Renewed interest from US investors and a booming business services sector fuelled a rebound in Poland’s FDI to $13.9bn in 2014, enough to put it among the top 20 destinations for FDI globally, according to Unctad’s World Investment Report.  

The figure marks a huge upward swing from just $120m in 2013, which was likely driven by a cycle of divestment that started in 2012, when Poland received $7bn in FDI inflows, according to economists at Unctad. In the four years prior, the country averaged inflows of about $16bn annually. “FDI flows to developed countries in general have become highly volatile and this is the case for Poland, too,” says Shin Ohinata, an economist at Unctad.

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Steady progress 

Leaving aside volatile capital flows, officials in Poland say that investors have shown steady interest in the country since about 2010, when it made headlines for becoming the only EU member state not to have gone into recession during the global financial crisis. Iwona Chojnowska-Haponik, director of the foreign investment department at the Polish Information and Foreign Investment Agency (known by its Polish acronym PAIiIZ), says that the organization has been handling about €1bn in projects per year.

By June this year, the agency had helped companies complete 23 investment projects – about 15% more than it had completed by June 2014. However, the total value of those projects, about €300m, is far less than the €1.5bn in investment the agency helped complete during the same period last year, more than half of which came from a huge investment by German auto company Volkswagen. 

That is largely because the majority of projects in 2015 have not been of the headline-grabbing greenfield variety, but rather reinvestments, such as expanding existing premises or adding a production line at a particular factory, according to Ms Chojnowska-Haponik.

Hot sectors 

Investments in manufacturing – especially in automotive, aviation and household appliances – are still popular, with Poland offering competitive wages. But investments in business services, as well as R&D, are surging. During the first half of 2015, PAIiIZ helped complete seven investment projects in business services and R&D, the same number as in automotive and household appliances. Currently, the agency is working on 43 projects in the business services and ICT sector and 17 in R&D, which together equal the number of projects it is working on in the automotive (35), aviation (13) and food processing (12) sectors combined. Such investments create knowledge-intensive jobs that the government hopes will bring Polish living standards closer to those of its Western neighbours. 

Financial services firm State Street, for example, recently announced that it is to open an office in Gdansk in 2016 that will complement its existing office in Krakow, which employs about 2500 people. The Gdansk office is expected to eventually accommodate more than 1000 employees, who will work in investment fund accounting, securities valuation and financial reporting. 

“This new office will bring additional career opportunities to our employees,” says Scott Newman, managing director at State Street in Poland. “It will create multiple management and senior technical positions for both existing employees as well as professionals and graduates from the local and international financial services sector.” 

Two trends 

State Street represents two of the biggest trends that Poland is seeing in FDI right now: a rise in interest from US firms and a wave of business services investment.  

“We have seen huge interest from companies in the US,” says Ms Chojnowska-Haponik, who adds that German businesses are also increasing their activity in Poland. Investment is also rising from eastern Asia, especially South Korea and Japan. 

But perhaps the biggest trend is the rise in business services, including outsourcing and shared service centres. The industry has exploded in the country over the past 10 years, rising from near non-existence to become Poland’s second largest sector in terms of number of people employed, with more than 150,000 Poles working in business service centres established with foreign capital alone. The tasks Poles are performing are becoming more complicated, while R&D investments are increasing as well. 

“Even if an R&D centre only creates 30 jobs or so, it’s very important,” says Ms Chojnowska-Haponik. This, she adds, is because such investments provide knowledge-intensive work for educated Poles.

It's complicated 

But there is another reason that these types of investments are key for Poland. “Many existing foreign investors in Poland, especially from the automotive, aerospace and defence sectors, might soon need to decide whether to move their operations to other, cheaper countries or whether to stay,” says Michal Turczyk, an analyst who specialises in FDI at consultancy Deloitte. “The government is focused on attracting more complex services so that these investors decide to stay in the country and develop their operations here.”

Mr Turczyk points out, however, that Poland is at a significant disadvantage when it comes to other countries in central and eastern Europe, as it does not offer any sort of tax incentives for R&D operations. While Poland does offer cash grants for such investments, these are often based on fixed plans that companies need to plan up front. Under most tax credit systems for R&D investments in the region, companies can apply after they have initiated their research activities, allowing them the flexibility to adapt to changing needs.

“The lack of tax incentives for R&D is something t6hat undermines Poland’s position as a main FDI attractor,” says Mr Turczyk. “If companies see that the Czech Republic, Slovakia, Croatia or Romania offer mixed systems, with both cash grants and tax incentives, that could sway them away from Poland.”  

Nevertheless, Poland still retains plenty of advantages that will keep investors coming, according to many economists. “Poland has a nice combination of being a relatively low-cost country as well as a safe country when it comes to politics, economics and access to markets,” says Witold Orlowski, director of the Warsaw University of Technology Business School and a member of the prime minister’s Economic Council. “This is a region that is still enjoying a significant influx of FDI.”