Poland - Economy - Sectoral Performance
As the communists handed power to the Mazowiecki government in 1989, the economy was in crisis. Many basic goods were not available on store shelves. Inflation raged over 500%, and the government could not afford to make payments to its international creditors. While the official unemployment rate was low, many workers were employed in state-supported, loss-making industries that the state could no longer afford to support. The democratically elected Mazowiecki government responded with the Balcerowicz Plan, which freed most prices, dramatically reduced state control over the Polish economy, and clamped down on runaway inflation. The international community supported the Balcerowicz Plan with debt restructuring and fresh loans. With stability restored, Poland was able to offer its well-educated, low-wage workforce, its position in Europe's center, and its tariff-free access to European Union (EU) markets to attract foreign investment--all with the goal of bringing Polish incomes up to the levels of those in the U.S. and Western Europe. One generation later, the reforms since 1989 have brought success and new challenges. Poland joined the EU in 2004. Its per capita economic growth rate has outpaced those of the U.S. and of its EU partners. Polish incomes have risen to 37% of U.S. incomes (up from 29% in 1997) and to 52% of EU-15 incomes (up from 41% in 1997), while inflation and unemployment have dropped to historic lows. Nonetheless, the hard work of restructuring remains incomplete if Poland is to reach full parity in terms of income with the historically wealthy countries of Western Europe.
Service Industries - The service industries sector (including electricity, gas and water supply, construction, real estate rental, business activities and financial services) has, in recent years, been the fastest growing and largest sector in Poland. This sector accounted for 40.7 percent of GDP in 2004, 40.7 percent of GDP in 2005, 41.4 percent of GDP in 2006, 42.3 percent of GDP in 2007 and 44.5 percent of GDP in 2008.
Industry - While agriculture remains heavily protected, Poland's transformation exposed its industries to global competition. Before World War II, Poland's industrial base was concentrated in the coal, textile, chemical, machinery, iron, and steel sectors. Today it extends to motor vehicles, fertilizers, petrochemicals, machine tools, electrical machinery, and electronics. Polish industry suffered widespread damage during World War II, and many resources were directed toward reconstruction after the war. The communist economic system imposed in the late 1940s created large and unwieldy economic structures operated under a tight central command. In part because of this systemic rigidity, the economy performed poorly even in comparison with other economies in Central Europe.
During the period between 2003 and 2007, industrial production in Poland benefitted from the then prevailing favorable economic climate and consistent growth. Industrial output increased annually by 8.3, 12.6, 3.7, 11.2 and 11.2 percent during this period, although the growth was distributed unevenly amongst the various sectors. The highest growth rates during this period occurred with respect to the production of radio and television equipment, motor vehicles, metal goods and rubber and plastic products, while the lowest growth rates occurred with respect to the production of coke and oil refining products, clothing, leather articles and tobacco products. Following the completion of various measures taken to bring the industrial sectors into compliance with EU standards, focus has now shifted to increasing the competiveness of such sectors.
This growth in industrial output occurred until the second half of 2008 when the world financial crisis began to impact industrial production, although to a lesser extent than in most European countries. According to provisional data, industrial production increased by 3.3 percent in 2008 as compared to 11.2 percent in 2007.
The reforms of the early 1990s included a widespread program to sell low-productivity, state-owned companies to private investors. The results of reform include more efficient, high-productivity producers, with a private sector that now accounts for over two-thirds of GDP. Nonetheless, the government has retained control of many large, state-owned enterprises, particularly in the transport (aviation and rail), mining, chemical, energy, finance, and defense sectors. Many Polish economists identify privatization of these government-run companies as the incomplete task of Poland's economic transformation, and it is (perhaps optimistically) part of the government's ambitious program for 2009/2010.
Mining and Quarrying - Poland has substantial mineral resources and is a large producer of refined copper and silver. At the end of 2001, Poland had resources of approximately 43 billion tons of hard coal and 2 billion tons of copper ore. At the present level of output, workable copper reserves in Poland are predicted to last for almost 100 years. Poland also has significant resources of zinc, lead, salt and other minerals. Since 1996, mining and quarrying (as a percentage of total GDP) has declined, accounting for 2.2 percent of total GDP in 2004, compared to 3.0 percent in 1996, as a result of the significant decline in domestic demand for coal and the high cost of Polish coal. Mining and quarrying accounted for 2.3 percent of GDP in 2005, 2.1 percent of GDP in 2006, 1.9 percent of GDP in 2007 and 2.1 percent of GDP in 2008 (based on preliminary data). Both the output and revenues from mining and quarrying rose markedly in 2004 as a result of a substantial increase in world prices of coal, copper and other mineral resources.
Coal - Since 1990, Poland's coal industry has been in a long-term restructuring program. The industry is primarily state-owned and there has been little in the way of privatization. Production capacity has been reduced from 147.7 million tons in 1990 to 79.8 million tons (excluding coal briquette and intermediate products) in 2008. Over the same period, 40 mines have been wholly closed and currently there are 31 coal mines. As a result of restructuring programs employment in the coal sector has been reduced from 434,100 employees in 1990 to 120,296 employees in February 2009.
The primary objective of the various restructuring programs effected since the 1990s was decreasing excessive production output in the coal sector. The primary objective of the coal sector strategy through 2015 is to make coal enterprises more profitable in current market conditions, mainly through privatization. The new strategy assumes that investments should enable the production of coal on a sufficient level for domestic demand and economically reasonable exports. The strategy also assumes that coal production will respect environmental protection laws.
Steel - As a result of several restructuring programs which began in the 1990s, employment in the steel sector has been reduced in the enterprise sector from 131,112 employees at the end of 1998 to 69,509 employees at the end of October 2008. The latest program is being financed by the State budget (PLN 200 million for 1999-2003), the EU's program of community aid to the countries of Central and Eastern Europe and the plants' own funds.
The State Treasury holds all the shares in the companies which operate three steel plants (one plant that produces steel and two plants that process steel) and a minority stake in eight other plants. Bankruptcy proceedings are underway with respect to six steel plants. The restructuring program, which has been approved by the EU, provided for the substantial financial restructuring of steel mills, as well as consolidation of steel mills on a product basis and their privatization. The restructuring of the Polish iron and steel industry, as agreed with the European Commission during pre-accession negotiations, was completed on December 31, 2006 and all the targets agreed with the European Commission and included in the Protocol no. 8 to the Accession Treaty were met. A report on the completion of the restructuring process was approved by the EU Council of Ministers on February 14, 2008. The results of this report show that the effects of the restructuring should be sustainable and the viability test, performed according to EU criteria, shows that the industry should be able to compete in the open market without state aid.
Four State-owned companies have been consolidated to form PHS S.A. At the end of October 2003, PHS S.A. was sold to Mittal Steel (the former LMN Group). The privatization process was fully completed in October 2007 and the current name of the company is ArcelorMittal Poland S.A., or ArcelorMittal. ArcelorMittal produces 100 percent of hot metal in Poland, of which 35.0 percent is produced in its Kraków Unit and the remaining 65.0 percent in its Dabrowa Górnicza Unit. Crude steel is currently produced in various steel plants. ArcelorMittal produces 25.6 percent of the country's crude steel in its Dabrowa Górnicza plant, 13.7 percent in its Kraków plant and 6.3 percent in its Warszawa plant. The remainder of the crude steel production occurs in various other steel plants, including the Celsa Huta Ostrowiec plant which produces 22.9 percent of the country's crude steel and the ISD Huta Czestochowa plant (owned by ISD Polska Sp.z.o.o.) which produces 8.5 percent. ArcelorMittal produces only basic oxygen furnace (converter) steel. The other entities produce only electric arc furnace steel.
Manufacturing - Manufacturing accounted for 16.3 percent of GDP in 2005, 16.6 percent in 2006, 16.6 percent in 2007 and 15.2 percent in 2008 (based on preliminary data), as compared to 16.5 percent in 2000, and accounted for 19.5 percent of employed persons in 2005, 19.7 percent in 2006 and 20.0 percent in 2007, as compared to 17.3 percent in 2000. Manufacturing consists primarily of the manufacture of food products and beverages, machinery, ships, chemicals and chemical products, metals and refined petroleum products as well as motor vehicles.
Automotive - Until the beginning of the 1990s, the Polish motor vehicle industry was dominated by a few State-owned companies. Since 1990, the number of cars produced in Poland and the investment by foreign companies has increased significantly. The leading car manufacturers in Poland are FIAT, Fabryka Samochodów Osobowych and General Motors. In 2007, approximately 695,000 passenger cars were produced in Poland as compared to approximately 632,000 in 2006 and 540,000 in 2005.
Construction - The previous system of public subsidies in the State, communal and co-operative construction sectors has been dismantled. As a result, growth in the construction industry has come mostly from the private sector. From the beginning of 1997, there was an increase in construction activity in large cities, with significant investment coming from foreign capital. Construction as a total percentage of GDP decreased from 6.9 percent in 2000 to 5.0 percent in 2004, increasing to 5.3 percent of GDP in 2005, 5.6 percent of GDP in 2006, 6.4 percent of GDP in 2007 and 7.0 percent of GDP in 2008 (based on preliminary data).
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