A new chapter in Poland's history has been opened since the country joined the EU on 1 May 2004. Among the 10 new EU members, Poland is the largest market in terms of population and economic size. While Poland's income level is among the highest in the region, the country is also one of the largest recipients of foreign direct investment in Eastern Europe. Household incomes and, in turn, purchasing power in Poland are rising steadily along with increases in business activities, thus stimulating Polish demand for consumer goods. In the meantime, robust business sectors have elicited demand for various inputs for local production. Poland's accession to the EU has strengthened both Polish consumer and business confidence, further aiding the Polish economy in the medium term.

Indeed, the Polish economy has been widely considered as a model of reform since the opening up of Eastern Europe in the early 1990s. It quickly recovered from recession after a painful adjustment process, which was triggered by so-called "shock therapy" to quickly transform the country from a centrally-planned economy to a market-oriented one. Despite the Asian financial crisis and the Russian political and economic turmoil in the late 1990s and the slower global and EU economy in the last couple of years, the Polish economy has continued to expand steadily, with GDP estimated to exceed US$300 billion in 2005, up from some US$171 billion in 2000. Per capita GDP and average monthly salary have also increased rapidly, reaching some US$7,900 and US$782, respectively, in 2005.

One of the significant factors that underpin growth is the proliferation of private enterprises, aided by the country's privatisation programme partly in preparation for EU accession. Private enterprises have contributed to the re-structuring of the economy, enhancing the country's overall efficiency. The private sector currently contributes to over 60% of the GDP, up from a scant 20% in 1989. It also employs some 70% of the total labour force, and accounts for about 80% of total industrial production¹.

B. Inflow of Foreign Capital

More importantly, the Polish economy has continued to benefit from an influx of foreign capital, which has been lured not only by lower production costs, but also by a liberalised investment environment and good trading prospects in the course of Poland's accession to the EU. Poland is now among the largest destinations for foreign direct investment in Eastern Europe.

In 2005, foreign direct investment inflows into Poland amounted to US$7.7 billion². The total stock of direct investment (accumulated value) in Poland reached US$81 billion as at the end of 2004. France was the largest foreign direct investor, accounting for 20% of the total stock of direct investment, followed by the Netherlands (14%), the US (13%) and Germany (13%)³.

The major targeted sector of foreign investors was manufacturing, including automotive, pharmaceuticals and chemicals, all of which have drawn investors' attention, especially in recent years. Not surprisingly, in addition to exploring the domestic market potential of Poland, foreign investors are very much interested in exploiting the country's processing production capability. Coupled with the proliferation of domestic private enterprises, foreign direct investment has helped enhance the competitiveness of Polish manufacturing industries, which are able to turn out better quality products for the Western market.

C. Growing Purchasing Power

Amid steady expansion of the Polish economy and influx of foreign capital, household incomes have been rising at a steady pace. Average monthly wages in the country reached an estimated 2,528 zloty (around US$782) by the fourth quarter of 2005. Growing incomes have raised the purchasing power of Polish households, which has in turn stimulated demand for imported consumer goods and bodes well for the business prospects of overseas suppliers.

Increases in foreign investment, coupled with the expanding private sector, have further stimulated demand for management staff and skilled workers, serving to push up their wage levels. While the average monthly wage exceeds US$700, it is quite common now for middle-income earners to have a monthly salary of some US$550-US$900. For those working in major cities, such as Warsaw (the capital), Krakow and Wroclaw, the monthly wage could be 10% to 20% more than the average. Of course, unskilled workers and those working in the agricultural sector have lower incomes, with an average monthly wage of about US$300-US$500.

D. Poland's Industrial Sectors

Poland has sizeable industrial production, with total industrial sales amounting to 663 billion zloty (around US$205 billion) in 2005. Considering its vast agricultural sector, the largest industrial output is the production of food and beverages. This is followed by motor vehicles and transport equipment, thanks to inflows of foreign investment. Meanwhile, heavy industries like electrical and non-electrical machinery and equipment are likewise facilitated by foreign direct investment, and there are also some resources-based industries, including basic metals, metal products, chemicals, as well as mining and quarrying.

Given such industries, there exist a number of niches for industrial goods suppliers. For instance, the sizeable production of motor vehicles has stimulated an appetite for a wide range of auto parts and accessories, creating opportunities for suppliers that are proficient at producing items like car audios, harnesses, batteries and accessories of stringent quality. Production of other electrical and electronics items has also elicited demand for a wide range of related parts, components and accessories. In a wider context, these Polish industries need to source substantial inputs for their daily operations, such as tools, fixtures, electric hand-drills and gas pumps. Thus, suppliers capable of producing related products at reasonable prices should be able to make inroads into the Polish market.

The country also produces a wide variety of light consumer items, although they account for a lesser share of total industrial sales. For instance, Poland has a cluster of textile and apparel manufacturers, as well as producers of leather goods, footwear, houseware and small furniture. But it is noteworthy that the most competitive manufacturers usually produce for export especially to Western Europe, often under processing agreements. Although some of the higher quality outputs are also sold in the Polish market, they tend to be expensive and are out of the reach of most consumers. To compound the problem, production of other light consumer items, especially toys and games, giftware, watches and clocks, etc. is relatively insignificant in the country. The demand for such items, as well as garments, leather goods, footwear and houseware, is mainly matched by imports.

E. Expansion in Foreign Trade

With increasing economic activities, Poland's foreign trade has expanded steadily in recent years. While the country's exports surged from US$32 billion in 2000 to US$89 billion in 2005, imports also grew robustly from US$49 billion to US$101 billion in the period. Poland's major export markets, mainly West European countries, included Germany, France, Italy and the UK. As regards imports, the largest supplier was Germany, followed by Russia, Italy and France. The Chinese mainland was the fifth largest supplier, although it only accounted for 5% of Poland's imports.

In line with the industrial structure of the country, Poland's major exports included manufactured goods and machinery and transport equipment, which accounted for about 38% and 39%, respectively, in 2004. As for imports, manufactured goods and machinery and transport equipment were once again the largest categories, contributing some 29% and 39% of the total, respectively. Notably, the trading of machinery and transport equipment has been facilitated by intra-industry trade stemming from expanding processing production in Poland for its West European clients, especially Germany.

As for manufactured goods, while Poland exports a variety of consumer products to its Western counterparts under processing arrangements, the country also imports a wide range of consumer goods for consumption. In particular, imports from Asian suppliers are usually value-for-money items that are more affordable for average household.

¹ Central Statistical Office of Poland
² PAlilZ
³ Commercial and Economic Section, Consulate General of Poland in Hong Kong