From the 1980s and 1990s, deep political changes took place in Poland, that included stabilising the economy and transforming the economic system through cooling down hyperinflation, introducing into circulation the national convertible currency, restoring control over foreign debt and developing an effective banking system. In 1997 the social market economy has been recognised as the constitutional basis of Poland’s economic system. The transition from a centrally planned economy to a market economy made it possible to modernise a country that had a considerable distance to overcome in relation to the most developed EU countries. The late 1980s brought Poland a favourable political climate. As a result of a change in the international power system, Poland gained the opportunity to carry out deep reforms of the political system. It was about both political and economic changes that were not possible under influence of USSR. Those political changes were greatly influenced by the decision to integrate with the European Communities. Poland has taken adaptation measures, thanks to which, on May 1, 2004, became a member of the EU. Poland’s accession to the European Union forced the implementation of institutional and structural reforms required by the EU. Poland have received mechanisms directly affecting their economic growth, including: an influx of direct foreign investments, money transfers by emigrants, EU funds, increased market openness and an influx of new technologies. (http://www.enrs.eu/de/articles/1516-the-consequence-of-the-system-transformation-of-1989-in-poland)
Local Business Environment
Poland is undoubtedly an attractive location for foreign investments,with regards to huge domestic market with over 38 million consumers and being the biggest market in the region of Central and Easter Europe in reference to GDP. According to European Commission “Country Report Poland 2018” the real GDP growth was one of the highest in EU, approximated at 4.6% in 2017 compared to 2.9% in 2016. The Growth is forecast to continue to be steady in the next years with increase in application of EU funds that stimulate private and public investments and reach 4.2% in 2018 and 3.6% in 2019. (country report Poland).
The relation of export to GDP in 2016 was ta the level of 52.26% and although it has gradually increasing over the past few years, it still remains at the lower level than in the neighbouring countries such as Czech Republic (79.54%) or Slovak Republic (94.62%) (World Bank Data) and that makes Poland less dependant on changes in external environment. (PIFIA).
Poland’s growth has been also based on inflow of Foreign Direct Investments and EU funds. Poland is the largest recipient of EU structural and cohesion funds, and has been allocated EUR 86 billion from European Structural and Investment Funds in the period 2014-2020. Poland’s total budget for investment, in areas such as infrastructure networks, environmental protection, research, innovation, social inclusion and labour market participation, is EUR 104.8 billion.(European Commission). The total FDI stock in Poland at the end of 2016 reached EUR 9.5 billion and although slight decrease was noted as opposed to 2015 where FDI were EUR 10.9 billion, Poland still maintained a strong position in Europe, where was place as a fifth country, attracting 256 projects. Poland is trying to encourage foreign investors through various incentives such as governmental support system provided in forms of grants and by creating Special Economic Zones where business can operate in advantageous conditions, for instance tax exemptions. Other factors that make Poland an attractive market are stable political situation (part of EU and NATO), geographical location in the centre of Europe, where the major transport routes converge.
Competitive, legal and cultural risks and challenges
The investment attractiveness, often identified with the investment climate, should be understood as a set of conditions conducive to the location of investments (foreign). Otherwise – it is the ability to make (foreign) investors choose a specific region or country as their business location by offering them a combination of benefits resulting from the selected location. The most important conditions creating attractive investment venues include: quality of the macroeconomic environment, access to broadly understood infrastructure, size and absorptiveness of the host market, quality of human capital, industry structure of the economy, legal regulations for economic activity, social environment, etc. An important element of the institutional environment is also the political risk associated with all kinds of political upheavals, which in turn are associated with the volatility and introduction of new legal regulations, also concerning the operation of entities with foreign capital. The effect of these changes may affect relative prices, which in turn may influence the profitability of the investment
In general, the state of Polish legislation, both among scientists, publicists and all recipients of law, has been controversial for many years. In particular, the parliament and the government are accused of overproducing legal acts both in the quantitative and qualitative sense related to the issue of detail of provisions. The excessive number of unnecessary legal regulations increases regulatory burdens and reduces the ability of citizens and enterprises to absorb new rules, as well as adaptation to them. Another objection concerns the instability of the legal system caused by frequent changes to existing legislation. Unstable legal rules increase the cost of adaptation and may result in undermining trust in the law. Moreover, Polish legislation is perceived as extremely detailed. A large number of specific laws that repeal general rules contribute to the over-complexity, opacity and inconsistency of the legal system as a whole.
Another serious problem of the Polish legal system is its instability. It can be testified by, among others, percentage of laws amending other acts, or the frequency of amendments introduced. In the 3rd and 4th term of the Sejm, the amending Act constituted less than 60% of all adopted laws, while in the relevant period the share of the amendment in the adopted laws in the Czech Republic and Hungary oscillated around 50% . The current term of the Polish parliament shows that this problem is even greater. On 383 acts adopted as of 30/05/2014, 287 are amendments (which is almost 75%) .
Confirmation of the poor quality of Polish law and the process of its formulation are also components of the Worldwide Governance Indicator created by the World Bank. This indicator refers to six aspects of the so-called good governance: democratic freedoms (freedom of expression and responsibility), political stability, effective governance, the rule of law, the quality of regulations related to the private sector, the level of corruption. Each indicator evaluates one of the six dimensions of the institution’s quality on a scale from + 2.5 (strong institutions) to -2.5 (weak institutions).