A strong Polish currency poses challenges for exporters

Exports, long a key driver of the economy, have recently experienced a slowdown. In its recent report on second-quarter economic growth, Statistics Poland (GUS) highlighted that net exports had a negative impact on overall growth. Exports increased by 3.4%, while imports grew by 5.4%, year-on-year. Net exports contributed negatively to GDP growth by 0.8 percentage points, in contrast to the positive 0.4 percentage point contribution in Q1.

Business representatives and leaders of industry organisations have discussed the outlook for Polish exports and the challenges hindering their growth. The debate ‘The Exporter’s Handbook: Polish exports: Between economic downturn and search for new markets’, organised by Rzeczpospolita at the 33rd Economic Forum in Karpacz, featured Tomasz Pawlonka, Director of the Research and Analysis Team at the Polish Bank Association and the Analytical and Research Program at the Warsaw Banking Institute; Paweł Dziekoński, Vice-President of the Board at window manufacturer Fakro; and Piotr Maciaszek, Director of the Insurance and International Cooperation Department at KUKE.

Has exporting become unprofitable?

“In most industries, the increase in minimum and average wages is not price-transferable. As wages in Western countries, against whom we aim to successfully compete, have risen by around 10% over the past three years, wages in Poland have surged by 65% in real terms. This has made many of our goods uncompetitive, or forced us to export with very narrow margins. Furthermore, a year ago the euro was valued at PLN 4.69, while now it stands at PLN 4.20,” said Paweł Dziekoński, in his explanation of why Polish exports are not seeing significant growth.

“A strong zloty certainly does not help our exporters,” admitted Piotr Maciaszek, “Business owners have shared that, despite the availability of various financial support instruments, their companies are unable to benefit from them due to low profit margins.”

That is why KUKE offers companies a range of new solutions. “For several years, we have been developing the ‘Shop in Poland’ initiative, which supports exporters in entering new markets and boosting sales in existing ones. We aim to attract not only subcontractors but also manufacturers to participate in large infrastructure projects. For instance, the construction of the Academy of Fisheries and Marine Sciences in Angola require the manufacturers of various types of building equipment. We are trying to get our companies involved,” said Piotr Maciaszek. He acknowledged that KUKE is concerned about the negative trend in goods exports, as reflected in the volumes of insured turnover. “In contrast, the investment sector is performing much better, with significant growth observed both domestically and internationally.”

Tomasz Pawlonka referenced a survey systematically conducted by the National Bank of Poland (NBP Quick Monitoring) among business owners for the first six months of this year. He said that a troubling trend is the significant percentage of enterprises reporting that exports are unprofitable. This was reported by over 14% of businesses, marking the highest figure since 2011. Additionally, 2.5% of business owners reported that exporting was unprofitable for them. He noted that this represents a 1.3 percentage point increase compared to previous readings. The director at ZBP also highlighted that, for the first time in many years, specialised foreign sales have fallen below the profitability of domestic sales.

An overvalued zloty

However, only 4% of exporters cited the exchange rate as a business risk. Pawlonka noted that interest rate cuts are a distant prospect; they are unlikely to occur this year, with the first reductions possibly beginning next year.

In a scenario where trading partner countries have already begun cutting interest rates, even maintaining the current rates in Poland – rather than increasing them – will strengthen the zloty. Pawlonka added that this will, in turn, have further negative implications for exporters. He therefore anticipates that, in the near future, more businesses may start paying closer attention to currency risk.

Supporting companies in their competitive efforts

The panellists examined additional barriers that negatively impact export volumes. Paweł Dziekoński highlighted how various countries’ authorities support domestic businesses: “I am not referring to protectionism, but to protecting competition. Fakro’s representative provided two examples. The first one concerns the Danish market: When Fakro began selling windows with installation services, it led to an increase in inspections by various institutions. The inspectors checked not only the working conditions, but also the legality of the services provided. The second example is a special glazing solution in France. All companies, including foreign ones, must either collaborate with a local manufacturer who has patented a solution or invest so heavily that selling in the French market becomes unprofitable.”

The vice-president of Fakro believes that the state's economic policy should support domestic manufacturers. He added that a challenging period is approaching for many exporters, who will soon have to start paying the deferred minimum tax. “Exporters are concerned about how to manage both the tax burden and the low profitability,” he said. In his view, it would be beneficial for the Ministry of Finance to review the regulations surrounding the collection of the minimum tax.

In discussing the state's economic policy, he recalled that when the Fakro plant in Lviv was bombed, the company received support from the city authorities, while the Polish government lacked adequate mechanisms to provide assistance.

Various forms of support

The representative of KUKE explained that insurance for Polish companies' investments in Ukraine is available, and such transactions are being concluded. “However, on the first day of the war, the Central Bank of Ukraine imposed a payment moratorium, which we had to contend with until July 11,” he added. “We have discussed this issue with the Ukrainian authorities multiple times, and the moratorium has now been lifted,” added Director Maciaszek.

“A growing barrier is the challenges associated with business investment. They are hesitant to engage in investment activities. They do not encounter barriers related to a lack of access to finance, as recent analyses show that one in six businesses who seek financing from a bank successfully obtain it. Only one in ten businesses is rejected. In contrast, research indicates that over 60% of companies do not engage in investment activities. Among these non-investing companies, over 70% cite a lack of perceived need as the reason for not pursuing investment activities,” said Tomasz Pawlonka. He acknowledged that it remains uncertain whether this is a temporary decision that might change with the influx of funds from the National Recovery Plan or if it reflects a longer-term trend. Currently, fewer than 11% of companies plan to take out a loan for investment purposes.

According to Paweł Dziekoński, the current high interest rates mean that only those with a genuine need are taking out loans. He also noted that the zloty is overvalued. This is beneficial for public debt, but the high financing costs are stifling the economy.

Hidden opportunities for the future

Participants in the discussion explored which markets are of interest to Polish businesses, particularly in light of the shifting export geopolitics caused by the war in Ukraine and the fact that some EU countries are experiencing a much lower economic growth than Poland. They pointed out the significance of demographics in doing business abroad. Polish producers are particularly interested in certain regions of the USA, as well as in African and Arab countries, they noted.

“We are building a factory in the United States. This is one of the markets where we are seeing rapid and dynamic growth. We are expanding so quickly that we are building a factory to streamline our supply chains. We received local support, including grants and tax exemptions. We have gained insights into the American approach to supporting investments. I believe it is much easier to obtain building and expansion permits, and the environmental approvals in North Carolina compared to Nowy Sącz.” He admitted that it is perplexing why the Polish administration does not have a similar policy to support its investors.

The panellists also explored future prospects for Polish exporters.