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Poland has the largest economy in Eastern Europe, with GDP totaling $420 billion in 2007, more than double that of the Czech Republic, and one of the highest levels of foreign investment at $13.9 billion as of 2006. Poland's economy has been growing quickly, at about 6%, for the past 5 years, and was growing at an even faster pace before this. The service sector is expanding, and costs are going up, but manufacturing remains a strength of the Polish economy. In particular, machine building, iron and steel, coal mining, chemicals, shipbuilding, food processing, glass, beverages, textiles are the major industries in Poland.
The largest industry in Poland by revenues is the chemical manufacture sector.. In addition to the chemical industry, Poland has had a very strong presence in manufacturing televisions. Over the last 5 years, Poland has produced from 25 to 35% of TV sets in Europe.
Poland has a highly educated workforce, especially in math and science. This continues to be reflected in high levels of enrollment in universities. Around 65% of the college-age population was enrolled as of 2006. Poland also has one of the largest labor forces in Eastern Europe, at 16.8 million individuals. This is lower only than Russia, Ukraine, and Turkey, and many would not even include these countries in Eastern Europe. Additionally, wages in Poland are low compared to Western European wages. The average wage was around $16,000 annually as of the first quarter of 2008, compared to around $40,000 in neighboring Germany. These factors make Poland an ideal location for sourcing and manufacturing for the broader Eastern European and Western European markets, and this is what many companies do. Approximately 70% of Poland's exports are to other EU countries. This was just under $70 billion in 2005, and it topped $100 billion in 2007 estimates, with about $36 billion going to Germany, Poland's largest export partner. Nearly 30% of Polish workers were involved in industry in 2007, and the industrial sector's share of GDP was equivalent.
Energy and Resources
Currently Two ETF's invest primarily in the economy of Poland. iShares MCSI Poland Investable Market Index ( NYSEArca: EPOL) and Market Vectors Poland ETF (NYSEArca:PLND).
The value of Poland's currency has increased greatly, and much faster than many expected. As recently as 2004, the Polish Zloty was appreciating at 15%. Poland's government has attempted to slow currency appreciation because of the harm it causes to foreign investors. As the country becomes more prosperous and converges with the EU, it will move onto the Euro, and this tends to make the currency value higher. Poland is somewhat reluctant to move to the Euro because of these appreciation effects in part, but will likely do so by 2011 or 2012. Currency appreciation is another type of "rising cost" but can be somewhat hidden. The prices of all goods go up and the relative cost paid by foreign companies goes up, and this hurts profit margins. Another aspect of the rise in currency value is high inflation, which in 2007 came out to 3.6%, just over the "acceptable" 3.4% threshold of the rest of the Euro zone. These costs make doing business in Poland more expensive, lowering profits.
Costs of doing business in Poland have risen rapidly since 2003. In the early 1990's, Poland was one of the best low-cost alternatives for manufacturing in Europe. Average wages were well below those of Western Europe. However, wages have risen as Western European companies invested in the country. Poland's joining the European Union in 2004 sped up this process. EU accession removed trade barriers, so companies could more easily move into Poland and workers could more easily move outward, and this put upward pressure on wages. The process of convergence continues, and in 2007 GDP per capita was nearly $12,000, which is more than a quarter that of the average Western European country. As wages continue to approach those of the rest of Western Europe, the cost advantage that foreign companies had in Poland will decrease and they will either leave, evolve, or lose profit. Domestic Polish companies will have to search elsewhere in Eastern Europe for cheaper labor alternatives, in countries such as Slovakia or the Balkans. As shown on the graph at right, GDP per capita in Poland has risen at an average of 10% per year over the last 18 years, while that of Germany has risen by an average of only 5%.
Poland is experiencing an interesting cyclical process of labor movement. Overall, people are leaving the country; Poland has a negative net migration rate. However, since 2007 there has been a shift in the types of people leaving. While over the last 10 years, skilled IT workers left for countries such as Ireland where the software sector was booking and wages were much higher than in Poland, rising wages have brought many of these highly-skilled workers back. These workers bring back skills with them but also familiarity with higher standards of living, and so they will lead to increase in wages but also bring back capital. At the same time, Poland is losing other types of skilled workers, namely plumbers and electricians, who are moving to Western Europe, and so this creates problems for companies that are looking to build new operations.
As of the first half of 2008, Poland's infrastructure was still mixed. The World Bank Logistics Performance Index rates Poland's infrastructure as a 3.04 out of 5. Travel between Poland's two largest cities can take 12 hours on a bad day, and some of the major highways are only one lane. However, EU accession has provided Poland with money for infrastructure improvement, and certain foreign investors are putting money into building roads. Overall, the infrastructure is improving, and this will make it easier for businesses to operate and reduce shipping and other logistics costs. As of the end of the first half of 2008, there was more than $37 billion invested in manufacturing by foreign companies, and this increasing number indicates that transportation and logistics are becoming less of a problem as more companies expand operations.