.

The direct foreign investm ents o f econom ic units from the E uropean Union states w ere and still are an im portant factor which accelerates the econom ic growth. On the other hand the econom ic growth and reform s w hich are being introduced have a significant influence on attracting foreign investors. D irect foreign investm ents, in particular those from the E uropean U nion, are and will be an im portant source influencing the developm ental process o f Poland due to the shortage o f the cou n try ’s capital, limited accum ulation ability o f enterprises and poor functioning o f public-sector finance.

It is im portant for Poland to cause a gradual grow th o f the direct foreign investm ents value in the next years. The second thing is that the am ounts which investors from the European Union want to invest reach the country in the biggest possible part in the form o f new firms which are form ed from the very beginning.

Fig. 5. The real Gross Dom estic Product (annual change %) S o u r c e : O wn study on the basis o f the data base o f the Econom ist Intelligence Unit.

T o prove the influence o f the direct foreign investm ents on the econom ic developm ent we will use the index o f the G ross D om estic P roduct grow th. In picture 5 it can be noticed that at the m om ent o f the increased num ber o f investm ents influx the econom ic situation o f the country, m easured by the per cent change o f the G ross Dom estic Product, im proved as early as 1992. It has

rem ained on the favourable level, though in the last tw o years Poland has been in the econom ic stagnation.

The creation o f good clim ate and conditions to invest in Poland is very im portant, especially because in the nearest future the takings from the privatisation will decrease. Poland is still the main recipient o f foreign investm ents in our region. However, a lot o f com panies have recently undertaken investm ents in neighbouring countries. It is caused by adm inistrative barriers connected with obtaining work perm ission, purchasing properties, getting perm ission on the basis o f the building act or with instability o f law regulations.

A danger connected with foreign investm ents may be essential when they have dow nw ard trends (new investm ents) and increasing costs service o f earlier investm ents (profit transfer, processes w ithout investm ents - divestm ents).

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Paweł Kowalik, Agnieszka Pietrzak

BEZPOŚREDNIE INWESTYCJE ZAGRANICZNE UNII EUROPEJSKIEJ W POLSCE

Ważnym czynnikiem dynamizującym powiązania gospodarcze w skali św iatow ej są inwestycje zagraniczne, które wpływ ają na rozwój handlu m iędzynarodow ego i przyśpieszenie wzrostu gospodarczego. Rządy krajów rozwijających się, jak i rozwiniętych stają przed problemem stw orzenia takich warunków, które będą sprzyjały inwestycji na ich krajowych rynkach. Inwestorzy m uszą dokonać wyboru rodzaju inwestycji na zagranicznych rynkach. Strumienie kapitału zagranicznego napływającego do danego kraju m ogą przybierać różnorodne formy i podlegają księgow aniu w odpowiedniej pozycji rachunku obrotów kapitałowych bilansu płatniczego. G łów nym i składnikami tego rachunku są inwestycje bezpośrednie oraz inwestycje portfelowe.

Decyzje inw estorów zdeterminowane są oceną w iarygodności danego kraju, wystawiane przez m iędzynarodowe instytucje ratingowe.

W praktyce obserwujem y zarówno postawy pozytywne, jak i negatywne w ob ec inwestycji zagranicznych. W artykule tym spróbujemy odp ow iedzieć na pytanie: C zy bezpośrednie inwestycje zagraniczne z krajów Unii Europejskiej miały w pływ na rozwój gospodarczy Polski. N ie będziem y wnikać w ocen ę tego zjawiska z punktu w idzenia p olitycznego czy socjologicznego.

Wydaje się, iż bezpośrednie inwestycje zagraniczne, w ob ec niedoboru kapitału krajowego, były i będą ważnym i koniecznym czynnikiem wspomagającym wzrost gospodarki Polski - co zostanie wykazane w artykule.