Poland and its Family Firms’ Bright Economic Future

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Poland is open for business

It is not an exaggeration to say that family firms have been crucial in the successful rebirth capitalism of Poland, although this fact has not been widely recognised. It is so because in a traditional society such as the Polish one the family is the main source of financial and manpower support for almost all entrepreneurial activities.

The two decades of a steady growth of the Polish economy is the result of domestic and external events coinciding. Against some predictions, Poland has been able to create a political system, which offers the democratic alternation of the government without endangering the economic stability. This fact offers a good business climate for international investors and encourages their inflow. In addition, internal institutional maturity has been facilitated by a well-timed membership to the European Union. When in the late 1990s the prospects of the EU membership credibly emerged, Poland benefited from a surge of foreign investors willing to settle in the country and to take advantage of the single European market. Later, after the entry to the EU in 2004 investors and businesses continued to come since they got a credible assurance that doing business in Poland is not a high risk exercise.

Today, the immediate and medium-term prospects for the Polish economy seem positive. The country has a low level of public debt amounting to 43% of GDP and enjoys positive ratings as the sovereign borrower (A-/A/Stable in Fitch’s categories). This allows the Polish government to conduct flexible budgetary policies and to have capacity to finance large projects in the energy sector.

In the period of centrally controlled economy Poland became an industrialised country with an overgrown heavy industry. Starting in 1990 the industry sector was downscaled, but Poland still has industrial traces with the share of employment in industry (22%) higher than EU average and an important latent industrial potential thanks to the presence of cheaper, but qualified labour. For this reason, cost of energy is an important factor in preserving the country’s place as a producer of mid-processed industrial goods and an important regional supplier to the German economy. Furthermore, electricity and heat are produced in Poland predominantly by power and heat plants alimented with hard coal, since Poland has abundant resources of hard and brown coals. These factors explain why the Polish government tries to slow down the European Commission’s attempts to rapidly and radically reduce the emission of CO2. Besides the struggle to prolong coal extraction the Polish government has decided to build a liquefied natural gas terminal in Swinoujscie at the Baltic Sea to get an extra degree of freedom, if the imports of natural gas from Russia become unstable. The crude oil and fuel sea terminal in Gdansk fulfill the similar role of enabling the import of fuels from the Gulf countries and other sources.

Cheaper but cleaner energy will remain the constant worry for subsequent governments, but in the short term the investment attractiveness of Poland is based chiefly on a large domestic market and availability of educated employees and workers. As all modern economies Poland has a large export sector (exports of goods and services amounts to 48% of GDP – large share for a medium-size economy), but its growth dynamics to date has been predominantly dependent of domestic consumption with trade deficits balanced by the inflow of foreign capital and European Union cohesion funds.

In last two decades Poland has undergone an educational revolution with a resulting massive expansion of higher education. The share of young people entering higher education colleges increased from 7 to almost 50% of each year’s cohort. This educational acceleration offers a large pool of well-educated employees with a relatively good command of English and other foreign languages. This was rapidly recognised by international companies managing business process outsourcing (BPO) services. In the Krakow area alone, BPO companies such as Cap Gemini or Accenture employ 35,000 and the total BPO employment in Poland exceeds 120,000 employees due to a yearly growth 20%. Besides general business education, Poland is home to an increasing number of trained software engineers and they seem competitive enough to attract investors such as Google, Microsoft or Motorola and to get employed in large domestic software firms such a Asseco or Comarch.

The demand for office spaces has boosted the investment in this type of buildings in large cities such as Krakow, Wroclaw or Katowice. Most large international construction groups have been active in Poland and, despite fast growth, this sector, together with housing construction, fortunately avoided the real estate bubble that had shaken the economies of Ireland of Spain.

One of reasons for this was the earlier decision to delay the entry to Euro-zone and to keep the national currency in the period of the global financial turmoil. As recently stated by the report of the National Bank of Poland the membership in Euro-zone would have led to macro-economic imbalances and likely to real estate bubble due to the increased inflow of investment money and easiness in getting loan mortgages. Now it seems that Poland will continue with the national currency, as the Polish Zloty increases economic policy flexibility to a greater degree than internal devaluation through downwards wage adjustments and budgetary cuts imposed on Euro-zone countries in the period of the recent crisis.

What about the future of private enterprise in Poland? It will remain dominated by family firms. They will keep maturing organisationally and plan in advance scenarios for the succession of ownership. In-family succession will be the favorite option, but short of such alternatives smaller family firms will likely be sold to other family owners, and the large ones may become publicly traded. Family-owned companies at the Warsaw Stock Exchange authorities prepare for their entry.

This short enumeration of basic economic factors seems to justify good forecasts for the Polish economy at least in the horizon of 2025. What would happen beyond this date depends on multiplicity of factors including the speed of the society’s ageing and the development in the European Union and in border-states such as Ukraine or Russia and is largely beyond the grasp of any empirical analysis.