Why Poland's Economy Is One to Watch

By John Bostwick, Managing Editor, Radius

Donald Trump’s second trip abroad as US president began with a surprising destination: Poland. In a press briefing that previewed the trip, the US’s national security advisor, General H.R. McMaster, explained that Trump would give a speech in Warsaw’s Krasinski Square. The square is the site of a 1944 Polish uprising against Nazi occupiers. According the general, the president’s speech would “praise Polish courage throughout history’s darkest hour and celebrate Poland’s emergence as a European Power.”

Whatever one thinks of Trump’s general credibility, he can’t be faulted for praising Polish courage and noting the country’s growing influence. This month’s Warsaw visit by Trump highlighted Poland’s steady rise to economic prominence following its transition from Communism to democracy in the early 1990s. As The New York Times observes, since 1991 the nation’s “economy has been growing at an average annual rate of 4 percent and, remarkably, has not suffered a single year of negative growth.” A World Bank report published last month projects that Poland’s economy will grow 3.3 percent in 2017, rebounding from a relatively low 2.8 percent in 2016.

The New York Times points out that due to those numbers — and the fact that the average individual income in Poland has rocketed from $2,300 to $13,000 since 1991 — the Eastern European nation is poised to join the ranks of IMF-classed advanced economies. (The last country to move from emerging- to advanced-economy status was South Korea 20 years ago.) The article adds that Poland is one of a select group of economies that have been able to grow largely on the strength of their manufacturing, even as China dominates the “shrinking pie” of global industrial production. Poland is also a candidate to move into the ranks of advanced economies because of its aforementioned continuing economic stability, attributable in part to the fact that it is not, like many other emerging economies, at the mercy of commodities-prices fluctuations.

It’s logical, then, that Trump would want to strengthen economic ties with Poland, but there are almost certainly other reasons that he visited the country. The New York Times points out that the US and Poland have long had military ties, and Trump pointedly (and no doubt to the relief of Poles) affirmed the US’s commitment to NATO, in particular to the NATO treaty’s Article 5, which states “that an attack against one ally is considered as an attack against all allies.”

The Trump administration also bears similarities to Poland’s ruling Law and Justice (PiS) party, which is led by Jaroslaw Kaczynski. Some PiS delegates told The Economist recently that Kaczynski and Trump are “birds of a feather,” primarily for their nationalist tendencies. The Economist characterizes the PiS as “nationalistic and illiberal,” having “packed the constitutional tribunal with their own loyalists, transformed the public broadcaster into a propaganda mouthpiece for the government and clashed with the European Commission over migration policy and the rule of law.” One PiS supporter at Trump’s Warsaw speech (who oddly enough was draped in a Confederate flag) told a New Yorker reporter: “As for Trump, I am neutral. … I am here against the EU and forced migration.” The article points out that the supporter was referring to EU refugee quotas that the PiS resists.

While the PiS has, as The New York Times puts it, “drawn fire from top European officials for … refusing to accept Muslim refugees,” the health of Poland’s economy is in fact largely dependent on immigrants. A Reuter’s article says that Poland may be home to as many as a million Ukrainian workers, a population that “has helped keep wage pressures in Poland — a country of 38 million and 16 million workers — in check and also facilitated further economic growth.” This is particularly important, the article notes, given that Poland has “one of the fastest aging societies in the EU.”

The high number of Ukrainian workers in Poland may soon decline. The EU recently liberalized visa requirements for Ukrainians, and many in Poland, including its central bank, worry that these workers will leave the country for higher-wage countries like Germany and the UK, resulting in Polish labor shortages and wage increases. The New York Times article indicates wages in Poland are currently about a third of what they are in Germany.

Ukrainian-worker outflows are not the only concern related to labor shortages in Poland. Newsweek points out that Poland joined the EU in 2004, and since then Polish workers have in particular headed to the UK for jobs and education. That article notes that Poles are now the largest immigrant group in the UK, even outnumbering residents born in India.

Given these statistics, it’s not surprising that the UK, like the US, has a vested interest in strengthening ties with Poland. To that end, the Duke and Duchess of Windsor (i.e., Prince William and Kate Middleton) are making an official visit to Poland this week. Newsweek reasons that the trip is a kind of goodwill tour in advance of Brexit negotiations, since “any attempt by the British government to weaken the rights of Polish citizens living in Britain after Brexit would be resisted in Warsaw.” According to a Royal Family statement, the Duke and Duchess’ visit will also “mark the beginning of a 'Warsaw-London bridge' initiative that aims to help small Polish businesses access London’s unique opportunities for scaling up to become global players.”

Clearly, Poland itself is transforming itself into a “global player.” And while there are concerns about potential worker shortages, its rightwing government’s at times “illiberal” practices — including what The Financial Times calls its recent “de facto nationalization of financial institutions” — Poland’s extraordinary record of economic growth, stable political environment, current low wages and other factors will likely continue to attract foreign investors as well as foreign dignitaries.

To learn about expanding into Poland — including hiring and retaining local talent, setting up a legal entity, providing competitive benefits and terminating employees there — check out our webinar What Tech and Other Startups Need to Know About International Expansion.