"As for the flaws, I think it is too early to talk about them since the project (One Belt, One Road) was launched just a few years ago and developing infrastructure takes significant amount of time," said the Polish Finance Minister Teresa Czerwinska
NEW DELHI: ET's Dipanjan Roy Chaudhury interviews Poland's Finance Minister Teresa Czerwinska
Poland joined the Asian Infrastructure & Investment Bank (AIIB) in 2015. Can you describe Poland’s motivation for doing so?
A few decades ago the European infrastructure was facing similar challenges to those the Asia is facing today. One of the reasons for Poland to join and to be the founding member of the AIIB was the desire to contribute to the Asia’s development, to enhance its connectivity – also with other continents including Europe, and to boost inter-regional cooperation.
We acknowledge the fact that Asia's investment needs are enormous, but also that the role of Asian markets grows rapidly. This requires an adequate infrastructure – both to meet domestic needs and to facilitate international trade. Poland is the first EU country on the routes running from the farthest corners of Asia to Western Europe and thus wants to play a significant role in connecting the two continents.
We also look forward to share our experience from designing and implementing infrastructure projects in all the sectors ranging from transport through energy and urban development. We can also support the involvement of our companies as contractors or subcontractors in various projects. Polish entrepreneurs are skilled, experienced, with wide know-how and we want to support their presence on global markets as much as possible and create conditions for them to start a new or expand their current activity in the Asian markets.
Finally, as the Bank’s shareholder, Poland aims to participate in the decisions, co-create policies, in fluent strategic activities, develop a strong financial institution and boost its full potential.We also believe our country may at some point submit a project to be considered by the Bank under its non-regional mandate.
Poland participated in the ‘One Belt, One Road’ forum in Beijing in 2017. How does it view the investment opportunities in this project?
Due to its geographic location, Poland is at the intersection of north-south and east-west routes, thus is considered as one of the major and significant countries on the Belt and Road routes.
The importance of the emerging Asian economies is growing, for example India which is currently developing at the fastest pace in the world. It requires more connections and more infrastructure. Poland will definitely participate in this process because it is in its center. That is why we want to be active. That is also why our Prime Minister visited Beijing last year and I am visiting Mumbai this year.
The growing role of Asian countries creates opportunities for investment both in Asia and in Poland, which is keen to develop stronger ties within wide Euro-Asia. Infrastructure projects that are currently being developed in Poland, such as the new central airport, will have a strong Asian component and are designed to connect Poland and Central Europe with Asian countries. We are therefore interested in investment projects in this area.
What advantages does Poland see in participating in the ‘One Belt, One Road’ project? Has it identified any disadvantages?
Poland is a country open for new investments, new business opportunities, and new ideas, in particular involving Asia. We consider that some of the investments under the Belt and Road initiative could bring an added value for our economy.
As for the flaws, I think it is too early to talk about them since the project was launched just a few years ago and developing infrastructure takes significant amount of time. What is obvious for me at this time is that the Belt and Road Initiative should not be a tool of increasing power and control by any country, but should serve all participants, promote cooperation, sustainable growth and balanced exchange of trade. So that the new infrastructure would create prosperity in all connected areas and that the growth of wealth would not just be one-sided. I hope that the dialogues and willingness to work together under the initiative will lead to mutual benefits.
Poland was the only E.U. member state not to register a recession following the global financial crisis in 2008. According to figures released recently, the Polish economy registered a growth rate of 5.1% in the first quarter of this year? Could you describe some of the salient macroeconomic indicators of the economy?
It were strong macroeconomic fundamentals and policy framework, large and diversified domestic demand and agile fiscal policy that made Poland the only EU country to have avoided recession during the post-2007 global economic and financial crisis. Our growth reached nearly 40% between 2008 and 2017, with an average annual GDP growth of more than 3%. Today Poland is the eighth-largest economy in the EU, with a buoyant private sector, internationally competitive and export-oriented companies, as well as well-educated and skilled human capital.
In 2017 the economy grew by 4.6% which is the highest rate since 2011. Economic growth was driven by domestic demand, with substantial contribution of private consumption.
GDP is forecast to increase by 3.8% in 2018, and this will be supported by prudent fiscal and monetary policies which are instrumental for maintaining macroeconomic balance. The general government deficit and debt are relatively low and on a declining path. In 2017 the general government deficit reached 1.7% of GDP while the debt amounted to 50.6% of GDP. Particular attention should be given to an excellent performance of tax revenues which is the combined result of implemented institutional and legal changes aimed at improvement in tax revenues collection and favorable macroeconomic conditions.This remains among my own priorities while being the Minister of Finance since January 2018.
Poland has been ranked 27th out of 189 countries in the World Bank’s 2018 Ease of Doing Business Rankings, far ahead of other countries in the CEE region. In terms of ‘Trading Across Borders’ it was ranked first. Can you describe some of the policies implemented by the government which have led to these results?
We constantly improve the conditions for starting and doing business in Poland – in particular by simplifying the tax system, labour market regulations and other elements of the business environment for domestic and foreign investors.
As for “Trading across borders” - Polish Customs Service, now the part of the National Revenue Administration, has been making an effort to simplify, facilitate and upgrade export and import clearance procedures. The aim is to support legitimate trade and fair competition, without compromising efficiency of security checks. Recent activities contributed to the facilitation of cargo clearances in Polish ports, improvement of customs services and standards in international trade in goods.
In the field of handling of consignments in the seaports, we havefully digitalized customs declarations, reducing to minimum thetime needed for customs clearance. We have introduced the possibility of delayed VAT settlement. Our port of Gdansk is a part of the Smart and Secure Trade Lanes project, aimed todevelop customs control standards and to facilitate exchange of goods in the maritime trade between the European Union and China.
On the export side, an important facilitation is the possibility of placing goods under the export procedure directly at the seaport. The solution Poland applied is of great assistance for economic operators, especially when it comes to food products. Those solutions were the factors for the positive assessment of procedures in the Polish seaports as friendly to economic operators and resulted in a significant increase in interest in using services of the Polish seaports.
In 2018, we want to launch “Tracks 24” – a project facilitating clearance and increasing movements of railway cargo, between Europe and Asia, on the Belt and Road routes.
In 2017, foreign investors invested €13 billion in Poland, making it the second-best destination for FDI in Europe. In terms of the number of jobs created as a result of these FDI projects, Poland ranked first in the E.U. What are the reasons which make Poland such an attractive destination for foreign investors?
I believe economic stability and a large domestic market are Poland’s main assets as a location for foreign investments. Foreign companies value Polish labour productivity and labour costs, employee loyalty, the availability of materials and components and the condition of infrastructure.
A combination of dynamic economic growth, strong internal demand and high skills of local suppliers and contractors, all within the borders of the European Union are our strongest points, making Poland an attractive business destination, not only for those companies wanting to reduce production costs, but also for those searching for a convenient location to coordinate their distribution, sale or operational activity.
We are proud to have well-educated and highly appreciated employees - economists, engineers, IT specialists and scientists. The number of graduates of Polish universities, including faculties useful in high-tech industries, increase every year. We also offer many incentives for foreign companies investing in various sectors - automotive, aviation, electronics, biotechnology, R&D etc.
Poland wants to attract even more foreign investments, including from India, that is why we want to transform Poland into one large special economic zone, with equal tax exemptions for investments throughout the country. All those factors make the investment climate in Poland for foreign entrepreneurs better every year.
What measures has the Polish government taken to ensure the protection of the rights of foreign investors? Do Poland and India have an agreement on the promotion and protection of mutual investments?
Bilateral investment protection treaties, double tax avoidance agreements and our domestic law on the protection of entrepreneurs, industrial property protection, intellectual property protection etc., are among the tools to do that.
Since 1989 we have had bilateral Poland-India agreement on the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
The agreement between Poland and India on the promotion and protection of investment was terminated by the Government of India. For the next 15 years, until 2032, all investments made prior to its termination will remain protected. The new agreement is to be negotiated by the EU and India. We hope the negotiations will result in signing the agreement, ensuring the adequate protection for new investments. Free trade agreement between EU and India would undoubtedly create better prospects for further Polish-Indian economic cooperation.
Can you describe some of the changes which have recently taken place in the Polish banking sector?
The key change that occurred in 2017 in the structure of the banking sector was the increase in the share of domestic investors in the banking sector's assets to above 50%, which was the result of the increase of state-controlled companies in the second largest Polish bank Bank Pekao SA. As a result, for the first time since 1999, the share of domestic investors in the banking sector's assets was higher than the share of foreign investors (at the end of 2017 it amounted to 54.5%)
Our banking sector remains sound and well capitalised, as it was confirmed by various external institutions including the IMF in its annual assessment of the Polish economy.
Apart from offering a wide array of financial services new services, under the FinTech, are developing very dynamically in Poland. More and more financial market institutions treat innovation as one of the major drivers to achieve a competitive edge. Polish consumers, especially young people, positively respond to the digitisation and want to use innovative financial services through remote electronic channels (mainly via Internet and mobile devices). Examples of FinTech solutions on the Polish financial market include: mobile payments, real-time online payments based on internet banking, bio-metric technologies used for payment authorisation, and blockchain-based services.
We have created a unique environment to support the development of financial innovation on the Polish market. We have introduced many pro FinTech changes, simplifications. We also have accelerator programs established by financial institutions and Innovation Hub Programme with a special team of supervisors providing FinTech companies with information on regulatory and supervisory requirements and helping them to enter the financial market.
Can you describe some of the salient features of Indo-Polish bilateral economic relations?
India is one of the most prospective non-European markets for us. It is among the primary locations of Polish direct foreign investments in Asia. We are glad that under the recent reforms of Prime Minister Narendra Modi, India is opening more widely, improving the climate for business and creating new opportunities for foreign partners. Make in India program, as well as other ambitious government programs focused on the development of transport infrastructure, housing market, digital economy or stimulation of innovation, increase the attractiveness of the Indian market for Polish entrepreneurs.
We have several government programs launched to help Polish entrepreneurs in promoting their products and services in India. As the most prospective areas of the Polish- Indian cooperation, we consider food industry, power industry, pharmaceutical and medical devices industry, environmental technologies and Smart Cities solutions and mining. For example, under the West Bengal Project Polish enterprises, with their wide experience and knowledge, as well as innovative solutions, may play a significant role in the modernisation and development of the Indian mining industry.
India is the fifth among the biggest Asian investors in Poland. As many Indian investments in Poland are registered in fact from the third countries, this figure could be even bigger. Indian investors are present in Poland in the IT, outsourcing and in the manufacturing sector. For instance, Arcelor-Mittal is the biggest steel producer in Poland, employing over 11,000 staff.
The current value of bilateral trade amounts to about 3 billion USD annually, which represents only some 0.7% of total Polish external trade. It is ten times smaller than our trade with China, and also less than trade with the ASEAN countries, Japan and South Korea. We should work together to further increase this amount.