Warsaw Business Journal April 2018

WARSAW

BUSINESS JOURNAL S i n c e 1 9 9 4 Po l a n d â&#x20AC;&#x2122; s l e a d i n g

APRIL 2018 ~ No. 04 (44)

business magazine in English

SPECIAL INSIDE: 2018 CEEQA REPORT

For daily news visit us at wbj.pl

IN REVIEW

APRIL

News highlights from the previous month from wbj.pl

OPINION

Cultural differences........................................21 Trade ban & distribution centers..................24 Simplifying construction law.........................26 Real estate trends...........................................27 Trust issues......................................................28 Interview: Rafał Trzaskowski........................30

FEATURE

Economic patriotism

Construction market boom Feature: Building a house of cards? 60 Expert view: Moving further and further east 63

TECH INSIGHTS

Tech news.........................................................45 Artificial Intelligence: Are you human?...............................................48

LOKALE IMMOBILIA

Real estate news.............................................53 Logistics market prospects...........................58 Luxury rentals .................................................68 Interview: Trei Real Estate............................72

LIFE + STYLE

The joy of spring..............................................75

EVENTS

Smart City Forum............................................78 Asset & Property & Facility Management...79 Businesswoman of the Year’ Awards..........79

LAST WORD

Is the internet evil?..........................................80

APRIL 2018 W B J

Growth and wealth

Feature: For richer, for poorer 32 The unexpected champion – Interview with Marcin Piatkowski 36

FROM OUR EDITOR Morten Lindholm Editor-in-Chief/Publisher mlindholm@valkea.com

Beata Socha

Managing Editor

bsocha@wbj.pl

Adam Zdrodowski

Managing Editor, Lokale Immobillia

azdrodowski@wbj.pl

Kevin Demaria Art Director

Michael Evans Copy Editor

Victor Epstein

Editorial Intern

Enjoy the read. MORTEN LINDHOLM

Morten has been equipped by Reykjavik District – Warsaw’s unique menswear design shop on ul. Burakowska 15. Check out Reykjavik’s latest collection at reykjavikdistrict.com

APRIL 2018 W B J

Contributors

Ewa Boniecka Karolina Papros Sergiusz Prokurat Alex Webber Sales

Magdalena Klimiuk mklimiuk@valkea.com Katarzyna Pomierna kpomierna@valkea.com PR & Marketing

Agata Wolny awolny@valkea.com Book of Lists

Monika Rozner mrozner@valkea.com Magdalena Czopur Subscriptions

mczopur@valkea.com Krzysztof Wiliński Print & Distribution

dystrybucja@valkea.com Magda Gajewska Event Director, Valkea Events

mgajewska@valkea.com Contact: phone: +48 22 257 75 00 fax: +48 22 257 75 99 e-mail: wbj@wbj.pl

WBJ.pl WarsawBusinessJournal

@wbjpl

All photographs used in this issue are courtesy of partners and companies unless specified otherwise.

Copyright © 2018 by Valkea Media SA All rights reserved. This publication or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permissionof the publisher. Published by

ul. Jerzego Ficowskiego 15

Valkea Media S.A.

01-747 Warszawa

Tomasz Opiela, CEO

NIP: 525-21-77-350

www.valkea.com

To subscribe through RUCH SA: www.prenumerata.ruch.com.pl, prenumerata@ruch.com.pl, 801 800 803

PORTRAIT BY KEVIN DEMARIA

WHEN I ARRIVED IN POLAND back in 1997, the country was experiencing unprecedented growth of over 6 percent and opportunities seemed boundless. In the fall of 1998, I met Marcin Piatkowski, an economist with an already impressive resumé. I remember turning and saying to my wife, “This man can make a difference for Poland.” Now, 20 years later, Marcin Piatkowski has just published a book, describing and documenting Poland’s successes over the last quarter-century. We met Marcin and asked him about the background for his book and the reasons for the continued economic growth Poland has enjoyed for the past 26 years (read more on pp. 36-39). Having lived in Poland for almost two decades, I myself have witnessed Poland’s constant growth over the years. While there have been bumps in the road, including political ups and downs, business here has proven to be strong, resilient, and able to persevere. In these recent times, as Poland’s international political reputation seems to be declining, we have decided to focus on the many other positive signs in the Polish business world and devote this issue to the continuing story of Poland's success. Poland has been making great strides towards closing the wealth gap and reducing the risk of poverty throughout the previous few years. Its construction and logistics industries are growing faster than ever. And although some see clouds on the horizon like increasing construction costs and the rise of economic patriotism, we believe there is still plenty of room for growth and plenty of reasons to be optimistic about the future. The biggest real estate event in the region, CEEQA, is celebrating its 15th anniversary; a great success story in and of itself. Entrepreneurship, high demand products, and an eagerness to connect important market influencers has driven the CEEQA team, spearheaded by Richard Hallward, to continuously improve and always deliver the best industry awards possible, hosting an outstanding event that is always talked about long after the ceremony comes to a close. Once again, as part of WBJ, we are proud to publish this year’s CEEQA Report, full of exciting insights, interviews and opinions from the top minds and movers of the real estate market.

360˚

COMMUNICATION

We combine our expertise and use our experience in a holistic way. That is why we specialize in 360 degree communication. For our customers, we plan and conduct long-term activities in different forms. We create strong “big ideas”, which reach consumers effectively through successful creations and diverse tools. In our campaigns and day-to-day activities, we integrate traditional and interactive channels, creating efficient communication ecosystems. See our projects: www.valkea.com/projekty/360

NEWS HIGHLIGHTS OF THE PAST MONTH FROM WBJ.PL

“It is an extraordinary, historic moment; it is Poland’s introduction into a whole new world of state-of-theart technology, modern weaponry, and defensive means” - President Andrzej Duda said during the signing ceremony of a the largest weapons procurement deal in Poland’s history.

DEFENSE

INTERNATIONAL

Poland has signed the largest weapons procurement deal in its history by agreeing with the US to buy Raytheon’s Patriot missile defense system for $4.75 billion. “It is an extraordinary, historic moment; it is Poland’s introduction into a whole new world of state-of-the-art technology, modern weaponry, and defensive means,” President Andrzej Duda said during the signing ceremony. The deal includes four Patriot fire units. Additionally, Poland is negotiating deals for six additional systems, as well as a new 360-degree radar and a low-cost interceptor missile. “We do expect that Poland will move pretty quickly with phase two. They have stated a desire to complete that by the end of the year,” Wes Kremer, president of Raytheon Integrated Defense Systems, told Reuters. The units will be delivered between 2022-2024. Initially, Poland planned to purchase eight units for PLN 30 billion. Thanks to the deal, Poland will join other NATO allies – the Netherlands, Germany, Spain and Greece – which already own Patriot systems. The Patriot mobile missile defense interceptors are designed to detect, track and engage unmanned aerial vehicles (UAVs), cruise missiles and short-range or tactical ballistic missiles.

Poland’s security agents have detained an Energy Ministry official on suspicion of providing Russia with secrets about the Polish energy sector. The official, who has been identified only as Marek W. (name withheld under Polish privacy law) is suspected of providing Moscow with information on how Warsaw intended to block the Nord Stream 2 pipeline, which Poland opposes and sees as an attempt to strengthen Gazprom’s dominant position, limit competition and increase Europe’s dependence on Russian gas. At the same time, Poland announced that it will expel four Russian diplomats following the murder attempt on the former Russian double agent Sergei Skripal on British soil. “The Ministry of Foreign Affairs’ decision was dictated by solidarity with the United Kingdom of Great Britain and Northern Ireland and with our EU and NATO allies. The Ministry of Foreign Affairs absolutely condemns the attack using chemical weapons against Sergey Skripal. The attack in Salisbury shows that a similar immediate threat to the territory and citizens of EU and NATO member states can happen anywhere,” the Polish MFA said in a statement. On the same day, the US announced the expulsion of 60 of Russian diplomats, which according to the White House were all spies. More-

SHUTTERSTOCK

Poland signs $4.75 billion PATRIOT DEAL

Suspected RUSSIAN SPY arrested in Poland

W B J APRIL 2018

In Review over, the US ordered the closure the Russian consulate in Seattle due to its proximity to the US submarine base and Boeing’s headquarters. Furthermore, at least 21 countries, including Canada, France, Germany, the Czech Republic and Lithuania ousted 135 Russians, including 23 kicked out earlier by the UK. Most of them were diplomats, allegedly acting as spies, according to governments. Moscow has already expelled a number of diplomats in response, including four Polish ones who are to leave Russian territory by April 7. “This is an attempt on the lives of Russian citizens on the territory of Great Britain. It goes without saying that this unfriendly move by this group of countries will not go unnoticed,” the Russian MFA said. Earlier this month, Skripal, a former double agent, and his daughter Yulia were found unconscious on a bench outside a shopping center in Salisbury after they had been poisoned. The two were rushed to hospital in a critical condition. The authorities were able to confirm that Novichok, a nerve agent developed by the Soviet military in the 1970s and 1980s was used to poison them. Skripal was arrested in Moscow in 2004. He was later sent to the UK in exchange for captured Russian spies.

demands. “It looks like things are moving. There’s a chance of a compromise,” one EU official said on condition of anonymity. The Polish side doesn’t exclude other concessions. “We are open to dialogue with the European Commission. Surprises are possible,” Ast said. Back in December last year, in an unprecedented move, the European Commission asked other EU member states to declare that Poland’s judiciary overhaul constitutes “a clear risk of a serious breach of EU values.” If the states agree, although it’s an unlikely scenario, Warsaw’s voting rights would be suspended. The judiciary overhaul gives the parliament the right to appoint 15 out of 25 members of the National Council of the Judiciary (KRS), which nominates judges, and the Supreme Court, which among other things, rules on the validity of elections. It also introduces the possibility to make a complaint regarding any court’s decision made over the past 20 years.

APRIL 2018 W B J

Inflation rate in February (GUS)

7.9%

Retail sales growth in February (y/y, GUS)

7.4%

Industrial production increase in February

3.7%

Average employment growth in February (y/y, GUS)

6.8%

PiS proposes changes to JUDICIARY REFORM

1.4%

(y/y, GUS)

INTERNATIONAL

The ruling Law and Justice (PiS) party has announced that it is ready to make amendments to its judicial reform in response to the European Commission criticism that they have undermined the rule of law. “This is a step in the direction to ease the concerns presented by the European Commission. We hope that these steps will be positively received,” said PiS MP Marek Ast. The proposed amendments include equalizing the compulsory retirement age of female and male judges at 65 years from the previous limit set at 60 years for female judges and 65 for male judges. Court officials will be allowed to serve longer than the compulsory age if the President agrees. Under the current law, it is the justice minister who can make such a decision. The other amendment would also order the justice minister to first seek the opinion of judges before deciding whether to dismiss a court president. Currently, the minister is not required to seek anyone’s opinion, nor provide a reason for dismissal. It remains to be seen if such concessions will be enough to satisfy Brussels’

TRENDING STATS

Average wage increase in February (y/y, GUS)

INTERNATIONAL

Duda signs global CLIMATE DEAL agreement President Andrzej Duda has ratified the Doha amendment to the Kyoto protocol on climate change, making Poland the last EU member state to ratify the deal. This paves the way for the entire EU to accept the agreement as a bloc. The Doha amendment does not come into effect unless 144 countries ratify it; 111 states have done so far. The amendment is intended to form a legal framework for CO2 reduction efforts until 2020 when the Paris climate agreement, which more than 200 nations signed in late 2015, kicks in. In ratifying the amendment, Poland has confirmed its commitment to reduce CO2 emissions by 20 percent by 2020, in line with the EU climate and energy package.

4,599

PLN Average salary in February (GUS)

6.5%

Poland’s labor costs growth in Q4 2017 (y/y, Eurostat)

6-7%

expected exports growth in 2018 (KUKE)

SHUTTERSTOCK

WBJ

In Review POLITICS

Poll shows PIS SUPPORT PLUMMETING A new survey by Kantar Millward Brown showed that support for the ruling Law and Justice (PiS) party has dropped by 12 percentage points to 28 percent. Support for the opposition Civic Platform (PO) increased by 6 pp to 22 percent compared with last month’s poll. Third is Kukiz’15 with 10 percent of support (up by 4 pp), followed by SLD – 9 percent support (3 pp growth) and Nowoczesna (6 percent support, down by 2 pp). Other parties that would get into parliament are Wolność and PSL, each with 5 percent support. According to the survey, voter turnout would be 52 percent.

roll. Morawiecki said that the changes were made to make government operations more efficient and that they were not “personal.” All of the dismissed deputies handed in their resignations, which were accepted by the PM. Among those losing their jobs were Piotr Woźny, responsible for fighting air pollution, and former PM Beata Szydło’s spokesman Rafał Bochenek. Earlier in March, Morawiecki announced that he would cut the number of government posts by 20-25 percent. Following the reshuffle, the number of deputy ministers dropped from 126 to 109; however, the PM announced that further changes will be announced, with the final number of dismissals to surpass 20.

IMMIGRATION

1.2-1.5 mln UKRAINIAN WORKERS came to Poland in 2017 Last year, between 1.2-1.5 million workers from Ukraine came to Poland, according to the Minister of Development Jerzy Kwieciński. “Last year, our system received about 1.8 million applications from Ukrainian nationals, but it is difficult to say how many of these people have taken a job. We estimate that figure to be between 1.2-1.5 million people, with the 1.2 million figure being more realistic.” According to Kwieciński, Poland will continue its efforts to attract more economic migrants to close the workforce gap, which is estimated to reach 1.5 million people by 2030. Poland will adopt migration policy guidelines “within the next few days,” Kwieciński assured.

POLITICS

Morawiecki DISMISSES 17 deputy ministers PM Mateusz Morawiecki dismissed 17 deputy ministers from his cabinet in a move aimed at trimming the headcount and pay-

APRIL 2018 W B J

Catholic church, which called on lawmakers to show “unconditional respect for every human being in all moments of its existence.” The contested draft is being worked on in parliament. It was already approved by the justice and human rights commission and will be discussed in another commission before being sent to MPs for a vote. President Andrzej Duda has already said that he will sign the bill into law if approved by parliament. ECONOMY

MOODY’S upgrades Poland’s GDP forecast for 2018 Ratings agency Moody’s has upgraded Poland’s GDP outlook for 2018 to 4.3 percent from the previous 3.5 percent estimate. The agency added that this forecast is based on the assumption that the conflict between Warsaw and Brussels will not escalate. “Judicial reform reduces the risk of weakening the independence of the judiciary, weakening control and balance mechanisms, and the rule of law, which could potentially affect our assessment of institutional strength,” Moody’s said. At the same time, Moody’s revised downward its forecast for Poland’s 2018 general government deficit to 1.8 percent of GDP from the 2.3 percent projected in September. ECONOMY

SOCIETY

Thousands protest in Poland against restrictive ABORTION DRAFT LAW Tens of thousands of Poles dressed in black protested across the country on March 23 against the proposed laws to restrict abortions even further. The so-called “black marches” were organized in numerous Polish cities, with the biggest one in Warsaw. According to local authorities, 55,000 people took part in the protests in the Polish capital. Under current law, abortion in Poland is allowed in three cases; when the pregnancy is the result of rape or incest, when it poses a danger to the mother’s health, or when prenatal tests show serious, irreversible damage to the fetus. The new law would remove the last category, which currently covers more than 90 percent of legal abortions. This is the second attempt by the ruling Law and Justice (PiS) party to restrict abortion in the country. Back in 2016, a stricter draft was being worked on in parliament, but after hundreds of thousands of people took to the streets in protest, PiS backed down. The new laws are backed by the Polish

GUS: DISPOSABLE INCOME grows to PLN 1,598 in 2017 Last year, the average disposable income per person increased to PLN 1,598 from PLN 1,475 in 2016, the Central Statistics Office (GUS) reported. In 2015, disposable income stood at PLN 1,386. Disposable income, as defined by GUS, is the sum of current household income from individual sources, minus income tax and other taxes, social security and health insurance premiums. The available income is intended for expenses and an increase in savings. EXPORTS

HSBC: Polish companies expect increase in FOREIGN TRADE turnover As much as 78 percent of Polish exporters and importers expect their trade turnover to increase in 2018, according to an international survey of companies, conducted by HSBC. This result places Polish entrepreneurs in first place among EU companies that took part in the survey. In global terms, Poland took tenth place in terms of the level of optimism among companies conducting foreign trade, behind

SHUTTERSTOCK

WBJ

In Review Bangladesh, India, Thailand, Vietnam, China, Malaysia, Mexico, Argentina and Turkey. When asked about the reasons for their optimistic attitude, Polish exporters and importers most often indicated an increase in the demand for their goods and services (39 percent), falling transport and logistics costs (27 percent) and the favorable economic situation (26 percent). A quarter of Polish respondents pointed to the growing use of technology. Asked to indicate the most promising directions of business development in terms of the next three to five years, Polish exporters and importers most often pointed to Germany (24 percent), the US (15 percent) and France (11 percent). “The great interest of Polish companies in the US market is not surprising due to its size, and … the pragmatic approach of local business customers to choose a supplier,” said Piotr Winnicki, a director at HSBC. INFRASTRUCTURE

Poland to get PLN 609 mln in EU funding for RAILWAY PROJECTS The EU will provide PLN 609 million in financing for three railway projects, the Center for EU Transport Projects has announced: the construction of the new Wrocław Szczepin station, the electrification of railway lines 248 and 253 with the construction of the Gdańsk Firoga train station, and the construction of the Szczecin Metropolitan Railway using the existing 273, 351 and 406 lines. The value of the three projects is PLN 811.2 million combined. The figure includes PLN 608.7 million from the Operational Program Infrastructure and Environment 2014-2020. Each of the projects received EU co-financing of 85 percent.

Office (GUS) showed. In comparison, Poles spent PLN 20.1 billion during their visits abroad. The figures represent a 6.2 and 6.1 percent increase y/y respectively. In Q4 alone, foreigners spent PLN 9.5 billion in Poland, a 4.3 percent increase, while Poles abroad spent PLN 4.4 billion abroad – up by 7.6 percent. The Polish border was crossed over 287.1 million times last year, which is a 4 percent increase. Of that number, 171.6 million were foreigners.

CONSTRUCTION

Budimex with PLN 790 mln in NEW EXPRESSWAY DEALS WSE-listed construction firm Budimex filed the best offer, worth PLN 333.5 million net, to build a section of the S19 expressway with the General Director for National Roads and Motorways GDDKiA, the company said in a market filing. The 10.5 kilometer-long section will connect Podgórze with Kamień and will be part of the Via Carpathia road connecting Lithuania and Greece. The project is expected to be completed within 34 months, excluding winter seasons. Earlier in March, Budimex, along with Strabag, won a tender for a section of the S14 expressway, with an offer of PLN 456.7 million net. Both companies hold 50 percent stakes in the deal, with Budimex acting as consortium leader. The consortium will build parts of the Łódź ring road. The project is expected to be completed within 32 months.

CONSTRUCTION

ZUE with PLN 330 MLN DEAL with PKP PLK WSE-listed railway infrastructure builder ZUE signed a net PLN 330 million (gross PLN 406 million) deal for work on the 99 railway line with railway infrastructure firm PKP PLK. The deal concerns the part of the line linking Chabówka with Zakopane, and line 98. After the construction is completed, which includes replacing 44 kilometers of tracks and rebuilding 12 stations, passenger trains will be able to travel at a speed of 120 kph and cargo trains at 80 kph.

APRIL 2018 W B J

INFRASTRUCTURE

PKP PLK signs PLN 4.5 BLN WORTH OF DEALS in Q1, plans PLN 14 bln for 2018 Rail infrastructure operator PKP PLK plans to sign PLN 14 billion worth of contracts this year after authorizing PLN 4.5 billion in contracts in Q1 alone, the company’s CEO Ireneusz Merchel said. “In Q1 2018, PKP PLK announced tenders for approx. PLN 2.1 billion of estimated value, which is more or less the same as in the corresponding period in 2017, when the value of tenders announced in the first quarter amounted to PLN 2.3 billion. Currently, the implementation of the National Railway Program (KPK) is over 50 percent,” he added. KPK aims to upgrade Poland’s railway infrastructure by 2023 for an estimated PLN 66 billion in total. MINING

JSW 2017 RESULTS soar, another deal signed

TOURISM

FOREIGNERS SPENT PLN 41.5 bln in Poland last year Foreign nationals spent some PLN 41.5 billion last year in Poland on goods and services, data from the Central Statistics

WSE-listed coal miner JSW had PLN 747.8 million Q4 net profit, up by 153.7 percent y/y, while revenues reached PLN 2.19 billion, a 1.2 percent increase. EBITDA was up by 58.9 percent at PLN 1.11 billion. For the whole year, JSW had PLN 2.53 billion net profit, an impressive 37,794 percent y/y growth, while revenue increased by 329 percent to PLN 8.88 billion, and EBITDA reached PLN 3.94 billion, a 270 percent y/y

SHUTTERSTOCK

WBJ

In Review increase. According to the company, such good results are “the effect of favorable coking coal prices, optimization measures and consistent implementation of the restructuring program.” Recently, the mining company signed a PLN 4.5 billion three-year coal sales deal with ArcelorMittal. The deal is valid through 2020 with a possibility to extend the deal one year at a time until end-2027. “The contract will be subject to extension for another year after agreeing the qualitative and quantitative structure if none of the parties terminates it,” JSW explained. The estimated annual value of the contract post-2020 was set at PLN 1.5 billion, with the detailed pricing terms to be set on a quarterly basis. RETAIL

LPP with PLN 299.5 mln Q4 PROFIT WSE-listed fashion retailer LPP posted a PLN 299.5 million net profit in Q4, slightly down from the pre-released estimate of PLN 302 million. This is a 90.8 percent y/y increase. The group’s revenue stood at PLN 2.14 billion, a 15.9 percent y/y growth, while gross profit from sales amounted to PLN 1.24 billion, a 32.4 percent y/y increase. For 2017, the company recorded PLN 440 million in net profit, compared with the PLN 444 million estimate, while revenues amounted to PLN 7.02 billion, in line with pre-released figure and 16.8 percent y/y growth. LFL sales grew by 12.9 percent y/y in Q4, and 10 percent in 2017. BANKING

PKO BP with PLN 820 mln Q4 net profit, plans UK EXPANSION WSE-listed, state-controlled lender PKO BP had PLN 820 million in net profit in Q4, growth of 38.3 percent y/y. Net interest income amounted to PLN 2.24 billion, up by 11.3 percent y/y, while net fee and commission income increased by 7.8 percent y/y to PLN 760 million. At end-2017, bank assets were worth PLN 296.91 billion, up from PLN 285.57 billion at the end-2016. For 2017, PKO BP posted a net profit of PLN 3.1 billion, slightly up from PLN 2.87 billion last year. The lender will open its first corporate banking branch in London this year, the company’s CEO Zbigniew Jagiełło announced. The outlet will service Polish companies. “We are filling a niche, the need signaled by our clients. In Frankfurt, we opened a branch that serves Orlen Deutschland as well as many other Polish

APRIL 2018 W B J

companies. They’re looking for loans, trade finance services or are in need of information on how they can meet their financial needs in Frankfurt, or in Germany. The same is happening at our Czech branch and now it’s time for the UK,” he explained.

figures had been boosted by the increase in premiums in the motor insurance group and in individual life insurance, high profitability of the motor insurance portfolio and an increase in non-life segment property insurance and better results in the banking segment due to high sales by Alior Bank.

BANKING

IDEA BANK 2017 profit up over 460% WSE-listed Idea Bank’s net profit in 2017 amounted to PLN 230.8 million, up from PLN 40.85 million profit a year earlier, the bank reported. This result does not include the result on the sale of the 25.01-percent stake in Idea Leasing SA, the impairment loss on Open Finance, the update of Sky Tower’s 2017 fair value and the result on the sale of GetBack and discontinued operations in 2016, which amounted to PLN 151 million in total. Net interest earnings amounted to PLN 681.4 million, up from PLN 624.02 million in 2016, with net fees and commissions income amounting to PLN 311.4 million compared to PLN 341.89 million in the previous year. The bank's assets stood at PLN 23.95 billion at end-2017, versus PLN 21.52 billion at end-2016. PHARMA

GSK COMMERCIAL to launch PLN 200 mln production line in May Pharma group GSK Commercial will open its PLN 200 million production line of innovative medicine this year, probably in May, Krzysztof Kępiński, Director of External Relations and Public Market Department of GSK Commercial said. The line will produce “one of the most innovative antiretroviral drugs” which is used to treat HIV/ AIDS. Drugs from the Poznań factory will be exported to 120 countries. According to data from the UN organization UNAIDS, over 37 million people in the world are HIV positive, 18 million of which receive antiviral medication. INSURANCE

PZU Q4 PROFIT GROWS WSE-listed insurer PZU recorded a PLN 764 million net profit in Q4, up by 22 percent y/y. Gross written premium reached PLN 5.91 billion, up by 7.3 percent y/y. For 2017, PZU recorded PLN 2.91 billion net profit compared with PLN 1.93 billion profit in 2016. Operating profit amounted to PLN 5.51 billion compared with PLN 2.99 billion the year before, while gross written premium reached PLN 22.8 billion, up by 13 percent y/y. PZU reported that 2017

ENERGY

ORLEN wants to invest in wind farms WSE-listed fuel giant Orlen has announced a tender for the development of a preliminary technical concept that will determine the possibilities for preparing and implementing an offshore wind farm project in the Baltic Sea, the company said. The maximum power capacity of the installation was set at 1,200 MW. “The initiation of the wind farm project is in line with both our strategic assumptions and plans for the development of the Polish economy towards low-carbon solutions,” the company added. After receiving offers, conducting the technical analysis and selecting the bidder, the company will sign an agreement to develop the initial concept of the project. ENERGY

LOTOS dismisses CEO WSE-listed, state-controlled fuel giant Lotos has dismissed its CEO, Marcin Jastrzębski, and appointed Deputy CEO Mateusz Bonca as acting president, the company said in a market filing. No reason for the change in personnel has been given. Jastrzębski had been running the company since November 2016, when he was named acting CEO. His position became permanent in January 2017. Bonca worked in Deutsche Bank, Deloitte & Touche, and MARSH among others before joining Lotos in 2016. Earlier this year, another WSE-listed, staterun fuel giant Orlen submitted an offer to buy

SHUTTERSTOCK

WBJ

some 58 percent of Lotos shares currently under the control of the Treasury. The rest of the shares could be acquired through a for-equity swap. According to Daniel Obajtek, recently appointed CEO of Orlen, by merging with its peer Lotos, a company with global potential could be created with some PLN 50 billion market capitalization. “The consolidation of Orlen and Lotos means that an even more effective entity will be created that will more easily meet the challenges faced by the Polish oil industry, but will also ensure stability on the international market,” he said. ENERGY

ENERGA with PLN 221 mln Q4 profit WSE-listed energy firm Energa posted a PLN 221 million Q4 attributable net profit, up by 176.3 percent y/y, while EBITDA reached PLN 517 million, below the preliminary estimate of PLN 525 million. For the whole of 2017, net profit amounted to PLN 773 million, up from PLN 151 million in 2016, while EBITDA reached PLN 2.16 billion, slightly up from PLN 2.02 billion in the previous year. ENERGY

PGNIG Q4 profit better than expected WSE-listed gas giant PGNiG’s Q4 net profit amounted to PLN 456 million compared with PLN 430 million initially forecasted. Still, profit is down by 37 percent y/y. On the other hand, EBITDA increased to PLN 1.32 billion from the PLN 1.29 billion estimated, and 22.4 percent down y/y, while revenues matched the initial result at PLN 10.96 billion (8.1 percent y/y growth). For the whole of 2017, PGNiG recorded PLN 2.9 billion in net profit, up from PLN 2.35 billion in 2016, with revenues at PLN 35.86 billion (up from PLN 33.2 billion) and EBITDA at PLN 6.57 billion compared to PLN 5.97 billion in 2016.

QUOTE OF THE MONTH

ENERGY

EU DRAFTS LAW TO REGULATE NORD STREAM 2

The European Parliament’s industry committee voted in favor of the European Commission draft which would extend the bloc’s laws to offshore gas pipelines such as the planned Nord Stream 2 gas link between Germany and Russia. According to MEP Jerzy Buzek, one of the law’s proponents, the new law would create greater longterm investment predictability and improve competition. “Far too often, gas supply has been used as a political weapon. We cannot disarm the impure intentions of others, but we can arm ourselves with full legal clarity and consistency of existing legislation,” he said. Under the current law, the Nord Stream 2 pipeline would be under Russian Gazprom control. The Commission last year proposed changes to its gas directive to make all import pipelines subject to rules that require they not be owned directly by gas suppliers, apply non-discriminatory tariffs and make capacity available to third parties. The draft endorsed by the Parliament calls for European Union economic sanctions against third countries to be taken into account and any exemption for pipelines to be limited to five years and decided with the input of the Commission and affected member states. The proposed gas link would connect Russia and Germany through the Baltics, circumventing Ukraine. Many see it as the next step in the conflict between Russia and Ukraine, which has urged the EU to introduce sanctions against Russia. Some EU diplomats hope that by giving the Commission a mandate to negotiate, the project would be delayed, depriving Russia of the leverage in talks with Kiev regarding transit fees. The current deal expires in 2019. The majority of Russian gas sent to the EU goes through Ukraine.

“Far too often, gas supply has been used as a political weapon. We cannot disarm the impure intentions of others, but we can arm ourselves with full legal clarity and consistency of existing legislation.” MEP Jerzy Buzek

W B J APRIL 2018

WBJ

In Review

Down by the river Come summer and it’s all about the Vistula River. The moment the mercury climbs above 15 degrees Centigrade, a string of bars open to create an amorphous blur of drunken din. But with the riverbank often representing an undulating wall of beats and shrieks, it may come as a surprise to learn that cracking open a can of lager outside of any of the bars is an illegal act that comes with a fine – at least untill now. After much debate, a landslide vote has seen the ban on drinking in public places lifted in the case of the riverside boulevards on the left side of the Vistula River. Further, public breathalyzers will also be installed along the length of the promenade to promote the message of “responsible drinking.”

APRIL 2018 W B J

W B J APRIL 2018

CUSTOM PUBLISHING Valkea knows how to create branded media in print. For 7 years, we have been Polandâ&#x20AC;&#x2122;s leading custom publishing agency. We work for the biggest brands on several dozen projects every year. Our team consists of enthusiasts from many sectors with the highest editorial standards. Valkea utilizes cutting-edge ideas compatible with brand DNA, while assuring top-notch visuals and graphic design. See more at www.cp.valkea.com

Opinion EXPERT VIEWS ON CURRENT BUSINESS AND SOCIAL TRENDS

SHUTTERSTOCK

Capitalize on cultural diversity

It is December 1998, I am 25 years old. I’m in my first job out of corporate college, working for a Danish company that had acquired a Swedish firm a year earlier. Full of energy, optimism and confidence, I’m sent to Sweden as a “product and systems expert” to teach our Swedish colleagues to sell the products and use the systems of the Danish company. Fast forward a few months and I’m back in my boss’ office, frustrated and in dire need of advice. >>>

W B J APRIL 2018

Opinion WORKPLACE “What should I do?” I asked him. “I have traveled around Sweden, worked hard, and it’s not working. I show them what to do, I’ve prepared nice presentation slides, I have designed handy instruction books outlining the best hints, I offer my help, and it does not seem to be working.” My boss smiles and says calmly: “Sit down, and I will share some wisdom with you.” In that meeting I learned possibly the most important thing about dealing with a new environment. The lesson boils down to what Steven Covey once said: “Seek first to understand, then to be understood.” It took me some time to learn that there can even be significant cultural differences between two Scandinavian countries. It took even more time to understand what was causing the cultural clash. Swedish business culture is known for being driven by consensus-based decision taking. As a Danish person I was not used to it and misread that as indecisiveness, which caused a lot of frustration in the beginning. But my early mishaps cannot be explained by cultural differences alone. Much more than that it was about my inexperience and lack of earlier direction which reduced the impact that I had at the beginning of my expatriation in Sweden. But after getting that advice from my boss, things started to turn around and my six-month stay was extended to two years as the cooperation with the Swedish colleagues developed very positively. The experience in Sweden helped me tremendously

Swedish business culture is known for being driven by consensus-based decision taking

when I moved to Poland in 2000 following another acquisition, then to Ireland in 2006 after yet another merger, before returning to Poland in 2011. It also helped me in my personal life, being married to a Polish woman. National cultures definitely have a lot of impact on how we act, but there are many other aspects to consider: education, gender, social environment, work experience and hobbies are all elements that shape our beliefs and behavior. An 18-year-old Dane from Copenhagen probably has more in common with an 18-year-old Varsovian than with his own father.

APRIL 2018 W B J

VARYING APPROACHES

Business is global, customer demand changes swiftly, new market entrants appear every day and technologies redefine job functions. As business leaders we need to make sure we can respond to such an environment by ensuring that we see what is going on and knowing how to deal with that. That requires cultural diversity across all levels of the organization. We need to understand the culture of the new market place when we want to conquer a new market, be it a new country, or a new customer segment. What client behavior can we expect in this market place? Do they pay their invoices on time? What kind of marketing campaigns do they react to? How do they respond to uncertainty? The latter is a common cause of cultural clashes in Poland, as Poles have an exceptionally high aversion to the unknown. According to Geert Hofstede’s findings, Poland scores 93 (out of 100) on the “uncertainty avoidance” scale, while the US scores 46 (www.geerthofstede.com). This can have a great effect on how projects are approached in Poland vs. the US. Poles devote a lot more time to the planning and analysis stage. They analyze data and potential risk much more thoroughly in the early stages of a project in order to allow for a smooth and rapid implementation once the project is greenlit. Americans, on the other hand, are very comfortable with the “trial and error” approach. They see no problem in taking a step back and re-evaluating the situation if a mistake has been made. They are less discouraged by failures. While the Polish approach may seem too restrained and not daring enough to Americans, the US

SHUTTERSTOCK

WBJ

implmentation stage

Project management US vs. Poland

Trial & error approach, such as prototyping

More planning, analysis, data, risk assessment

time

approach may easily be misconstrued as chaotic and misguided. When starting a project, we need to ensure that the necessary mix of experiences is in place. The person responsible for the project must make room for a discussion about competence and experience, including national and cultural differences, but also personality traits. This discussion will not only avert a lot of potential frustration but also increase efficiencies and reduce risks. Without this discussion upfront, an American participant may easily become discouraged when working on a Polish-led project. When we move services or production to another country, we need to understand the culture of the country in order to be ready to deal with decision making, goal setting, feedback, conflict management, empowerment, etc. We also need to understand the individuals who we will work with, as their personalities may differ

Søren Jensen Corporate Coach Owner and founder of Jensen Training & Coaching www.jensen.pl

greatly from the stereotypes we’ve been taught to ascribe to the country’s culture.

WHAT TO DO?

First and foremost, we need to understand the importance of dealing with cultural differences, which is unavoidable when we start to deal with new people. We should take advantage of the diversity and talk openly about it. We should act on it by ensuring cultural diversity across the organization and making sure that decisions are taken and processes are designed with this in mind. External consultants can assist in the stage of creating the necessary understanding and implementation in the organization. Personality and behavioral analysis can be helpful both in the process of understanding the issue and later on when we start making decisions that will ensure that instead of being hindered by cultural diversity, we can capitalize on it.

Søren Jensen has worked and lived in Poland, Denmark, Sweden and Ireland. He has 25 years of corporate experience within the financial industry and 10 years of leadership experience including sales management, strategy and organizational change. He worked for Danske Bank and DNB Bank Poland before joining Dale Carnegie in 2017. He graduated from Copenhagen Business School and the International Institute for Management Development in Lausanne.

W B J APRIL 2018

Opinion SUNDAY TRADING BAN

Sunday trading ban not for distribution centers

Entrepreneurs have raised concerns about whether the trading ban will also apply to distribution centers. Application of the Act for distribution centers is not justified by the Act’s wording

he Act on the limitation of trade on Sundays and holidays effectively came into force on March 1, 2018. However, the disputes surrounding the ban still seem far from over. A considerable amount of controversy has arisen following the publication of guidelines for the ban by the National Labour Inspectorate and the Ministry of Family, Labour and Social Policy. What raised particular concerns was the section of the guidelines which posited

APRIL 2018 W B J

that the ban could also be extended to storage facilities (distribution centers) situated in locations separate from stores. Such a broad interpretation of the new regulation has produced criticism of the Ministry and the National Labour Inspectorate. There are concerns that widening the scope of the ban would be unjustly unfavorable for entrepreneurs and businesses. The Inspectorate assumed in its guidelines that storage facilities are not automatically exempt from the ban solely on the basis of being located separately from the retail area and shared by several stores. It is impossible to agree with this interpretation. It is contrary to the wording of the Act; moreover, it is in contradiction with the intention of the legislator, which was reflected in the course of parliamentary works on the draft of the Act. First and foremost, in accordance with Article 5 of the Act, the limitation relates only to trading and trade-related activities in a “commercial outlet.” However, accord-

SHUTTERSTOCK

WBJ

ing to the Act, a commercial outlet may be understood as a facility where “trade and trade-related activities are carried out.” The use of the conjunction “and” means that a facility needs to undertake both trade and trade-related activities to be subject to the ban. In distribution centers, trade is not carried out; their purpose is to simply organize deliveries to stores. This fact alone means distribution centers cannot be considered “commercial outlets” and therefore cannot be subject to the ban. What is more, in accordance with the definition of “trade related activities” (indicated in Article 3(3) of the Act), the ban applies only to activities related to trade in a “direct” manner. Activities carried out in a storage facility operating as a distribution center should not be considered activities related to trade in a “direct” manner. In order to qualify an activity as being subject to the ban, there should be a strong connection between such activity and trade in a commercial outlet, in terms of both functionality and time. There is no such

connection between activities carried out in a distribution center and the possible subsequent sale of goods in a store. In addition, the course of parliamentary works on the Act also suggests that the legislator was against a stricter interpretation that would allow the application of the ban to extend to distribution centers. While the preliminary proposal of the Act originally submitted to the Sejm assumed a ban on logistic activities, in the course of parliamentary works logistic activities were deliberately excluded from this ban. The interpretation provided in the guidelines by the National Labour Inspectorate and Ministry is, therefore, clearly contrary to the intentions of the legislator. A further point of note is also the fact that the Act provides for criminal or administrative-criminal penalties. Regarding the punitive provisions, it is assumed that they cannot be subject to extensive interpretation (meaning such provisions cannot be interpreted in a manner extending the scope of activities subject to the sanctions, over the interpretation resulting from the literary wording of the provision). Therefore, any reference made by the National Labour Inspectorate in the guidelines suggesting it will try to prevent any “circumvention” of the Act, is unjustified. Such an intention cannot lead to imposing a ban, under pain of criminal or administrative-criminal liability, on the activities not explicitly banned under the Act.

SOURCE OF LAW

Many critics stated that the guidelines published by the National Labour Inspectorate in fact lead to imposing new bans not resulting from the Act itself. It should be noted that the ban resulting from the Act cannot be extended based on the guidelines, because they do not constitute an actual source of law. No bans or obligations for entrepreneurs can be imposed solely by the published guidelines, as the grounds for such bans may only be the Act itself. The guidelines are solely the opinion of the bodies responsible for the implementation and application of the Act on the manner in which they intend to apply the Act. Of course, an entrepreneur that disagrees with the interpretation presented in the guidelines may call into question the imposition of a fine or penalty by the respective bodies. If that happens, the courts hearing the entrepreneur’s appeal will rule only on the basis of the Act, and

No bans or obligations for entrepreneurs can be imposed solely by the published guidelines, as the grounds for such bans may only be the Act itself

will not be, by any means, bound by the guidelines published by the National Labour Inspectorate. On the other hand, it is hard to imagine that the National Labour Inspectorate would question the actions or impose penalties on actions that the guidelines clearly considered acceptable. Taking into consideration that the Act provides for the possibility of imposing penalties of a criminal or quasi-criminal nature, imposing such penalties for actions which in the guidelines are indicated as acceptable would violate the principle of trust in the state. Thus, the guidelines limit entrepreneurs’ uncertainty, at least in relation to some of the activities described therein and considered as permitted. To simplify matters, if the guidelines declare any activity as acceptable, they should be treated as binding for the bodies of the National Labour Inspectorate. But they are not binding for entrepreneurs themselves. Assuming the understanding of the guidelines presented above, the mere fact that they were published should be considered a good thing, regardless of the controversy related to some of the explanations they provided. It seems that a lot of the confusion surrounding the guidelines could have been avoided if the guidelines contained a disclaimer confirming the lack of binding force of the published guidelines.

Krzysztof Zięba Partner, Legal Counsellor Head of FMCG, Retail & Automotive and Trade & Distribution Law Practices

W B J APRIL 2018

Opinion REAL ESTATE 122a et seq.), a matter shall be regarded as disposed of without notice and in a way that complies with the party’s demand in its entirety if, within one month of the day on which the demand was submitted to a relevant public administration authority or within another time limit defined in a specific provision, this authority has not issued a decision or order terminating proceedings in the matter (termination of proceedings without notice). However, the subsequent provisions of the Code of Administrative Procedure oblige the authority to enter an annotation in the records on the disposal of the matter without notice, including the content and legal basis of the decision (Article 122e of the Code of Administrative Procedure). Furthermore, other provisions assume that it is possible to obtain a certificate of disposal of the matter without notice (in the form of a decision which is subject to complaint). Everything indicates that the above regulations will apply to the silent building consent. Thus, such a settlement method will most certainly not streamline the process egislative work on the so-called as expected since, ultimately, the authority Construction Code, which is will not be able to remain inactive and will to replace several currently aphave to act after all. In these circumstances, plicable regulations, has been in it is worth considering whether it would progress for the past few years. Its not be appropriate to always require the purpose is to simplify the proce- authority to issue an administrative decidures and facilitate obtaining the sion in matters as important as investment requisite administrative permits. consent. The investor’s situation would be Silent consent and temporary One of the reforms being implemented much clearer than the controversial silent by the Construction Code involves the consent. lack of title to dispose of real introduction of a single integrated permit, The Construction Code also stipulates estate for construction processi.e. the so-called investment consent, the possibility of a decision approving the es are some of the changes to be which will replace: a building permit, pre- investment project design being granted implemented in 2018. What construction notification, notification with to investors that do not hold any title to exactly does the new Construca building permit design and notification dispose of real estate for construction tion Code have in store for us? of change in use. Said consent is a sort of purposes. If the investor fails to obtain consolidated administrative resolution appropriate titles to real estate within one incorporating all of these decisions. year, such a decision expires. This will The investment consent will be given by allow the potential investor to achieve administration bodies by way of adminiscertainty with respect to the prospective trative decision or termination of proinvestment project implementation even ceedings without notice, otherwise called before the key decision is taken, e.g. before “silent consent.” acquiring titles to real estate, and that soluTermination of proceedings without tion should be regarded positively. notice will be available to certain categoThe currently applicable procedures Grzegorz ries of less complex investment projects need to be simplified, which is the objecKalinowski and will be an attempt at combating inactive of the proposed changes. This will, Legal Counsel tion of authorities and decreasing public furthermore, enable the administration Member of the Real administration costs. But will that indeed bodies to adequately evaluate the signifiEstate & Property be the case? cance of investment projects. Said changes Development Practice Silence of administration is already regu- are highly anticipated, and fingers are WKB Wierciński, lated in the Code of Administrative Procrossed that a well-written Construction Kwieciński, Baehr cedure. Pursuant to its provisions (Article Code will be published later this year.

Making things simpler?

APRIL 2018 W B J

SHUTTERSTOCK

WBJ

The generational change and the associated change of attitude towards ownership vs. rental has shifted the market in an interesting direction

New tax limits, share deals back on track and emerging PRS

MaĹ&#x201A;gorzata Dankowska, Tax advisor, Partner responsible for real estate team and the Warsaw tax office, TPA Poland

he year 2018 is well under way with all its far-reaching regulatory changes. But in spite of the introduction of several new taxation schemes (like minimal CIT on commercial real estate property) and a shakeup in the taxation of real estate transactions, the Polish market has emerged unscathed. Although asset deals are less common and investors can no longer freely benefit from step-up options, this has not discouraged them from entering into the ever increasingly popular share deals and enterprise deals. Newcomers havenâ&#x20AC;&#x2122;t been scared off and even if some investors have put their Polish expansions on hold, they are still here. Some issues on the transactional market may be, however, caused by

limitations of tax deductibility of interest resulting from both the restrictive implementation of the EU Anti-Tax Avoidance Directive (ATAD) as well as some newly introduced Poland-specific regulations that address debt-pushdown structures and the creditworthiness of borrowers. All in all, even though these changes canâ&#x20AC;&#x2122;t be ignored, they seem manageable. On the other hand, we will soon have a VAT split payment mechanism implemented, which helps the transactional parties to significantly limit risk amounts by the sum of VAT sanctions. Hopefully, this mechanism will facilitate negotiations of risk sharing options during the transactions. From an operational perspective, tax settlements require due care. With the implementation of the already mentioned

ATAD regulations as part of a broader BEPS package (OECD initiative of preventing tax base erosion), the introduction of SAF-T reporting, and the new transfer pricing regulations and requirements, the time burden required for tax compliance issues has increased dramatically. It is also worth mentioning that, due to these recent tax amendments, companies have encountered overlapping tax regimes. For instance, in 2018, one may be challenged with two or even three systems of settling interest deductions for tax purposes; this makes the whole process of settlement increasingly complicated. Such complexity with respect to compliance has even transposed, to some extent, to transactional activity, as due diligence reports and transactional clauses are becoming more prevalent than ever before. With respect to the introduction of investor-friendly vehicles, the highly anticipated Polish REIT regulations have still not been introduced. Thus, both Dutch and Luxembourg structures continue to serve foreign and local investors as investment platforms. New investment project trends, however, are emerging. The Polish private rental sector (PRS) is experiencing significant changes and is approaching another major transformation: the emergence of an institutional rental market. The vast majority of housing stock in Poland is currently occupied by private owners, but the generational change and the associated change of attitude towards ownership vs. rental has shifted the market in an interesting direction. The growing interest in housing projects for rent on the institutional rental market is becoming increasingly apparent.

W B J APRIL 2018

Opinion BUSINESS

We still don’t trust each other

The biggest barrier to innovation is not insufficient financing; administrative constraints are partly responsible, but they’re just part of a larger picture

typical day in a credit information agency: we’re preparing a report on a specific company. We usually start looking at the source, which gives us (at least a presumed) certainty that the data has been verified and is true. That is where we hit a wall. One of the toughest challenges is getting even the most basic financial data. For many companies, sharing these figures is a statutory requirement, but that doesn’t seem to have convinced them. Over half of all enterprises (including some really big ones) that should be publishing this information fail to do so. They don’t seem to understand that transparency is a major advantage in business. If a credit information agency cannot obtain those very basic figures, it already shows that company in negative light and may even cause suspicion that something untoward is going on in the company. Despite numerous information campaigns, we

APRIL 2018 W B J

We are still plagued by the conviction from a bygone era that all financial information should be kept in a ‘top secret’ file

are still plagued by the conviction from a bygone era that all financial information should be kept in a “top secret” file. The reason for that is trust, or the lack thereof. This is also the reason why Poland has been so far behind other economies in innovativeness rankings. Our country’s unsatisfactory scores are often explained by low R&D expenditure, intellectual

underachievement and – probably most commonly – by insufficient tax incentives. All of these factors weigh in on Poland’s innovation but are not the whole truth. Financing is far from scarce, at least as long as the European Union is eager to provide it. Banks offer highly preferential loans for technology development. The number of young, talented graduates leaving universities increases each year. It is true that tax administration is far from friendly towards entrepreneurs, but some industries seem to have it figured out (IT and pharma come to mind). The financial sector is also capable of implementing highly innovative technological solutions, some of which are still at the testing stage in many better developed economies. A growing number of companies are also undertaking socially responsible initiatives, seeing them as more than just good PR. Unfortunately, the majority of businesses are still very distrustful, akin to fortified strongholds surrounded by enemy territory. Meanwhile, innovation comes from cooperation (sometimes even across different industries) and that requires at least some level of trust. If we are to trust someone, we need to lower our defenses, at least to some extent; something a typical Polish businessperson seems incapable of. We are dealing here with a mentality issue, not a financial one. All monetary matters can be dealt with one way or the other, but no amount of money can buy a new mindset. All we can do is hope that educating the business environment and Polish entrepreneurs will at some point bear fruit.

Monika LeszkoCichowlas Sales Director, Detective Creditreform

SHUTTERSTOCK

WBJ

Opinion POLITICS Rafał Trzaskowski

is currently the Deputy Chair of the Sejm’s Committee for EU Affairs and Vice President of the largest political grouping in the European Parliament – the European People’s Party (EPP).

Reclaiming the city

Local government elections, slated for the final quarter this year, will be a real battleground for the ruling and opposition parties. In order to contemplate a win in the general elections, the opposition would have to take at least a few of the major cities, including the capital. WBJ talked to the opposition candidate (representing both Civic Platform and Nowoczesna) about the future he envisions for the capital and its residents 30

APRIL 2018 W B J

INTERVIEW BY EWA BONIECKA

WBJ:

What is your vision for Warsaw and its further development? Rafał Trzaskowski: I want it to be an open, liberal and tolerant European capital, offering the best possible quality of life, modern infrastructure and a friendly atmosphere. Warsaw must be a capital that attracts all the people who might want to work and settle here. I will announce my detailed program before the elections, in which I will demonstrate how to improve my city – how to make it greener, less congested, easier to move around, more culturally varied and more user-friendly. Civic Platform and Nowoczesna promise to introduce a mechanism which will guarantee that a bigger chunk of people’s taxes is channeled into local governments, allowing us to introduce and run programs which will shape the quality of education, empower and engage women, and make the life of our senior citizens easier and more enjoyable. I will also strive to improve the situation of women on the labor market, close the gender gap, especially when it comes to remuneration, and build more kindergartens. I also intend to make Warsaw as friendly to foreign investors as possible. One of the biggest problems that is often raised is the need for affordable rental housing for younger as well as for poorer residents. Commercial developers locate investments where they can earn the highest profit, in places that often are out of reach for many people, price-wise. Where is the city going to build community housing? We have very ambitious housing plans – we need to develop both council housing for the less privileged and commercial housing with cheaper rents for young people who want to settle in Warsaw. We will continue and develop all investment initiatives, as space is becoming more scarce and comes at a premium. That is also the reason why many people – especially young couples – are struggling to find places to live and settle and end up having to live outside of Warsaw, which in turn increases congestion

Warsaw was completely destroyed during World War II and in a certain way we are still rebuilding it, albeit in a new technological era

and contributes to urban sprawl. That will require a lot of effort and money. Certainly. The sources of financing must include public and EU funds, as well as private investments. One has to keep in mind that Warsaw was completely destroyed during World War II and in a certain way we are still rebuilding it, albeit in a new technological era. The social conditions have also changed, and so have the aspirations and needs of residents. I will continue the efforts to bring Warsaw closer to the Vistula River through the construction of long pedestrian boulevards along the waterfront to allow people to take advantage of our beautiful river. Warsaw’s city center is often criticized for being too scattered and underdeveloped. The area around the Palace of Science and Culture has remained empty for years. Do you have any plans for it? Indeed, Warsaw does not have a truly modern city center. But in my opinion, destroying the Palace of Science and Culture (as proposed by some senior figures in the current government) is a crazy idea. We all know that it was Stalin who presented it to Warsaw and that it forms a part of our difficult history. But today it houses universities, theatres, cinemas, state institutions, restaurants and a swimming pool – we are making a good use of it. Its opponents claim that it dominates the city center. But I want to create an inspiring city center around it – an open piazza, a museum of modern art, a great theatre, open-air cafes, surrounded by a lush green park. Of course, Warsaw is still a bit chaotic – some buildings were constructed with disregard for the harmony of the surrounding environment, even our main city avenues could be revamped to give the citizens a chance to reclaim them. I also want to make the city’s diversity a competitive advantage for Warsaw – with a friendly, safe, creativity-fostering atmosphere, with a rich social life and open public spaces. Visitors must be made aware

of the countless choices that make Warsaw the unique city that it is. What do you think of the Smoleńsk tragedy monument being built in Pilsudski Square? Pilsudski Square was appropriated by the government. Law and Justice (PiS) broke the law and took over the square from the City Council and the people of Warsaw – to whom it should belong. The PiS government is building a monument without any regard to the law and the division of competences between the local and central governments. I have always been of the opinion that it is the residents of Warsaw who should have been allowed to express their views on the existence of the monument in that particular place. Would you want to have some EU institutions that will have to move out of London after Brexit, relocate to Warsaw? The decision is in the hands of the EU governments and depends on the relations between PiS and Brussels. We already have Frontex, which is located in Warsaw – an EU agency which deals with protecting EU borders. I think that it should be more visible and a better known fact in Warsaw. Fortunately, our inhabitants – just like all Poles – share an enthusiastic approach towards our membership in the European Union. However, the current government is busy pushing Poland to the margins of the European community. PiS has not yet announced its candidate in the Warsaw election, and the battle for the mayor of Warsaw is important for all the parties. Are you aware that your result will have a great influence on the position of Civic Platform not only in local elections, but also on the party’s support in general? I am aware of this and I will fight for the position of mayor of Warsaw with all my strength and to the best of my ability. The fight for Warsaw will determine the future of the country. If the opposition loses in big cities, it will be very difficult for us to do well in the general elections.

W B J APRIL 2018

Feature WEALTH By Beata Socha

For richer, With continually strong economic performance, Poland’s wealth levels are increasing by leaps and bounds. And while the latest data points to significant disparities at local level, the country manages to remain inclusive, particularly for the mobile youth

WITH 4.6 PERCENT in GDP growth last year, Poland’s economy made another leap towards catching up to its Western neighbors. In fact, last year Poland was the most successful country globally in closing the wealth gap, according to a Credit Suisse report, at least in percentage terms. While wealth levels increased between 2016 and 2017 by 6.4 percent globally, Poland’s wealth surged by 18 percent, or $131 billion in absolute terms. The main reason for the increase was rising equity prices: market capitalization grew by 38.4 percent between 2016 and 2017, while the house price index increased by 9.7 percent. According to the World Bank’s report: “The changing wealth of na-

tions,” Poland’s total wealth per capita amounts to $154,932 – below the global average of $168,580. Here wealth means capital, land, resources, earnings and foreign assets. By that measure, Norway is by far the wealthiest country in the world ($1,671,756 – ten times the average), exceeding even the oil paradise Qatar ($1,597,125), and Switzerland ($1,466,757). The poorest country by that metric is The Gambia, with $5,208 total wealth per capita. “Global wealth grew significantly between 1995 and 2014. Middle-income countries are catching up in large part because of rapid growth in Asia, but inequality in overall wealth persists,” the report reads.

Poverty trap

APRIL 2018 W B J

“Threequarters of new apartments are purchased by 30-year-olds who have moved to the city” SHUTTERSTOCK

Poland is definitely getting richer as a whole, but its least affluent citizens are also seeing improvement. Between 2008 and 2016, the risk of poverty and social exclusion decreased in Poland by 8.6 percentage points (from 30.5 percent of the population to 21.9 percent being at risk of poverty and social exclusion), marking the sharpest decrease in the EU, according to Eurostat data. Poland’s score was far better than that of the next-in-line, Latvia (with a 5.7 point drop), and Romania (a 5.4 point decrease). Greece, on the other hand, led the ranking in the biggest growth of poverty risk, from 28.1 percent in 2008 to 35.6 percent in 2016, making it the sharpest increase in the EU (of 7.5 points). Cyprus (with a 4.4 point increase) and Spain (4.1 points) also saw a risk of poverty increase between 2008-2016, largely because of the heavy hit these economies suffered during the financial crisis. Surprisingly, even Sweden saw the risk of poverty increase (by 3.4 points). Currently, the lowest risk of poverty and social exclusion is observed in the Czech Republic (13.3 percent), Finland (16.6 percent), Denmark (16.7 percent) and the Netherlands (16.8 percent). The highest risk of poverty and social exclusion was recorded in Bulgaria (40.4 percent), Romania (38.8 percent) and Greece (35.6 percent).

for poorer

A tale of three mining cities

Despite wealth increasing, disparities in income levels are quite substantial at local level, particularly when we compare data for Polish municipalities. With average gross salary at PLN 7,170.21, the municipality with the highest monthly earnings is Lubin, located in western Poland and with a total population of 223,000. The main city in the municipality happens to be the seat of state-owned copper and silver mining conglomerate KGHM, the second largest silver producer worldwide, where the average pay is a staggering PLN 10,000 a month (approx. PLN 7,000 after tax). As many as 12,000 KGHM employees receive pay at this level. Another mining municipality, Jastrzębie-Zdrój, the HQ of coal producer JSW, came in second, with PLN 6,131.62. Interestingly, the city was the only location where average pay decreased over the period of 2011-2016. Salaries dropped by PLN 193 overall after the global decline in coking coal prices, bringing the mining company to the verge of bankruptcy and forcing it to tighten its belt. The third spot in income levels went to yet another mining city, Bełchatów, where Poland’s energy giant PGE has its Bogdanka mine and the average monthly pay stood at PLN 5,778.97 (all GUS data for 2016, published in early 2018).

Three state-owned mining giants – three highest earning cities. It may come as a surprise to some that Warsaw didn’t make the podium. This goes to show how important natural resources still are for the economy and how much they influence individuals’ incomes. Warsaw, while it doesn’t have much to excavate other than the tunnels for its second subway line, still managed to come in fourth in the top earners ranking, with PLN 5,739.61 – not too shabby. Interestingly enough, the traditional division between eastern (poorer) and western (richer) Poland is less distinct. The poorest municipality in Poland was Kępno, with PLN 2,658.47 in average monthly earnings, located only 150 kilometers away from the richest, Lubin. This means that the residents of the richest area (Lubin) earn almost 170 percent more than those in the poorest (Kępno), which is less than a two-hour drive away. That is the same disparity as between Poland and, say, Kuwait, according to World Bank data. >>>

W B J APRIL 2018

FEATURE / WEALTH GAP

Getting richer, and more in debt

35,000

Poland’s wealth and debt per adult (in USD) in 2000-2017

30,000

wealth

25,000

debt

20,000 15,000 10,000 5,000 0 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Wealth distribution industries

Closing the income gap, and in turn the wealth gap, has been one of the key goals for many governments in developed countries. And while some are clearly doing a better job at leveling the playing field, the rising gap between top and bottom earners persists. UK-based think tank IPPR recently suggested that all UKborn citizens should receive a “universal minimum inheritance” of £10,000 as they turn 25 to help address the growing wealth inequality. This could help university graduates pay off some of their student loans or serve as a downpayment for a house. Or, as is the case for many university graduates striving to make it in fashion, media and politics, allow them to be able to afford to take an unpaid internship (some of which last well over a year) in the hopes of making a career in these highly exclusive industries. A recent exposé published in The Guardian of a training internship at Monocle, one of the UK’s most desired employers for aspiring journalists, claims that “Britain is addicted to internships. The most recent figures suggest there are at least 70,000 interns, around a third of whom are unpaid. Most work in politics, journalism, fashion and other creative fields,” wrote Amalia Illgner, Monocle’s former intern, who decided to sue her former employer for unpaid wages. Poland is no stranger to internships, but with the unemployment levels at a historic low, employers have been struggling to fill even entry-level positions. They’ve been forced to sweeten the pot beyond the “opportunity to gain experience and make contacts in the industry.” According to wynagrodzenia.pl, the median salary for an intern in Poland stood at PLN 2,775 in January (which is more than the average earnings in the Kępno municipality).

APRIL 2018 W B J

Mean wealth per adult Median wealth per adult

$10,000 $100,000

48.1%

Over $1 million

0.2%

$28,057 $10,302

under $10,000

48.7%

$100,000-$1 million

2.9%

SOURCE: CREDIT SUISSE, 2017

Elite

Promised land Unsurprisingly, large cities have been on the receiving end of young people moving in search of better career opportunities. Warsaw, for instance, is expected to grow by an additional 1.5 million residents over the next decade or so, if it is to follow the common pattern, according to which the capital city accounts for 10 percent of a country’s population. And while there is certain opposition from the city’s second or third generation residents to the “young wolves” (sometimes jokingly described as “jars” by Warsaw-born residents, in reference to meals they bring back from their home towns every weekend), the newcomers have been a blessing for the capital’s labor market. “Three-quarters of new apartments are purchased by 30-year-olds who have moved to the city,” said Marek Roefler, Warsaw-based housing developer and one of the richest Poles, in an interview with Na Temat. He also said that he couldn’t find a single plumber, electrician or tile layer from Warsaw among his staff. “All my workers are from out of town. More than that, some of them have recently moved to Warsaw permanently, because here you could find work even in the worst years of crisis, with wages much higher than elsewhere,” he added.

But what about those who remain in the lowest earning small towns and villages? Are they doomed to see the wealth gap turn into an insurmountable chasm? According to a Marcin Piatkowski, author of the recently published book “Europe’s Growth Champion: Insights from the Economic Rise of Poland,” Poland is the only European country where since 1989 all segments of the society have seen their income grow faster than in G7 countries. The reason for that is the fact that Poland has managed to remain egalitarian after the transition to capitalism in 1989. It is one of the few countries where, unlike in the US and the UK for instance, parents’ economic standing does not entirely determine their children’s future social status. Between incomes getting higher and large cities luring hordes of young people with the promise of better career opportunities, we may expect to see many more people becoming wealthier and their birthplace hardly affecting their odds of success. At least so long as we manage to keep wealth disparities at reasonable levels. Because, while wars and revolutions have been the great equalizers that have led to the modern societies we now live in, no one wants to see this part of our history repeated.

MEDIAN

$10,000 $1,000

$3,000

$5,000

$7,000

$9,000

$11,000

$13,000

$15,000

$17,000

$199,000

The middle one To better understand the gap between the haves and the havenots, two basic figures are usually given: the mean and the median wealth per adult (calculated as the marketable value of financial assets plus non-financial assets – principally housing and land, minus debt). The mean, that is the total wealth divided by the number of adults, stood at $28,057 in 2017, according to Credit Suisse. Meanwhile, the median, which means basically “the middle one” was less than half of that: $10,302.

To understand what the disparity between median and mean signifies, picture an office with 10 employees. The lowest-earning worker makes $1,000 a month, the second one – $3,000, the third in line makes $5,000 and so on, each subsequent employee gets $2,000 more than his/her colleague lower on the pay scale. The median (the middle salary) would be exactly $10,000 in that company. But for the mean salary to be $28,000, the highest earner would have to make a whopping $199,000!

W B J APRIL 2018

INTERVIEW / WEALTH & GROWTH

WBJ:

THE UNEXPECTED CHAMPION

You don’t become a growth champion by accident. Poland has clearly done something right to see 26 years of continued growth. The success story of the entire CEE region post-1989 offers a number of lessons for other countries worldwide. The question they now need to answer is how to continue to converge, and when do wealth disparities become a real problem? WBJ talked to Marcin Piatkowski, a Visiting Scholar at Harvard University and the author of the recently published book on “Europe’s Growth Champion: Insights from the Economic Rise of Poland” about what it takes to overcome a thousand years of bad luck 36

APRIL 2018 W B J

How did you get the idea for the book? Marcin Piatkowski: I wrote the book to highlight the economic miracle that few people have heard about. We always hear the same success stories of Asian Tigers - South Korea, Singapore or Taiwan - but hardly anyone mentions the success of Poland, even though over the last quarter of the century it has become the growth champion of Europe and the fastest growing economy in the world among countries with a similar level of income. Its economy has now entered the 26th year of uninterrupted economic growth, the longest in Europe’s recent history and one of the longest economic expansions in the world (longer than Japan’s or South Korea’s). Yet somehow no one wrote about it before. This story just needed to be told. I also wanted to explain where this miracle came from. Poles now have a higher income and a better quality of life than ever before. They live during the country’s new Golden Age. You may wonder how it happened, especially since Poland has been economically unlucky for a thousand years: always backward, underdeveloped, and at least a few steps behind the West. The country has undertaken numerous attempts to catch up with the West: in the 19th century, in the interwar period and later also under communism – all unsuccessful. Why is it catching up now? And most importantly: what lessons can be learnt from that? Other than a few publications for academics, no book geared towards the global audience has tried to explain it. It’s true that not every country can become an EU member, a critical part of Poland’s success story, but even countries such as Colombia, Brazil, Thailand and Malaysia can draw useful developmental lessons from Poland’s recent history. Finally, there is another question that needed answering: what can Poland and other CEE countries do now to continue converging with the West? Poland has already covered two-thirds of the gap, but now comes the hardest part. What factors were responsible for making Poland a “growth champion”? Most books and reports have so far have focused on the choice of economic policies that made Poland more successful than others. But if good economic policies drove the economic success, then what drove the economic policies? Few authors have dared to describe it. This is what I try to do in the

INTERVIEW BY BEATA SOCHA AND MORTEN LINDHOLM

book: I look at meta-sources of growth – institutions, culture, ideas and leaders – to explain why Poland became so successful. The reason why some countries are rich and others are poor is not because there is not enough knowledge of what to do – every policymaker today anywhere in the world has access to unlimited knowledge of what good economic policies look like – but the key question is why some countries decide to adopt such good economic policies and others do not. I focus on five main reasons for why Poland wanted to adopt good economic policies. First, it was the post-communist legacy of social egalitarianism and high social mobility, which did not exist before 1939, that helped Poland build an open and democratic state for the first time in its history. Second, a strong social consensus helped adopt Western institutions, which supported the success. Third, Poland finally had a lucky break as Western Europe was open to embrace it and send euros instead of tanks. Fourth, the emergence of a new middle class and a new business elite was also key, as it created social and political pressure to adopt good policies. Finally, Poland was governed by highquality policy making elites. This may sound strange, when everyone likes to complain about politicians, but it is nonetheless true when juxtaposed against other countries in the region and beyond. Poland and Hungary were the only countries in the Eastern bloc that enjoyed a large scope of freedom that allowed alternative elites to emerge. When the change came in 1989, Poland had an alternative elite that came in and hit the ground running the next day. Thanks to their education and experience abroad, they knew what they were doing. That was not the case in Romania, Bulgaria or the former Czechoslovakia, because they were much more closed off from the West. Virtually every Polish minister of finance had spent considerable time abroad. Balcerowicz, Kołodko and Belka all studied in the West on Fulbright scholarships. In Bulgaria, on the other hand, until 2002 not one of its ministers of finance even spoke English. Strong policy makers set the stage early on for Poland’s success. Robust political competition, which put a premium on good economic policy making, transparent privatization, and strong institutions, shepherded the process since then.

Poland ended up being practically the only economy where privatization did not produce oligarchs How was it that Poland’s privatization was more transparent than elsewhere in the post-Soviet bloc? Poland was lucky because its privatization process was delayed. Large scale privatization started only in 1996, due to strong political and social opposition. By then, civil society, mass media and newly emerged institutions were strong enough to ensure that the process was much more transparent than in other countries. It wasn’t anyone’s strategy to delay the process, but it turned out to Poland’s benefit. Haste makes waste. In Russia and Ukraine the privatization process created a class of oligarchs. In the Czech Republic, the so-called “kuponovka,” i.e. mass privatization, did not produce much of an economic benefit. Poland ended up being practically the only economy where privatization did not produce oligarchs. (With tongue-in-cheek), this is well reflected in the poor performance of Polish football teams. They all do badly because there are no billionaires that could invest in top-quality teams and afford to buy expensive players. But I’d rather have underperforming football teams than an underperforming economy. Are there any other reasons why Poland has managed to stay ahead of the curve? There are many. Let’s take the banking sector, for example. Poland is the only transition economy that has not had a banking crisis since 1989. That is testament to the quality of elites and to the quality of banking supervision. Polish taxpayers have never had to pay a single złoty to support the banks. All the other countries in the region have suffered several banking crises over the past 26 years. Allowing banks too much liberty is risky. Banks are like fire: they are indispensable to daily life of the economy, but when left uncontrolled they can burn down your

house. The banking sector is too prone to explode and take down the whole economy with it. It’s foolish, for instance, to lower the loan-to-value ratio because it can add 0.1 point to your economic growth for three years, if after that a crisis hits and you lose 10 percent of your GDP. The banking sector needs to focus on playing its fundamental role of transferring savings to investors, which is where it provides the most social value, and not much more. All the derivatives and complex instruments are just gambling; a distraction from the core role the system should play in the society. Sustaining strong financial supervision is a vital component of the new growth model – “The Warsaw Consensus” – which I propose in the book. Do you expect the current growth to wind down? Do you think the end of the current business cycle is near? I am far from being a pessimist. For 26 years, year after year, many economists have been forecasting a crisis in Poland, but they have always been wrong (which somehow does not stop them from projecting that another crisis is just around the corner, that Poland is on the way to becoming the next Greece or whatever other catastrophe is currently in vogue). Cassandric projections will always sell well and they know it. Back in 1989, when Poland transformed into a democratic capitalist state, no global experts would put any money on Poland. They would bet on the Czechs, because they were so well organized, or on Hungarians, because they implemented thorough reforms before 1989 and were the West’s darlings. But no one bet on Poland. But it was Poland that got most of the things right and beat others. I even considered an alternative title for my book: “The Unexpected Champion” as the testament to Poland’s success that no one could predict. >>>

W B J APRIL 2018

INTERVIEW / WEALTH & GROWTH

What do we need to do to make sure the Polish miracle continues? Poland has managed to create a truly egalitarian, open and inclusive society that it never had before. This should help keep the growth going, at least still for some time. I show in the book that among around 44 high-income countries in the world today (outside oil-rich economies), virtually all of them are inclusive: they all democratic and maintain low or moderate levels of inequality. Inclusive societies are ruled by many for the benefit of many. However, poor countries are predominantly extractive, as they are ruled by the few for the benefit of the few. It is very difficult to become inclusive – violence in one form or another is needed to eliminate the old, extractive systems and redistribute economic and political power among the whole society. But once it happens it is hard to ever become extractive again. I think Poland will remain inclusive and continue to grow. But this may change if inequality gets out of hand. So far so good, as inequality in Poland today is roughly at the same level as for the European Union as a whole. But there is a risk that inequality may grow, as the newly emerged elites will multiple their wealth at a faster rate than the rest of the society – Piketty [a French economist – ed.] rightly points out that returns on capital are higher than increase in wages – and re-create an oligarchic society from the past, which thwarted Poland’s development. Aren’t you afraid that Poland will follow the same model as the US, where income and wealth disparity is already causing social unrest? The Anglo-Saxon model has failed in the last 40 years. Despite an overall pretty good economic growth track record, the US has failed the majority of Americans, whose real incomes have hardly increased since the late 1970s. The bulk of additional GDP has accrued to the elites of the society. The poor were left behind. That is also the case for the UK, much less for continental Europe. In Poland, since 1989, all segments of Polish society have seen their income increase faster than in G7 countries. No other country has achieved that. In Slovakia and the Czech Republic, for instance, the income for the bottom 10-20 percent has grown slower than in the West. And while Poland could have been much more inclusive, it has nonetheless won the top rank for inclusiveness among all democratic

APRIL 2018 W B J

belong to – they do determine your future, of course, but still less than elsewhere. We need to keep it this way. The “American dream” does not exist anymore. If anything, there is the Swedish, Danish and yes, even the Polish dream.

By 2030, Poland will have to be a country full of Lewandowskis to truly succeed

post-communist countries. It’s crucial for Poland to continue on this path and keep inequalities in check, to ensure that everyone in society remains socially mobile, meaning they have a real chance to actually make it, unlike in the US, where the chances of advancing to a higher social stratum are extremely low and your income is largely determined by who your parents are. In Poland, your name, where you’re from, what social sphere you

How do we keep inequality levels in check? We need a set of policies, some of them implemented by the otherwise derided Kaczyński administration, that include progressive taxes, high minimum wages, and wide ownership of capital through, for instance, employee stock ownership plans. We also need to continue to provide direct support for the poor, including with the 500+ family support program. This is a good investment into social cohesion and mobility. Another good way to ensure that we have a level playing field for everyone is to provide access to roughly the same public services to everyone: good quality early education, schools and universities, healthcare and infrastructure. It is in the interest of the new Polish elites to ensure the poorest also partake in the benefits of economic growth. Better to be penny wise now and eliminate poverty at a low cost than pound foolish later when inequalities turn into a political crisis and growth-damaging economic policies. Do you think we may witness another social upheaval somewhere in the world over the next couple of decades? Yes, I believe so. In some places it is inevitable. Historically, other than in times of great wars, returns on capital exceeded the pace of economic growth. This implies that the global 1 percent will continue to get richer faster than the rest of the society. Let’s just look at how Trump lowered taxes for the richest Americans, solidifying their privileged position and pushing America another step closer to an extractive society. I hope there won’t be any violence, even though the historical track record suggests otherwise, but at some point you will see populists come in and take the system apart. Do you think that the widespread automation which we are already witnessing will quicken the growth of disparities by eliminating a lot of lower-paid jobs and if so, is there a way to somehow cushion societies from it? If a pickpocket steals someone’s wallet, do

you punish the pickpocket’s hand or the person? Automation is not to blame for creating inequalities, it is the governments that let it happen by not providing a safety net for society. I get frustrated when people say that it’s nobody’s fault. That it’s the technology and automation that are responsible for what is happening in the US, for Trump becoming president. I disagree. This is just the hand of the pickpocket. We allowed this to happen. We did not allow for disparities to grow this much between 1945 and 1975, when incomes of Western societies increased even at a faster rate. But then during the Reagan administration something fundamental changed, and since then the median American stopped becoming richer. Automation poses a risk and it’s the responsibility of the policymakers to deal with it so that we can all benefit from automation, not just the top 1 percent. It will have an impact and it will increase inequality. We should be ready with the right response when it happens. What does the future hold for the region? How long will the “Golden Age” continue? The Golden Age will continue because Poland is inclusive, but also because it is still super competitive owing to its high quality of human capital, attractive level of wages, open borders, improving infrastructure and stable macroeconomic policies, as well as a lot of scope for increasing productivity. After all, Poland’s productivity is now only slightly above half of what it is in Germany. We can continue to borrow technology and ideas from the West and there is still a lot of room for growth. Barring a war, a global crisis or a collapse of the EU, by 2030 Poles should earn about 80 percent of the average wage in the euro zone, adjusting for purchasing power. I think that’s achievable and realistic given the speed of convergence over the last 25 years. What happens then? That’s when Poland and the rest of the region will start to have fundamental growth problems stemming from demographics, institutions and innovation. Demographics is already a problem, but it will really hit Poland closer to 2030. Poland needs to further promote good family policies and open up to smart immigration, which means not opening up to just anyone who wants to come, but to those that can provide value

to the Polish economy and society. The best way to attract high-value immigrants is through the university system: highly skilled young people who come here to get educated and stay here. Instead of a defeatist fight not to allow the Polish society to shrink, we should be bold and set ourselves a target of actually increasing the size of the population. Targeting a 50 million strong population in 2050 might be a long shot, but it would help concentrate minds. The best defense is a good offense. Secondly, the quality of institutions. Since 1989, we have absorbed Western institutions, culture and values to an extent never experienced before. These made the Polish economic success possible. We now need to make sure we don’t damage these newly built institutions, a risk that is particularly relevant now. If you destroy trust in the Constitutional Tribunal and in the legal system when you create cracks in various institutions, consequences won’t become apparent overnight, but they will come later and undermine development. Undermining institutions is like smoking: the daily damage is not seen, but when you get cancer, it is already too late. Gordon Brown, former prime minister of the UK, once said that “in establishing the rule of law, the first five centuries are always the hardest”. Poland had only 25 years of building institutions and can’t afford to undermine them. Do you think Poland has the potential to be at the forefront of innovation one day? Yes, although not soon. We don’t need Polish Googles yet, although of course they would be warmly welcomed. The productivity gap is still so large that we can grow by absorbing technologies for another decade and a half. That said, we should invest in innovation now, because it takes time to build innovation capacity. Being at the forefront of world innovation is very difficult. Only a handful of countries have managed to do that: apart from the West, there’s Japan, South Korea and increasingly China. It’s a long process. You can’t train to run a marathon overnight if you don’t want to kill yourself. You need to train systematically, invest in skills you never really had. This is especially relevant for Poland and CEE that arguably have no innovation in their DNA. The few lonely Poles who came up with innovative solutions in the past, hardly ever commercialized them. We need to learn it now.

To innovate more, we need to modernize public support. There has been much progress, which I witnessed first-hand, but the whole support system is still often bureaucratic, slow and unfriendly to the business sector. We also need to improve education. After all, innovation comes from people’s brains, not from AIs. We already produce a lot of great brains, but we need to produce more of them and we need to ensure that we use them well. Lastly, we also need to open up to the world. We will not achieve innovative breakthroughs in a monoglot, insular and nationalistic environment. Overall, to become as rich as the West for the first time ever, we will need to become competitive not because we are cheap, but because we are as good as the others. And we are still far from it. Robert Lewandowski made it big not because he earns less – he actually earns more than other players – but because he is just as professional as his peers. By 2030, Poland will have to be a country full of Lewandowskis to truly succeed.

Marcin Piatkowski, Ph.D., is a Visiting Scholar at Harvard University’s Center for European Studies (2016-2017), Senior Economist at the World Bank in China, and Assistant Professor at Kozminski University in Warsaw. He is the author of a new book: “Europe’s Growth Champion: Insights from the Economic Rise of Poland,” published by Oxford University Press in 2018. In his free time, he enjoys running marathons, participating in triathlons, reading and dancing. Follow his tweets at @mmpiatkowski.

W B J APRIL 2018

E G G I R A 40

APRIL 2018 W B J

E M A G D ECONOMIC NATIONALISM IS PICKING UP IN MANY CORNERS OF THE WORLD. IN POLAND IT HAS TAKEN THE FORM OF “RE-POLONIZATION” OF BUSINESSES. SUPPORTERS EMPHASIZE THAT IT IS EXTREMELY IMPORTANT TO MAINTAIN AN “APPROPRIATE BALANCE” BETWEEN NATIONAL AND FOREIGN CAPITAL IN THE POLISH ECONOMY. ARE WE ON OUR WAY TO REINSTATING PROTECTIONISM? BY SERGIUSZ PROKURAT

W B J APRIL 2018

FEATURE / ECONOMIC PATRIOTISM

HOW ‘POLISH’ IS IT?

The rise of economic nationalism in Poland has led to the creation of a variety of services and apps which help customers determine whether a product is “Polish enough.” Mobile app Pola helps assess the “Polishness” of individual products. The app’s website claims that if you use it, you can not only find products “with a soul” but also support the Polish economy. You simply scan the barcode of a product and the app tells you whether the producer is owned by Polish capital or a part of a global concern, where it produces its goods, or if it creates workplaces for highly qualified people. The app’s growing popularity is fueled by a number

APRIL 2018 W B J

What do you consider when purchasing a product?

of instances in which Poles have discovered with surprise that household brands, such as Wedel chocolate, with a long and rich history in the country, are in fact now mainly in the hands of foreign concerns. The need to verify the level of “Polishness” in products on the Polish market has spawned a number of initiatives, such as “Polski Ślad” (the Polish footprint), which certifies that companies are registered in Poland, at least 51-percent owned by Polish capital and independent from foreign companies. The initiative’s website touts the certification as a movement “to increase the economic potential of our country” by supporting “truly Polish” firms. Naturally, receiving certification is subject to a fee proportional to the company’s workforce.

SOURCE: CBOS “ECONOMIC PATRIOTISM” IMAGES SHUTTERSTOCK

ccording to a study by pollster CBOS conducted in late 2017, country of origin is the third most popular criterion for Poles when making a purchase. Nearly half of all those surveyed (46 percent) stated that their purchasing decisions take origin into account, which was exceeded only by price (81 percent) and quality (76 percent). Interestingly, Polish origin was considered more frequently than brand or even friends’ recommendations. Economic patriotism refers not only to consumers but also companies, authorities and local government units. At consumer level it concerns buying locally manufactured products, while at policy level it consists of supporting domestic companies. Why wouldn’t we want to promote Polish goods? After all, larger sales of local products mean increased tax buoyancy.

NO NATIONALITY

Poland’s governing elite’s drive to promote economic nationalism is not an exception. Other examples in Europe include Le Pen and Front National in France, Sebastian Kurz in Austria and in Belgium Bart de Wever, the mayor of Antwerp and leader of the Flemish nationalist and separatist party the New Flemish Alliance. In Eastern Europe, the nationalist Viktor Orbán in Hungary, and Robert Fico, prime minister of Slovakia are seeking to enforce more state interventionism and national spirit. However, countries don’t trade, only people and businesses trade. Economics has proven that capital has no nationality. Meanwhile, positive effects related to inflow of foreign capital are neatly skipped. One of these is the fact that the utilization of capital, regardless of its origin, results in increased productivity, higher salaries and, consequently, a higher standard of living. Are we witnessing times where it is possible to sell societies on protectionism under a nice-sounding misnomer of “economic patriotism”? Arthur Henderson, a British statesman and Nobel Prize winner in 1934, said in his Noble acceptance lecture that the drive towards economic nationalism is only a part of the general revival of nationalism.

PROMOTING POLISH GOODS ABOVE ALL OTHERS UNDERCUTS THE VERY PRINCIPLES OF COMPETITIVENESS AND IN TURN MAKES DOMESTIC PRODUCERS LESS INCENTIVIZED TO IMPROVE PRODUCTION PROCESSES AND GOODS

PICKING UP THE PACE

All governments want to see domestic companies excel. However, many forget that there are other ways of supporting domestic producers. For example, through utilizing people’s knowledge and facilitating the running of businesses, or by promoting science and innovation. Today, selling unprocessed products is not profitable, the real money is made on patents and technological concepts. German citizens choose domestic products because they are convinced of their higher quality. Enforced promotion of domestic products will be inefficient if Polish goods are not competitive. Meanwhile, promoting Polish goods above all others undercuts the very principles of competitiveness and in turn makes domestic producers less incentivized to improve production processes and goods. It is clear that Poland is not doing as well as it should, despite impressive economic growth, when we look at Deloitte’s Doing Business 2018 ranking. Poland dropped three spots and landed in 27th position (compared to 24th in 2017), despite having a slightly better overall score. “Comparing the Doing Business ranking to a marathon, we could say that Poland achieved a somewhat better time than a year ago; however, other countries ran even faster, and that is why Poland’s position has dropped slightly,” commented Carlos Piñerúa, the World Bank’s Country Manager for Poland and Baltic States. Perhaps Poland should try and pick up the pace rather than keep claiming that all of the other runners are cheating.

Expensive tastes

The President of Costa Rica, Luis Guillermo Solis, is a strong devotee of economic nationalism. One of his ideas on public policy is food sovereignty. It states that Costa Rica has to produce what it consumes, no matter how expensive it is. Thanks to this idea, Costa Rica is an expensive country and many of the same products are much cheaper not only in Mexico or other Central American countries, but also in Europe. Even more disturbing is the fact that Costa Rican products are cheaper in neighboring countries. How can we explain this? Some companies from Costa Rica, like Dos Pinos and Pipasa, are protected by high tariff barriers that shield them from foreign competition. The tax on the importation of milk, for example, is 65 percent. For some chicken parts, tariffs reach even 150 percent.

W B J APRIL 2018

DIGITAL We design a complex brand presence on the internet. We specialize both in creative and technological solutions. We know how to realize web design so that it is impressive and effective. We create and optimize product sites, both for brand image and e-commerce purposes, as well as complex internet services. See our projects at www.valkea.com/projekty/digital

TECH i n s i g h t s

SHUTTERSTOCK

LED IT GROW

WrocĹ&#x201A;aw-based company Micoled is developing an original Polish project using domestically-produced components and technology for lighting that is set to revolutionize agriculture, guaranteeing the growth of plants in spite of low-light exposure. This is not the only innovative solution from the Polish manufacturer either, which has foreign expansion in its sights for the near future. >>> W B J APRIL 2018

TECH

TECH NEWS

Asseco Poland working on ‘direct entry’ into US market

With eyes set on revolutionizing the crop market, Polish manufacturing firm Micoled has created a solution to substantially accelerate agricultural production when natural growing conditions become frustratingly uncooperative. Perhaps the most unpredictable and fickle element of farming is sunlight exposure, an essential element in the production of the food we put on our plates. Micoled claims its new LED lights will not only generate improved growth in low-light conditions but will also stimulate the growing process by providing the strongest light beam on the market (up to 800 watts) and reducing energy consumption by up to 65 percent, according to the head of Micoled’s R&D department, Andrzej Dziagacz. Based in Wrocław, Micoled focuses on the design and creation of specialized LED lighting; in this particular instance, supplying artificial lighting for agricultural production when natural lighting is insufficient. Built with hand-crafted precision, the lights are made from start to finish in the Lower Silesian Voivodship from parts manufactured in Poland. Micoled President Robert Woźniak explains; “This is because we want to create our own innovation, not replicate existing products. Our policy since the foundation of this company has been to stand out from other well-known solutions by controlling the process and quality of our manufactured fittings; a quality that allows our company to compete with the largest foreign manufacturers.” For the last five years, Micoled lamps have been used as modern lighting for warehouses, offices and road lights with a 20-year lifespan. The original electromagnetic supply system is also a valuable asset in places where the supply and maintenance of power lines can be extremely difficult. Micoled is now looking to venture further into the foreign market, with Arab countries looking particularly promising. They have sold over 20,000 lamps since launching five years ago, and they’re hoping to increase that number fivefold over the next five years.

APRIL 2018 W B J

WSE-listed IT company Asseco is working on a “direct entry” into the US market, the firm CEO Adam Góral has said. “We are very interested in the US market; we are doing everything to enter it directly from Poland. Of course, it takes time, but the dream is to add the US market as the fourth pillar of our group,” he said. According to Góral, the work on entering this market is two-pronged, finding a potential partner is one of the options, the other is to put one of Asseco’s banking products in the cloud. “Bodyleasing can be a connector for the sale of products and we are wondering whether this is the right formula to build our presence in the US,” Góral added. Earlier in March, Asseco posted PLN 466 million in consolidated net profit for 2017, the company said when announcing its preliminary results.

Asseco and Comarch IT with bids to develop ZUS core system Asseco Poland and Comarch have submitted their bids in a tender organized by the Social Insurance Board (ZUS) to develop the KSI core IT system, ZUS announced. Asseco’s price was set at PLN 12,625.95, while Comarch’s was PLN 14,741.55. The tender concerns a four-year framework deal with a maximum of three contractors for modifying and expanding the KSI software. According to the announcement, the contractors will perform and deliver system modifications together with source codes and also provide servicing and training. The framework’s total value is estimated at PLN 282 million. The previous framework contract for the development of the KSI system was signed in 2013 with three contractors: Capgemini Polska, a consortium of Hewlett-Packard Polska and Kamsoft, and Asseco Poland.

TECH NEWS

In November 2017, ZUS selected Comarch’s offer in the tender for the maintenance of the KSI IT system. The value of the four-year contract is PLN 242 million gross. Previously the system had been maintained by Asseco Poland.

CD Projekt to buy Strange New Things studio, Q4 profit beats consensus WSE-listed game developer CD Projekt has signed a preliminary deal to buy Wrocław-based development studio Strange New Things. The team, consisting of 18 game developers, will help the company develop its next blockbuster game, Cyberpunk 2077, the company said. “We’re pretty hyped to be spearheading this new office. We know Wrocław inside out and it’s an amazing place to make games. The team is strong, and I’m sure we have both the experience and the creative firepower to make Cyberpunk 2077 an even better game,” said Paweł Zawodny, Head of Studio, CD Projekt RED Wrocław. The studio will join the existing CD Pro-

jekt outlets in Warsaw and Kraków in developing Cyberpunk 2077, which is scheduled for release in 2019. Poland’s largest games developer also surprised the market with PLN 45.9 million in consolidated net profit in Q4, which was significantly above the PLN 39.7 million market consensus (albeit still down 42.1 percent compared to Q4 2016). Operating profit amounted to PLN 54.7 million (42.8 percent y/y drop), while revenues stood at PLN 123.6 million (down by 24.7 percent y/y). For the whole of 2017, the company posted PLN 200.27 million in profit, down from PLN 250.51 million in 2016, with operating profit dropping from PLN 303.63 million to PLN 240.94 million, while revenues stood at PLN 463.18 million compared with PLN 583.9 million in 2016.

Orange Polska to implement 5G network in 2020-2021 WSE-listed telecom Orange Polska plans to conduct the first tests of its 5G network in 2019 and fully deploy it in

05.10-11 III InsurTech KF1043_reklama druk_WBJ_174x114mm ENG v3 DRUK.pdf 1 2018-03-16 15:22:07

2020-21, the company said in a market filing. “Tests will initially cover isolated areas, and later, following the progress of work, other solutions covering all elements of the network. We plan to conduct the tests in 2019,” the company said. The company’s CEO, Jean-Fracois Falacher, added that the operator is currently expanding its fiber-optic network and will use it as the backbone of their 5G network. The new standard will only be implemented if the company is able to obtain 3.6 and 3.8 GHz frequencies. In its recently published strategy, the Ministry of Digitalization said that it wants the 5G network to be allocated a radio band at 700 MHz, a range of 3.4-3.8 GHz and a bandwidth frequency above 26 GHz. Distribution of the 700 MHz frequency will take place in 2020, while the distribution of ranges 3.4-3.8 GHz and above 26 GHz is due in 2021. 5G is the 5th generation mobile network, featuring higher capacity than the current 4G (LTE). It allows a higher density of mobile broadband users and implementation of the Internet of Things.

CMY

W B J APRIL 2018

TECH

ARE YOU HUMAN? Making machines indistinguishable from humans has been the pursuit of many tech wizards. Think of the friendly and

always helpful Siri, Alexa or the â&#x20AC;&#x153;OK Googleâ&#x20AC;? setting on Android. Using machine-generated messages, voices and images can often be useful, but also very prone to abuse BY BEATA SOCHA 48

APRIL 2018 W B J

A R T I F I C I A LI TI NJTOEBL LMI AG RE NK CE ET

The Turing test,

SHUTTERSTOCK

which determines whether you’re dealing with a person or a robot, has been used to measure the evolution of Artificial Intelligence and its ability to rival human intelligence for nearly 70 years (since Alan Turing’s seminal paper published in 1950). Machines seem to have passed it a while ago, most notably in 2014, when an AI managed to fool 33 percent of judges (the threshold being 30 percent) over a five-minute conversation into believing that it was a 13-year-old Ukrainian boy. Not everyone agrees that machines have actually become indistinguishable from humans, even in text-only interactions, but the general consensus is that we are getting there. Passing machines off as humans can be extremely useful in a lot of customer-facing labor-intensive jobs: think of all the call centers, helplines etc. Only a few years ago, it seemed that jobs that involved talking to customers would be safe from automation, but the development of AI that can pass as human has changed all that. Keeping your help desks staffed 24/7 is not an option for most businesses. Meanwhile, a well-trained AI can do the job at a fraction of a cost. Also, machines don’t get stressed out when faced with angry customers. In a lot of situations they can even be more effective, given the speed with which they analyze data and search for the best response. Many online retailers, big and small, have already invested in chat bots that offer instant assistance to customers. Polish company LiveChat, one of the market leaders in the global help desk software market, started offering its clients an AI-based chatbot platform called BotEngine in late 2017. Interestingly enough, when Facebook announced its business version of Messenger, a direct competitor to the Polish firm’s flagship product, LiveChat’s stock price plummeted by over 20 percent. It managed to rally and make up for some of that loss in January 2018, after Facebook came under attack over allowing a massive spread of fake news during the 2016 US presidential campaign. In midMarch, when the Facebook connection to Cambridge Analytica came to light, LiveChat saw another bump, albeit more modest. Whether the #DeleteFacebook campaign that has cost the giant a significant chunk of its stock price has any effect on LiveChat’s valuation remains to be seen. CLICKS DON’T COST A THING So when do we want to be able to tell man and machine apart? Wherever spam is concerned, for one thing. Machines never get tired of clicking the “send” button. If your email address happens to be listed on the company website, you are definitely a target of dozens if not hundreds of spam and malware attacks every day. Luckily, most of them are usually caught by spam filters that email service providers offer. But it’s still too easy and too cheap not to exploit this option. Even if only one in a million recipients opens the malware-containing attachments, it’s still a sizable score at a negligible cost. Disguising your email was once the go-to tactic on many internet websites. Now it seems pathetic at best. So what if you spell you email address with [at] instead of the @ symbol? Or

EVEN IF MACHINES TURN OUT TO BE COMPLETELY BENEVOLENT TO OUR KIND, OUR CHILDREN MIGHT NOT EVEN THINK TO ASK THE QUESTION WHETHER OR NOT IT IS A MACHINE OR A HUMAN TALKING TO THEM AND TELLING THEM WHAT TO DO

even more descriptively: john_smith_at_company_dot_com? All the scrappers out there are already equipped with subroutines that can transform any conceivable form of disguise in a fraction of a second. Sure, you can obfuscate your email with encryption techniques. You can hide it within a clickable hyperlink: “send a message” that leads you to your Outlook Explorer or whatever mailing client you’re using. But that won’t stop a well-written scrapper, as it can click things too. It will take a lot more processing power for the algorithm to do that rather than search the website content for specific groups of letters and symbols, but processing power is relatively cheap too. Finally, people started hiding their emails within a non-clickable picture: e.g. a JPG embedded in the website that can be read by human eye, but not by a crawler scanning websites for emails. You still think that works? We’ve got bad news for you: machines are already better at deciphering images than humans. EYE OF THE BEHOLDER Verifying whether you are a person or a robot with CAPTCHAs (which stands for “Completely Automated Public Turing test to tell Computers and Humans Apart”) is starting to lose any sense whatsoever. Already, machines are 80 percent effective in deciphering blurry letters and digits, which is a higher score than humans can boast. How many times did you get frustrated

W B J APRIL 2018

TECH

“Our activity in the financial sector makes the privacy of our clients our top priority. In view of the data leak to Cambridge Analytica, I have decided to delete all our Facebook accounts.” Marcin Pióro, CEO of financial services firm Cinkciarz.pl and the founder and owner of the Conotoxia Holding, stated. The #DeleteFacebook movement that has been sweeping the globe has also made its way to Poland.

“It is time. #deletefacebook.” WhatsApp co-founder Brian Acton urged his 21,000 Twitter followers to delete their Facebook accounts.

“It’s not a political statement and I didn’t do this because someone dared me to do it. Just don’t like Facebook. Gives me the willies. Sorry.” Elon Musk tweeted before deleting SpaceX’s and Tesla’s Facebook pages.

“In light of [Facebook]’s continued disregard for your privacy, their lack of transparency and disregard for accountability - Massive Attack will be temporarily withdrawing from [Facebook]. We sincerely hope they change their policies around these issues.” British music group Massive Attack informed on their Facebook profile before suspending it.

APRIL 2018 W B J

WHO MADE THIS? Let’s face it: machines are getting smarter by the day, and at the current level of evolution of neural networks, they will eventually catch up to us. It’s bound to happen. Will they decide to “optimize” the world by decimating humans? Let’s leave the question to futurologist and tech moguls. By the way, Elon Musk and Bill Gates seem to agree there is a serious threat there. But even if machines turn out to be completely benevolent to our kind, our children might not even think to ask the question whether or not it is a machine or a human talking to them and telling them what to do. After all, they are already being taught by machines. You don’t believe that? Check out the gazillion “educational” YouTube videos for children: teaching them colors, numbers, the alphabet,

SHUTTERSTOCK

#DeleteFacebook

because you couldn’t figure out why the CAPTCHA keeps rejecting your answer even though you’ve clearly typed everything right? We’ve all been there. To remain a step ahead of ever-evolving AI, CAPTCHA makers moved towards more complex problems, such as “mark all the photos in the line-up that depict a store/street/park” etc. Again, it’s just a matter of time before machines outsmart people there too. What could be an efficient stop-gap is reversing the problem: creating images that look like white noise to people but in fact contain a pattern that algorithms can recognize. Then you pose a question: “Is this just a blur or is there a picture in it?” A machine will recognize the image, while a human will not. But in order for the screener to be effective, you’d have to mix things up a bit and that may be trickier to achieve. You can’t keep on having the correct answer be “nothing.” It wouldn’t take long for machines to catch on to you. Going one step further, you can engineer special images designed to trick AIs into recognizing something that’s not there. A turtle that Google AI classified as a rifle is a good example. The technique is called “adversarial images.” But given time, AI will crack that one too.

ARTIFICIAL INTELLIGENCE

names of animals and other useful things mers and other large objects, or toy cars any toddler should learn. Google a phrase demolishing everything in their path etc. like “color songs for kids” and you’re in for What long-term effect might that have a wild ride. After a few man-made videos, on a child’s brain? We’ll just have to wait soon you’ll get a series of highly repetitive and see. videos that humans had nothing to do It’s hard to estimate how much of the with: they are entirely machine-generated. content for young kids is man-made and They’re all based on a few basic concepts how much is machine-generated. But givand similar music themes – usually en that people charge for their time and nursery songs and rhymes. Even the words creativity (voice actors, graphic design(names of colors, numbers etc.) are generers, editors) and machines can churn out ated with speech synthesizer, which is still loads of content at virtually no cost at all, relatively easy to ascertain. it is safe to assume that soon the amount Machine-generated YouTube content is of machine-produced content will crowd a literal gold mine: The more views they out any human input. If it hasn’t already. get, the more money they make. All it takes is to build an algorithm that generROOM FOR ABUSE ates simple, colorful and eye-catching And children are no longer the only kids’ videos. It’s easy enough for them to ones who can be fooled with video learn what generates the most clicks. And content. The CGI technology is already children are the easiest targets. If you stop at a level that can trick any human into believing what they’re watching is real. paying attention to what your three-yearold is watching on your tablet, it won’t Sure, it’s great to see all the incredible stunts. It’s also useful when you need to be long before you hear the familiar “Old McDonald had a farm” soundtrack playhide a visible pregnancy of the leading ing over a generic machine-made video. actress in an action movie. It’s been done You could say: what’s the harm in that if numerous times: Gal Gadot in the 2017 my kids are learning while watching? If “Wonder Woman” and Scarlet Johnson’s Black Widow in the 2015 “Avengers: Age you look closely, a lot of the videos that pop up are seriously disturbing to say of Ultron” are just some recent examples. the least: they show crying toys, animals A consortium of tech firms, including mm Epic recently15:24:22 unveiled and cartoon infants beingKF1040_reklama hit with ham04.18-19 II SecureTech druk_WBJ_174x75 ENGGames, DRUK.pdf has 1 2018-03-16

a demo version of their project called “Siren,” which is a 3D image of a woman rendered in real time that mimics the gestures and movement of a person wearing a motion capture suit. The demo presentation of the virtual human is as astounding as it is eerie. Here’s something really alarming to consider: if you can generate any video content that is indistinguishable for the human eye from the real deal, what’s to stop people from abusing it? One of the examples could be creating scandalous videos portraying public figures, like politicians and actors. Imagine how convincing fake news would become if you used that type of technology to deliver it. Sure, people whose image is appropriated in this way may be able to defend themselves claiming the videos are fabricated, but will people listen? And will they even care? So what’s next? We have been trying so hard to make it impossible to tell machines and people apart. No doubt it has certain benefits, but there are some serious side-effects with any new technology. Are we prepared for a world where real is indistinguishable from fake? That’s a moot point anyhow, because the technology cannot be stopped and we are basically already there.

Secure Tech

CMY

W B J APRIL 2018

EVENTS

We organize events which stay in the memories of participants for a long time. We involve ourselves in the complex strategy, conception and production of events, large and small, recurrent and one-off, for many recipient groups â&#x20AC;&#x201C; from big-city opinion makers to demanding business leaders. See more at www.events.valkea.com

Latest news in the office, hotel, residential and retail sectors

Warehouse property market prospects

Construction boom

Institutionalized long-term rentals

Interview with Jacek Wesołowski of Trei Real Estate

Office SKANSKA working on new office projects in Poznań, Gdańsk Developer Skanska Property Poland has launched construction work on the second office building within its Nowy Rynek mixed-use project in downtown Poznań. The building will offer almost 12,000 sqm of office space and is scheduled to be completed in the third quarter of next year. Work on the first office building in the Nowy Rynek scheme, which will comprise approximately 25,000 sqm, was started in August 2017 and is set to finish in Q2 2019. The entire development, sitting on 3.8 hectares of land, will deliver more than 100,000 sqm of usable space. In other news, Skanska Property Poland has announced the start of construction work on the first phase of its first office project in Gdańsk. Valued at €41 million, the phase will involve the development of a 14-story building comprising more than 23,000 sqm of leasable space that is scheduled to be completed in the final quarter of next year. The entire scheme, which will be located opposite the University of Gdańsk campus, will consist of two buildings offering a total of approximately 45,500 sqm of GLA. The investment will feature a LEED certificate for energy efficiency and environmental performance. >>>

W B J APRIL 2018

LOKALE IMMOBILIA | NEWS

Office (continued) BRIEFS BPO/SSC COMPANIES LEASE SOME 500,000 SQM IN 2017 – JLL

Companies from the business services sector last year leased up to 500,000 sqm of office space across Poland, according to an analysis by JLL. The figure represents one third of the total take-up recorded in the major office markets in the country in 2017. Warsaw, Kraków and Wrocław each saw BPO/SSC tenants lease some 100,000 sqm, while in Łódź such tenants accounted for a record-breaking 80 percent of the aggregate annual demand.

BLUE OFFICE IN WARSAW FILLING UP WITH TENANTS

The re-commercialization of Blue Office’s eponymous building in Warsaw is proceeding apace, with the owner having recently secured tenants for more than 10,000 sqm of space at the property. The largest new occupiers will include fitness club operator Fit/One (nearly 5,000 sqm), facility manager OKIN Facility Polska (approximately 1,400 sqm) and sports retailer GO Sport (around 1,100 sqm). Part of the Blue City retail complex located in the Ochota district of the Polish capital, Blue Office comprises almost 32,000 sqm of office space on five floors with Savills acting as the exclusive leasing agent.

REGIONAL OFFICE STOCK AT 4.4 MLN SQM – C&W

At the end of 2017, the total modern office stock in eight major regional markets in Poland – Kraków, Wrocław, the Tri-City, Katowice, Poznań, Łódź, Szczecin and Lublin – stood at around 4.4 million sqm, a 12-percent increase y/y, according to the latest report by Cushman & Wakefield. Kraków (as the first Polish city outside Warsaw) last year saw its office stock exceed one million sqm. In 2017, developers launched construction work on a combined 40 office projects in the eight regional office markets in question – they will deliver a total of approximately 562,000 sqm of space, the study said.

APRIL 2018 W B J

HB REAVIS secures first tenant for flagship Warsaw project Cambridge Innovation Center – a US real estate services company that builds "innovation communities," or campuses that target start-ups, corporate innovation spin-outs and venture capital funds – is the first tenant to have leased space at the huge Varso office project which HB Reavis is now developing in downtown Warsaw. The occupier will take up almost 14,000 sqm (approximately 30 percent of the total) in the Varso 2 building of the scheme. The entire Varso development will comprise 144,500 sqm of leasable space in three buildings, including a 310-meter tower designed by the renowned Foster + Partners architectural studio. The buildings are scheduled to be completed in the years 2019-2020.

174,500

sqm

the amount of office space leased in Wrocław in 2017 (a 40-percent increase y/y) Source: Cresa Polska

Hospitality “In 2017, the hotel sector in Poland recorded its best ever performance with transaction volumes reaching €340 million.” Rajska-Wolińska, managing part–ner Monika at Colliers International in Poland

Raffles Europejski

Warsaw with RECORD SUPPLY OF HOTEL SPACE – Walter Herz A record 2,000 hotel rooms will be built in Warsaw this year, according to the latest report by Walter Herz. Major openings will include a Four Points by Sheraton hotel (192 rooms), two Ibis Styles hotels (a total of 400 rooms), Krakowska Residence (over 350 rooms), a Vienna House hotel (164 rooms), Renaissance Warsaw Airport Hotel (225 rooms) and Raffles Europejski (106 rooms). Walter Herz analysts predict that the Warsaw market will in 2019 grow by a similar number of rooms as this year. According to the company’s data, there are now 90 hotels in the Polish capital, which offer a combined 13,500 rooms.

Mixed-use GHELAMCO unveils new mixed-use project in Łódź Developer Ghelamco Poland has officially presented the details of the first phase of a planned mixed-use project that it will build in downtown Łódź. Unveiled during the MIPIM property fair in Cannes, France, the development will be part of the New Center of Łódź urban regeneration scheme, which covers some 100 hectares of land and was launched in the city a decade ago. Ghelamco Poland will develop the investment in three phases, the first of which will comprise a hotel building with 166 rooms, an office building with 18,000 sqm of space and a residential building with approximately 70 apartments. The developer has already secured building permits for the hotel and office buildings. Construction work on the project is scheduled to launch in the second half of this year.

W B J APRIL 2018

LOKALE IMMOBILIA | NEWS

Residential BRIEFS UNIDEVELOPMENT TO BUILD 2,000 APARTMENTS IN POZNAŃ

Developer Unidevelopment is planning a new large-scale residential project in Poznań, which is expected to comprise more than 2,000 apartments when fully developed. The company will build the scheme, which will be located on ul. Dąbrowskiego in the city’s Jeżyce district, in cooperation with Grupa Wiepofama. The phased development will sit on approximately 7.5 hectares of land and will be one of the biggest housing investments in the Poznań market. The details of the planned project, including the construction schedule, are yet to be revealed.

ROBYG BUYS MORE LAND IN WARSAW'S URSUS

Construction on Golub's Kraków dormitory gets underway Developer and investor Golub GetHouse has launched construction work on its Livinn Kraków dormitory project with builder Unibep acting as the general contractor. The scheme will involve the modernization and redevelopment of a former factory building located in the Zabłocie area of Kraków. Livinn Kraków – which Golub GetHouse is building in cooperation with Chicago's CA Ventures International, a company active in the student housing sector in North and South America – will comprise 290 units, offering a total of more than 700 beds, and numerous amenities. It will be financed with equity from Golub GetHouse's real estate fund. Kraków-based IMB Asymetria architectural studio designed the development that is scheduled to be completed in the summer of next year. The first students will move in at the beginning of the academic year 2019/2020. Golub GetHouse is now also planning a dormitory project in Warsaw – the company has recently acquired a plot of land for the scheme, which will be located in the Praga Północ district of the city.

17 Million

PLN

the value of a recent transaction in Warsaw that involved the purchase by an anonymous buyer of two luxury apartments in Ghelamco’s Foksal 13/15 project

APRIL 2018 W B J

Warsaw Stock Exchange-listed developer Robyg has signed an agreement for the purchase of four companies that hold a total of more than 6.3 hectares of land located in the Ursus district of the Polish capital. The developer plans to build a major residential project comprising approximately 1,800 units on the sites. The plots are valued at over PLN 82 million. Robyg is currently developing one housing scheme in Ursus – Stacja Nowy Ursus – in which it has to date sold around 600 apartments.

MURAPOL TO START BUILDING UPSCALE KATOWICE SCHEME

Developer Murapol will launch construction work on its Murapol Apartamenty Trzy Stawy upmarket residential project in downtown Katowice in the second quarter of this year. The scheme will consist of two ninefloor buildings comprising a total of 243 units and is scheduled to be completed in the final quarter of 2019. Murapol is currently present in 14 residential markets across Poland and has already secured sites for future developments in a further three cities in the country. The company sold over 3,600 apartments in 2017.

Investment market BRIEFS SKANSKA SELLS ŁÓDŹ OFFICES

Developer Skanska Property Poland has sold the Nowa Fabryczna office building in downtown Łódź to real estate fund manager Niam. The value of the transaction amounts to €52 million. The Nowa Fabryczna building is located opposite the recently completed Łódź Fabryczna railway station. It comprises over 22,600 sqm of leasable space with tenants including Fujitsu, Whirlpool, Cybercom and McCormick. The property features a LEED Gold certificate for energy efficiency and environmental performance.

ATENOR WITH FIRST POLISH ACQUISITION

Globalworth acquires WARSAW’S WARTA TOWER Investor Glo-

balworth Poland (formerly Griffin Premium RE) has finalized its acquisition of the Warta Tower office building in central Warsaw for €55 million. The 21-floor property, which was completed in 2000, comprises approximately 28,000 sqm of GLA with Warta Insurance as the anchor tenant. The purchase of Warta Tower marks the fourth office acquisition by Griffin Premium RE since December 2017, when Globalworth secured a controlling 72-percent stake in the company. Globalworth Poland has the ambition to become the leading office landlord in Poland in the coming years.

Belgian developer Atenor has signed a preliminary agreement for the acquisition of the University Business Center office complex located in the Mokotów district of Warsaw. The acquisition marks the company’s entry into the Polish commercial real estate market. The complex in question consists of two buildings offering a total of 30,500 sqm of space. Atenor plans to demolish the smaller of the buildings and develop a bigger project on the site.

Retail BRIEFS MMG TO DEVELOP SHOPPING CENTER PROJECT IN ZAWIERCIE

Investor and developer Master Management Group (MMG) has secured a building permit for its planned Brama Jury shopping center project in Zawiercie in southern Poland. The scheme will be the first mall in the city and will comprise 15,000 sqm of leasable space. It will house approximately 50 stores and numerous points of service. Tenants will include a grocery supermarket, a consumer electronics and home appliances store and a four-screen cinema. The development is scheduled to open for business in the final quarter of next year.

JANKI MALL EXTENSION ALMOST FULLY LEASED OUT

Real estate investor and manager Cromwell Property Group has revealed that its Janki shopping center extension project at Janki near Warsaw has already been approximately 95 percent leased out. The scheme, which is valued at around €65 million, will deliver an additional 21,000 sqm of retail space and thus bring the mall's area to a total of 94,000 sqm. The existing center was opened for business in 1999 and is anchored by an Auchan hypermarket. The extension project is scheduled to be completed in two phases by Easter next year.

W B J APRIL 2018

LOKALE IMMOBILIA | LOGISTICS

MORE GROWTH IN STORE The warehouse sector in Poland continued its rapid growth last year, driven by demand from tenants such as logistics operators and retailers. For the present, at least, the boom seems to be far from over BY ADAM ZDRODOWSKI

oland’s logistics property market put up an excellent performance in 2017, with both the supply and demand volumes having reached record levels in the period. Analysts predict that the sector is now in for another very good year. According to JLL, gross demand for warehouse space in the country (which includes both new agreements, and extensions and renewals) last year amounted to more than 3.9 million sqm, up from the slightly over three million sqm recorded in 2016. Developers responded to that by stepping up their development activity. Almost 2.3 million sqm of new warehouse space was completed in the Polish market in 2017, which, again, is the highest figure in many years. As a result of the huge demand and growing construction costs, there is currently an upward pressure on rents in most major logistics locations across the country. The highest rents, found in the first Warsaw zone, stand at €5.5 per sqm, Cresa Polska data shows.

APRIL 2018 W B J

Will the boom continue this year? In the opinion of Bolesław Kołodziejczyk, the head of research and advisory at Cresa Polska, the absorption of new space in 2018 should be comparable with the annual average from the last four years (approximately one million sqm). Lease transactions signed by a number of large tenants – including Amazon, Castorama and H&M – made the 2017 absorption level reach a record high and repeating the success will depend on big market entries, Kołodziejczyk claimed. However, he added that the market will definitely remain very liquid in terms of leasing activity, due to both new and renegotiated deals. Like in the past two years, the total volume of leased space should in 2018 exceed the level of three million sqm. “The last few years have shown that the potential of the Polish warehouse market has been underestimated. This year may well surprise us, too,” argued Piotr Bzowski, the leasing and development director at P3 Logistic Parks in Poland.

P3 warehouses in Piotrków Trybunalski in central Poland

ing more space than the amount that has been pre-leased as construction gets underway. “It is a safe compromise in the current market situation,” Zoń maintained. However, other considerations also play a role here. Bzowski noted that almost every warehouse requires bespoke adaptations that meet the specific needs of the occupier, so it is unlikely that developers will start launching speculative projects on a large scale. Adapting completed, speculatively built warehouse schemes so that they can meet tenant requirements is much more expensive than providing for built-to-suit solutions during the construction phase, he pointed out.

NEW LOCATIONS

NO SPECULATION

According to Bzowski, judging by the negotiations now underway, logistics operators – including those specializing in e-commerce – and retail chains will continue to be among the most important drivers of demand for new warehouse space in the coming months. Also, companies from the automotive sector will keep looking for new logistics areas. Vacancy rates will most likely continue to go down and will potentially even reach the lowest levels in history. The shortage of available space could possibly lead to the growth of rental rates, but also The last few encourage developers to launch new investyears have ments, said Paweł Sapek, senior vice president shown that and country manager for Poland at Prologis. This the potential does not have to lead to excess development. of the Polish Experts point out that while the boom in the warehouse logistics property sector in Poland has already market has been underbeen going on for many years now, the market estimated has developed mechanisms that prevent it from becoming overheated and help developers minimize investment risks in case of a slowdown. Wojciech Zoń, head of industrial agency at Savills, said that warehouse projects in which all of the offered space is built on a speculative basis are rare. This does not mean that developers do not see and take advantage of the huge potential of today’s market. Indeed, very often they decide to develop schemes compris-

The warehouse sector is expected to continue to grow across the country, with the major established logistics locations of central Poland, Poznań and Warsaw currently attracting the most tenant interest. Indeed, according to a study conducted by Prologis Research and Eyefortransport last year, the Łódź area in central Poland is now one of the most attractive logistics locations in Europe. It is the only location in CEE to occupy one of the top five positions on the list. However, a number of new locations are now also gaining in significance. The trend is the result, to a large degree, of the decreasing availability of qualified workers in some of the biggest cities. Tenants are looking at urban centers that have not yet seen much labor force drain. The relatively new markets of Lublin and Rzeszów in eastern Poland have continued to develop at a steady pace. Panattoni Europe has recently launched its first logistics park project in another major eastern Polish city – Białystok. The Lubuskie voivodship in western Poland has emerged as a new spot on the country’s logistics map, Kołodziejczyk said. The availability of land and access to good road infrastructure have been supporting the growth of the market there. Bzowski argued that Bydgoszcz in northern Poland could become an emerging market in the near future once the necessary infrastructural improvements have been made. The planned completion of the S5 expressway should lead to increased occupier interest in the region. On the other hand, as the e-commerce sector continues to grow and shortening delivery times is becoming a more and more pressing issue for logistics operators, the need to make logistics processes more efficient is increasingly becoming a focus point. The so-called last-mile delivery has been a hot topic in the industry for some time now. “In my opinion, an increased interest in urban logistics is one of the main trends that we are going to witness in 2018,” Zoń said.

W B J APRIL 2018

LOKALE IMMOBILIA | CONSTRUCTION

APRIL 2018 W B J

BUILDING A HOUSE OF CARDS

After solid improvement in 2017, reflected in increasing share prices of WSE-listed construction companies, the market is continuing to grow in 2018. However, instead of lying back and counting their profits, construction companies are bracing themselves for a bumpy ride. The question is whether the building industry can withstand the challenges that it is currently facing, or are we going to witness the sector falter under the mounting pressure? BY KAROLINA PAPROS

ndicators seem to show that construction companies are in a healthy state. As much as 44 percent of companies expected to see a sales increase in the first quarter of the year – a record high, and 10 percentage points higher compared to Q4 2017, according to the “EFL Barometer” prepared for Q1 2018 by leasing firm Europejski Fundusz Leasingowy (EFL), part of Crédit Agricole. Even though the sector’s confidence recorded a slight decline in March, it is still positive and the overall level of orders continues to grow, according to the Central Statistical Office (GUS). Poland has experienced a construction boom over the past few years, the likes of which has not been recorded since before the 2008 crash. In 2017, a record 178,258 apartments were delivered, 9.1 percent more than in 2016 and almost 21 percent more than in 2015. The number of launched construction projects and the number of permits were both over 18 percent higher last year than in 2016.

CHALLENGES AHEAD

However, clouds seem to be gathering over the construction industry, with expected growth rates significantly lower than those seen last year. Atradius Market Monitor predicts around a 2.9 percent annual value added growth rate in 2018 versus 4.7 percent recorded in 2017. Margins in the industry have already dropped from 28.6 percent in 2016 to 26.8 percent in 2017 and will only decrease further. Declining margins have been caused by rising demand on construction services driving up prices for sub-contractors, building materials and their delivery, as well as the shortage of labor. Building materials are already 20-30 percent more expensive than in early 2017. All of these factors are bound to weigh on the performance of construction companies. The BZ WBK forecast for 2018 also sees the sector facing challenges. “We can already see the problems in the data. First of all, WSE-listed companies are complaining about delays in construction works and the growing prices of resources pushing down margins,” the report stated. Overall, the double-digit growth seen in Q1 2018 will drop to some 5 percent towards the end of the year, according to BZ WBK analysis. >>>

W B J APRIL 2018

LOKALE IMMOBILIA | CONSTRUCTION

+20.1 +4.3 +7.7 +6.6 +23.1 +2.9

+20.1

+16.3

+5.7 +3.7

+4.8 +4.4

+11.5 +10.8

Poland +9.1

+15.1

+3.0

The increase (percent) in apartments delivered in 2017 compared to 2016

AT MAXIMUM CAPACITY

The value of construction output is already 20 percent lower than at the height of the 2011-2012 boom, as is the employment level. In order to make up for the loss in workforce, companies have had to increase their productivity, which is already only 6 percent below the 2015 record. The added value per employee is already at an all-time high. According to GUS, production capacity is only 3 points below the historic level recorded in 2007, shortly before the crash. In order to keep up with demand, companies would have to further increase their production capacity; an all-but-impossible feat given the labor shortage and the low levels of investment in machinery over the past two years. One of the factors that is causing the pressure to build in the industry is the growing number of public infrastructure projects. Poland has to spend over PLN 80 billion of the European funds allocated for years 2014-2020. More than 50 percent of the demand for construction services is already generated by the public sector – more specifically by railway and road investments. The period from H2 2016 to mid-2017 was marked by a high number of tenders co-financed with European funds, carried out by road and rail infrastructure operators GDDKiA (Directorate General for National Roads and Motorways) and PKP PLK. Moreover, due to this “demand shock,” the public sector continues to experience delays in public procurement procedures for big infrastructural projects, and the fate of many ongoing and planned projects is uncertain. We’ve already seen some of them being cancelled when the costs of the investment exceed the investor’s budget. According to BZ WBK, many tenders have already been cancelled due to a lack of offers or offers exceed-

APRIL 2018 W B J

ing investors’ budgets; in many cases the lowest offer was twice as high as the allocated budget. This problem mostly affects big construction companies, which have their resources tied up in longterm contracts, Rafał BałdysRembowski, deputy CEO of the Polish Association of Construction Industry Employers, told Polskie Radio.

IN THE RED

Paradoxically, the high demand and favorable economic climate have caused an increase in debts. According to the latest report published by BIG Infomonitor in cooperation with the Polish Association of Construction Industry Employers, the financial situation of construction companies, despite the economic upturn, seems to be worse than last year. Deloitte added that the pressure to reduce costs, sign lower-priced contracts and extend payment deadlines has been causing serious liquidity problems. In addition, the increasing number of investments in Polish railways has caused many tracks to be closed or renovated, which makes it difficult to transport materials to a building site. Deloitte emphasizes that ongoing modernization works cause railway traffic disruptions and increase the cost of railway transport for selected materials. Construction companies’ total debt stands at PLN 4.27 billion – almost PLN 500 million more than last year. The ongoing boom has led to an expansion of the market >>>

E X P E RT O P I N I O N

Moving further and further East M A N Y I N D US T R I E S are struggling with employee shortages – one of the key barriers to company growth. The construction industry is no exception. Developers aren’t slowing down; new hotels and logistics centers are being delivered. Investment in infrastructure is also growing. Construction firms are forced to increase their capacity, both in terms of machinery and workforce. The labor shortage in the Polish construction industry stands at about 200,000 employees according to our estimates. Filling this void with only Ukrainian workers will not solve the problem entirely. Increasingly, Polish entrepreneurs who use our services are looking

to Nepal, India and Bangladesh for employees. These countries are becoming more and more popular as sources of labor for a number of reasons. For one, wages that Polish companies can offer are relatively attractive. Secondly, if workers decide to leave their country and come to Poland, they will likely remain here for at least a few months, in practice it’s often at least a year. Ukrainians, due to the country’s proximity, are more likely to go back home sooner. The growing number of workers from the Far East is also making it necessary to have project managers and team leaders communicate in English. Otherwise, managing

such a multinational team will not be possible. Construction firms are looking for both well-qualified specialists and unskilled workers. Naturally, those with a more particular skillset are more difficult to find and more costly to retain. But they are indispensable. Polish employers are even sourcing employees from Dubai, where the continuing investment boom has attracted a lot of Indian and Bangladeshi workers. It’s useful to have a Polish recruitment firm present there. We are often asked how competitive employees from the East are, compared to Poles. There is only one answer to this: you can’t pay workers from Ukraine or any other country less that you pay Poles. You pay them as much as the market dictates, because having an employee means you can complete the investment on time and maintain proper quality standards. You need to find good workers and pay them regularly, preferably once a week. We expect that 2018 will bring an even stronger demand for workers from abroad. Ukraine will not be enough. Perhaps even Bangladesh and India may not be sufficient sources of employees. I’m certain new nationalities will appear in the Polish market to fill the void.

“POLISH EMPLOYERS ARE EVEN SOURCING EMPLOYEES FROM DUBAI, WHERE THE CONTINUING INVESTMENT BOOM HAS ATTRACTED A LOT OF INDIAN AND BANGLADESHI WORKERS.”

Iwona Załuska, CEO of Upper Job, a recruitment agency specializing in sourcing employees from the East

W B J APRIL 2018

LOKALE IMMOBILIA | CONSTRUCTION and an increase in the number of new businesses, which, given the difficulties in collecting payments, will in turn lead to a higher number of insolvencies in 2018; they are expected to increase by over 10 percent, Atradius Market Monitor stated.

CONSTRUCTION WORKERS NEEDED