16.6 Present and future prospects for FDI in Poland

16.6 Present and future prospects for FDI in Poland

Poland was relatively slow to attract FDI during the early years of transition, lagging behind Hungary and the Czech Republic. However since 1997 it has become the largest recipient of FDI in Eastern Europe, which is to be expected given its market size , although in terms of FDI per capita, in 1999 it ranked eighth behind many of the smaller accession countries (UNCTAD, 2000).

Early foreign investors often acted in response to supply-side factors, particularly the opportunities created by the privatization of firms. Such factors and the political economy of privatization in Poland vis-a-vis other Central European host countries explain its tardiness in attracting FDI. Later FDI inflows focused on privatization- related service acquisitions or greenfield manufacturing projects. Here Poland has performed comparatively better than its neighbours.

From 1989 until the present, Germany has been the largest investor in Poland in terms of the number of investors, with 207 projects valued above US$1 million in 2001. For several years the United States led in terms of invested capital, but in 2001 France took the lead, accounting for 19.23 per cent of total invested foreign capital in Poland, followed by the United States (14.7 per cent) and Germany (13.43 per cent). But Germany is still engaged in the largest number of projects overall (PAIZ, 2002), especially if we take into account the large number of German SME investments that are not included in the above statistics.

16.6.1 Motives for investing in Poland

There have been many studies, especially during the early years of transition, on the motives of investors, often focusing on the typologies of market-seeking and natural-resource-seeking investment. However there have been few follow-up studies and not many focus on the service sector in CEE, where investment motives are presumably more singular (Holland et al. , 2000). Meyer (1998) found that for five transition countries, including Poland, 97 per cent of investors (British and German) were attracted by local market opportunities and only 31 per cent by low factor costs in 1993 “94.3 Most of the latter also sought access to local markets.

A recent survey in Eastern Europe and other emerging markets (EBRD, 2001) found that an attractive host market ranked highest among investment motives, followed by cheap skilled labour. Access to raw materials was the least important factor. Perhaps surprisingly the survey found that investment motives varied little across the various emerging markets. The only factor with major variations was the proximity of the host and home markets. In combination with EU membership, geographical proximity and institutional convergence were found to be the most important reasons for investing in CEE countries rather than in other emerging markets. Hence EU membership cannot be viewed as unimportant in respect of attracting FDI in the future.

Overall, market-seeking has been the dominant motive in the manufacturing and service sector. What does this imply for future sectoral patterns of FDI? Does it imply that FDI will shift towards trade-related investment when market access is fully liberalized? Table 16.1 shows the industrial distribution of FDI stock and current trends, as reflected in the most recent annual inflow figures.

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