Due to the amount of foreign investment, Poland was ranked the fifth destination in Europe, with the growth pace second only to Hungary – the report of Financial Times-owned analytical company fDi Intelligence shows.

Last year, Poland’s contribution in the total amount of foreign investment in Europe grew by 6% versus 3% increase in 2015. This means that in 2016 Poland’s position in the investment ranking was higher than the size of our economy could suggest - Poland generates about 3% of European GDP. Turkey and Spain, with considerably larger economies, recorded slower capital inflows, at $8.8 billion and $8.5 billion, respectively.

According to UNCTAD data, in 2016 companies invested abroad $1,670 billion, by 13% less than a year earlier. The biggest decline in foreign investments, by 26%, was recorded in Europe. However, UNCTAD takes into account all so-called foreign direct investments (FDI), while fDi Intelligence statistics, available to Rzeczpospolita, relate only to these FDIs that generate new jobs and new output capacity. Globally, the last year’s value of such investments stood at $776.2 billion, the highest since 2011. As compared to 2015, the value increased by 6% and created two million jobs. “It seems that the last year’s drop in FDIs (as defined by UNCTAD) could be explained by lower corporate activity in terms of foreign mergers and takeovers,” fDi Intelligence analysts say.

When it comes to attracting foreign investment, the UK remains the European leader. Last year, foreign companies invested there $34.8 billion. However, Britons’ decision to leave the European Union has already left its mark. Over one year the value of FDIs – as defined by fDi Intelligence – declined by 42%. Germany also saw lower investment (26% fall) – in 2016 the country attracted $10.3 billion, not much more than Poland. Among EU countries, except for Poland and Hungary, only France could boast an impressive growth in foreign investment (54% increase). However, in terms of investment spending (at $13 billion), France remains far behind the UK.

The jump growth in FDIs in Poland seems to contradict a popular thesis suggesting that the last year’s investment slowdown resulted from rising uncertainty related to taxes, legal regulations and Warsaw-Brussels relations. „Greenfield projects do not emerge every year. The decision-making process takes a long time and has to be preceded with a detailed feasibility study. Also, the businesses have to find financing for the project and it is time-consuming as well,” says Jarosław Janecki, chief economist at Societe Generale in Poland. „Investment decisions made by global corporations are parts of their strategy which shouldn’t be changed due to higher political uncertainty in a particular year. Here, bottom line wins,” he adds.

„Foreign direct investment inflow is mainly defined by the economy’s attractiveness in the region, or such factors as GDP growth, the market size as well as access to labor,” says Grzegorz Maliszewski, chief economist at Bank Millennium. But he adds that legal and institutional turbulences were among reasons why investment in general, defined as gross fixed capital formation, crashed. And it’s obvious that foreign companies were concerned as well. While in the first half of the year their capital investments in Poland were growing, in the last six months they visibly dropped. Contrary to the situation of domestic companies, it’s difficult to explain the phenomenon with lower EU funds absorption as foreign companies are not the beneficiaries of the funds.
„However, the 70% growth in greenfield investment is a very positive phenomenon. It shows that good performance of Polish economy – in particular the economic growth, which, as compared to other EU countries, remains resilient despite the slowdown, as well as large consumer and labor markets - are still Poland’s main assets capable of attracting foreign capital,” says Maliszewski. According to fDi Intelligence data, there are few details suggesting that Poland attracts more and more high-quality investments.

Last year, foreign companies announced launching in Poland 272 investment projects, by 36% more than in 2015. The biggest on-the-year-growth was recorded in construction (more than twice), transportation, storage and logistic projects (by 60%) as well as manufacturing (by 47%). However, looking from five-year perspective one can notice that the biggest rise is among development projects and investment into corporate headquarters. This is the kind of activity that creates bigger value added than assembly plants. „We should be happy about the new investment capital, but at the same time we should keep in mind that low labor costs are still the main factor,” says Jarosław Janecki.

How will the present year look like? fDi Intelligence analysts forecast that it will be similar to the previous one. The amount of global foreign investment is expected to grow by 10%. Just like in 2016, India is to remain its biggest beneficiary, while the US – the largest source. The tendencies result from acceleration of global economy with which investment activity is highly correlated as well as political factors. In particular, it’s economic policy of the US under Donald Trump’s leadership who, during the presidential campaign, showed himself as an advocate of higher trade and investment barriers. This should be topped by still unclear Brexit’s effects and the outcome of elections in France, Italy and Germany. „With Brexit date approaching, the value of FDIs in UK is likely to start falling. Most of the investments will likely be moved to other UE countries, meaning that the global FDI level will remain unchanged. But if Brexit negotiations lead to collapse of the EU-British trade and economic slowdown in Europe, this will have negative impact on the global FDI,” the report reads. Its authors also point out that rising interest rates in the US as well as China’s attempts to limit capital outflows may have negative impact on the global investment climate.

However, forecasts for Poland are good, mainly due to economic recovery in the euro zone which is Poland’s main trading partner. According to Jarosław Janecki, Brexit could have positive effect on foreign investment in Poland, but its outcome is still unclear. Chief economist of Societe Generale in Poland also points out to global corporate overliquidity, which, in general, should support investment activity. Darren Chong, Asia/China Group director at PwC even expect a rise in Chinese capital flowing to Poland, despite the above-mentioned restrictions. „Polish-Chinese relations have improved and today we have a very good climate for bilateral business. There is a system of business incentives as well as guarantees that each investor will be treated equally. Right now, Poland holds a lot of tenders - to build a subway, highways. The location, its large consumer market and the fact that the pace of economic growth remains high are the country’s assets,” Chong told Rzeczpospolita.