[A-List] Poland: Poles against FDI

[Sabri Oncu <soncu@xxxxxxxxxxx>]

Protecting Poland: The country is shifting its economic strategy
away from foreign direct investment, says John Reed:
Financial Times; Apr 24, 2002
By JOHN REED



Financially crippled and working on reduced shifts, Warsaw's
Daewoo-FSO car plant stands as a seeming rebuke to
globalisation's keenest advocates.

When the Korean group launched the Dollars 1.1bn joint venture in
1996 with the local carmaker, both it and Poland hoped the
investment would position FSO to profit from surging local car
sales and develop a thriving export business.

Doubly hit by Daewoo's bankruptcy in 2000 and collapsing Polish
demand for new cars, FSO has halved its staff to 3,100 and limped
along by persuading banks to roll over its loans.

The global downturn, which tipped Poland into its worst economic
slowdown in a decade, has also taken its toll on flagship foreign
investments. Many multi-nationals, squeezed by sagging markets at
home or in Poland, are scaling back business plans, exiting
investments or simply steering clear.

The souring business climate is prompting a new reckoning among
Poles about the benefits of the roughly Dollars 40bn foreigners
have invested in their country since 1989. Leszek Miller's
leftist cabinet is eschewing fast sell-offs to foreigners for an
industrial policy approach that will mean remaining state
industries being restructured or consolidated before they are
sold, if at all. "Poland is no longer in a position where it
can't say what kind of foreign investment we most need," Mr
Miller said recently.

With about three-quarters of Polish banking assets now
foreign-owned, it will keep two big state banks under Polish
control, partly to finance projects and sectors favoured by the
government. It may scrap talks with a UK group for control of the
Gdansk Refinery, Poland's second largest oil concern, and merge
it with PKN Orlen, the country's leading refiner - possibly as
soon as this week. From telecommunications to insurance, it is
the same story.

Poland is not alone in its region in sounding a nationalistic
note on foreign direct investment (FDI). Slovenia wants to limit
foreign-bank ownership, for example, and the Czech Republic wants
to build "national champions" in some industrial sectors. But as
the largest of eastern Europe's European Union candidates, Poland
is an economic bellwether. Success in the stewardship of
remaining state-owned assets would permit Poland to balance its
national sensitivities with the demands of the single market.
Failure would saddle it - and by association the EU - with
uncompetitive operators in key industries.

Completing its annual Warsaw mission last month, the
International Monetary Fund said the shift in strategy was of
concern, warning that "Poland can ill-afford the inefficient use
of financial and human resources that many remaining state-owned
enterprises entail".

In some cases it is easy to grasp why Poles are ambivalent about
foreign capital. Foreign hypermarket chains, for example, have
flooded Poland with cheap wares but bankrupted many small
retailers and earned a reputation for paying poorly.
Foreign-owned banks have brought new products and better service
but have sometimes favoured home-country interests and lagged
behind Poland's central bank in cutting lending rates. "On the
basis of privatisations conducted in the banking sector to date
with foreign participation, I can't say they were very good,"
says Wieslaw Kaczmarek, state treasury minister.

He and other observers note the irony of western advisers holding
Poland to a higher standard of foreign ownership penetration than
most EU countries allow. "(Poles) see how the French economy is
managed, the level of state influence that exists," says Duleep
Aluwihare, head of Andersen's Warsaw practice. "They see the lack
of transnational mergers in European banking and are asking,
'Where is the consolidation?' "

Even strong advocates of FDI concede it has not lived up to its
promise in Poland. A study last year by the Gdansk Institute for
Market Economics, a liberal think-tank, found higher
technological efficiency among Polish companies with foreign
owners. But the study also noted "a relatively low propensity to
engage in innovation" among foreign- controlled companies, nearly
all of which chose to site their research and development
facilities outside Poland.

Polish officials stress that they remain open to foreign capital.
Warsaw is also committed to lowering state ownership to EU
standards of 10-15 per cent of gross domestic product by 2005,
from about 34 per cent now.

Some analysts detect political motives behind the Miller
government's economic nationalism. Its approval ratings have
plummeted since it took office last October and foreign
investment is unpopular with many of its working-class
supporters. "For a significant portion of Polish society,
privatisation is associated with selling property for nothing and
taking bribes in return," says Marek Zuber, economist with
Hypovereinsbank-owned BPH-PBK.

State concerns are also a rich source of jobs for ruling-party
allies, not least when Poland's unemployment rate is 18 per cent.
The government's first six months have been accompanied by a
traditional rotation of cadres at companies where the state owns
stakes. But the state's record on running companies is poor:
dismissed managers named by the former rightwing government at
insurer PZU Life and minerals giant KGHM Polska Miedz, for
example, face criminal charges for misuse of corporate funds,
sometimes to benefit companies associated with parties or
politicians.

Critics of the government say that even if it keeps its pledge to
divest state holdings after consolidating industries, trade
unions and managers could prove powerful lobbies for maintaining
the status quo. "I view these plans sceptically," says Janusz
Lewandowski, an MP with the opposition Civic Platform and
Poland's privatisation chief in 1992-93.

Consolidating industries could result in the cross-subsidisation
of lossmaking industries by profitable ones, Mr Lewandowski
warns. The use of PKO BP, the state-owned retail bank, to fund
state projects could see its bad-loan portfolio mushroom at
taxpayers' expense. Poland cannot afford to experiment with
dirigiste economic policies, he adds, given its experience under
communism - not to mention that of many Asian countries since
1997.

Drawing an analogy with Daewoo, brought low - like other Korean
conglomerates - by entanglement of private and state interests,
Mr Lewandowski warns against creating "Polish chaebols" where the
state holds sway. The merits or drawbacks of foreign investment
aside, the analogy suggests another lesson entirely for Poland
from the collapse of FSO's foreign partner.

Copyright: The Financial Times Limited 1995-2002

Full at:
http://globalarchive.ft.com/globalarchive/article.html?id=0204240
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