Poland is, in absolute terms, the largest source of outward foreign direct investment (OFDI) among the new EU members. In 2009 it had OFDI stock of nearly $30bn. Considering this figure in relation to the country’s population or the size of its economy, however, Poland's OFDI is below the average of new EU members.

Most of Poland's OFDI stock (93%) has emerged since 2005. In the early 1990s, when the country was becoming a market economy, it relied on inward foreign direct investment (IFDI) to realise one of the key objectives of this transition: creating and strengthening the private sector. IFDI took the form of crossborder acquisitions, specifically privatisations, in industries such as telecommunications, banking and, partly, power generation, as well as greenfield FDI projects in a wide range of industries. At the same time, private Polish firms were emerging, although initially they did not have the resources to expand abroad via FDI. Companies that remained under the control of the state were mostly commercialised and some of them also started investing abroad.


As a result of the emergence and rapid growth of OFDI, both OFDI and IFDI started contributing to the internationalisation of the Polish economy, through international production. Although the ratio of OFDI stock to IFDI stock is small (14% in 2009) and will remain so for many years to come, the ratio of OFDI stock to GDP has increased in the past decade; going from close to zero in 1999 to 7% in 2009.

Upwards and outwards

Poland’s OFDI took off and started growing rapidly only five or six years ago. Between 1994 and 2003, annual average OFDI was less than $100m; fluctuating between -$90m in 2001 and $316m in 1998. Outflows were concentrated in trade-supporting activities such as trading and marketing, finance, logistics and transportation in key export markets in Europe. Between 2004 and 2009, outflows jumped to an average of $4.8bn a year, reaching a peak in 2006, when they totalled more than $9bn.

The rapid growth of Polish OFDI flows and, consequently, the country’s OFDI stock reflects two phenomena. First, the emergence of Polish public and private multinational enterprises (MNEs). These are domestic firms that have become competitive enough to seek opportunities abroad, not only exporting but also undertaking the production of goods and/or services in countries other than their own (see the section on corporate players).

Second, for tax and regulatory reasons, some MNEs (including Polish MNEs) began directing money between different units of the corporation, part of which is called 'capital in transit'. These transactions have occurred in Poland since 2005, but were listed separately in the FDI data for some years. Not representing an economic activity, they distort both the inward and outward FDI of the country. Between 2005 and 2007, capital in transit represented between 40% and 47% of Poland’s FDI outflows. 

In 2006, the share of special purpose units in Poland’s OFDI stock was 36%. This would suggest that less than two-thirds of Poland’s outward FDI represents international production of MNEs (ie, 'genuine' FDI). 

Looking deeper

Yet a closer look at the industrial and geographical composition of OFDI stock suggests that the share of genuine FDI in total OFDI stock is even less, between one-third and one-half of the OFDI stock. There are two reasons for this.

First, because in terms of the composition of outward stock by industry, the category of 'services non-classified elsewhere' (activities that do not fit the standard classification of industries) accounts for nearly two-thirds of the total outward stock between 2006 and 2008, resulting, most likely, from the transferral of funds.

Second, because in terms of the composition of outward stock by geography, 60% of it is located in five economies (the first three of them are top destinations of Polish FDI): Switzerland ($6.7bn), Luxembourg ($5.9bn), the Netherlands ($2.3bn), the UK ($1.3bn) and Cyprus (more than $800m). These economies are known as sources and destinations of intra-corporate fund transfers for tax and regulatory reasons. Without these economies, the geographical composition of Polish OFDI stock is similar to that predicted by standard theory on OFDI and the internationalisation of firms: the significant proportion of Polish FDI is directed towards it neighbours in central and eastern Europe (including members and non-members of the EU), with more than $5.3bn of Polish OFDI invested in these countries. They are followed by the remaining western European members of the EU, with Germany, Belgium and France being the main beneficiaries. 

Government involvement 

Successive Polish governments have acted neutrally towards OFDI and Polish MNEs. Consequently, private Polish MNEs are a product of market forces and laissez-faire policy, and have had no government intervention or support. The ministry of the economy has noted, in the only report on OFDI by a government agency, that “all activities of Polish enterprises related to investment abroad result in the overwhelming majority from their very own initiative. Polish firms are able to identify, select and use alone their chances to grow and develop through FDI. It does not mean, however, that they do not need encouragement and support from adequate state institutions.” Possible or existing forms of support are not mentioned because there are hardly any that relate to OFDI.

private Polish MNEs are a product of market forces and laissez-faire policy, and have had no government intervention or support

Government involvement can be found in at least some foreign investments by state-owned enterprises, however. The biggest Polish FDI project so far, the purchase of the Mozejki refinery in Lithuania by Polish refiner PKN Orlen – contrary to claims of the former management that it was a transaction based purely on business considerations – was actively encouraged and discussed by the Polish presidency with Lithuanian counterparts. Investments by the gas company PGNiG have also been encouraged as a means to diversify the source of gas imports.

Recently, the Polish government has been suspected of pursuing a policy of creating 'national champions'. It openly supported the state-owned bank PKO BP's (failed) acquisition of Bank Zachodni WBK, a foreign affiliate of Allied Irish Banks. It also sought to try to privatise the regional energy company, Energa, by selling it to another state-owned enterprise, Polish Energy Group, in spite of the warning from the competition authority that the transaction would significantly reduce competition in the country's energy market. Furthermore, these attempts have been related to the fact that government advisors talk openly about the need to protect the remaining large Polish state-owned enterprises (other large firms are typically foreign affiliates). Thus it remains to be seen whether these firms will become the future vibrant Polish MNEs.

Expanding borders

At the turn of the 21st century, Polish firms hardly engaged in the foreign production of goods and services, limiting OFDI to trading activities. But a few years later Poland’s OFDI stock increased 10-fold, from $3bn in 2004 to $30bn in 2009, reflecting the emergence of Polish MNEs – both public and private – and the continued investment in activities supporting Polish exports, as well as Poland's increased involvement in the transfers of intra-corporate funds for tax and other reasons.

The trend toward a further expansion of Polish private MNEs is set to continue, as a growing number of domestic enterprises discover the benefits of investing abroad and acquire competitive advantages that allow them to undertake such investments.

Laissez-faire policy combined with relatively stable and good economic conditions in recent years, including during the crisis, and a general support by government for competition in the domestic market, has helped Polish firms expand abroad through both exports and FDI. Whether Poland will adopt a policy to turn state-owned enterprises into national champions and, eventually into MNEs, will depend on the outcome of the current debate on the future and limits of further privatisations.

Zbigniew Zimny is professor of international economics at the Academy of Finance in Warsaw. This article was originally published as part of the Columbia FDI Profiles series from the Vale Columbia Center on Sustainable International Investment