SEPTEMBER 2014
Number 08
PLN 24.50 (VAT 8% included) ISSN 2353-3714 INDEX-RUCH-332-127
FOR DAILY NEWS VISIT US AT
MARIUSZ GRENDOWICZ
ON HOW THE PIR IS NOT A PILE OF STONES >18
ECONOMIC FORUM 2014
MEDIA ON DEMAND POLISH COMPANIES ARE NOT SCARED OF NETFLIX >35 SOCIAL BUSINESS HOW CAN YOU BE BOTH PROFITABLE AND CHARITABLE >48
ECONOMIC FORUM SPECIAL SUPPLEMENT
WHAT’S NEXT FOR THE WSE?
Can the Warsaw bourse become a regional hub 20 PAGES
OF REAL ESTATE N EWS
20 PAGES
REAL EST A NEWS TE
SEPTEMBER 2014
ALSO IN THIS ISSUE:
• M i d d le C l a ss • C i t y s c a p e • C o m m e n t a r y • N ew s
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JUNE 2014 • WBJ OBSERVER
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SEPTEMBER 2014 • WBJ OBSERVER
lll IN THIS ISSUE Try these:
4
lll NEWS
4-8 In Review Latest News 9 Who’s News Latest appointments 10 Facts and Figures Macroeconomy 12 Dateline 14 Time Machine
15
lll COMMENTARY
15 Legal Controlled Foreign Corporations 16-17 Legal Reverse Engineering
30
24-29
lll FEATURES
WARSAW STOCK EXCHANGE
30-34 Middle Class Economy’s driving force 35-37 Media on Demand Flourishing market 39- 43 Economic Forum supplement
48
lll ENTREPRENEURS
48-50 Social Business Helping the world 70-71 Cityscape Kraków 72-73 Ranking Auditing and Accounting companies
74
lll LIFESTYLE 74-78 Events 80 On a final note
18-22
MARIUSZ GRENDOWICZ INTERVIEW
51-69
43-44
LOKALE IMMOBILIA WBJ OBSERVER • SEPTEMBER 2014
3
NEWS
lll INREVIEW News highlights of the past month
O
ver the last months, the conflict between Ukraine and Russia has erupted to levels never seen before. The conflict between Ukraine and Russia has neared boiling point after Malaysia Airlines Boeing 777, flying from Amsterdam to Kuala Lumpur had been shot down over Ukrainian territory controlled by the proRussian separatists. All 298 people on board have been killed. Ukrainian authorities and US intelligence claim that the plane was shot down by a Russian BUK surface-to-air missile, which was provided to the separatists by the Russian military. Meanwhile, Russian Army Lt. Gen. Andrei Kartapolov suggested a
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SEPTEMBER 2014 • WBJ OBSERVER
Ukrainian jet fighter may have shot the plane down. Ukrainian President Petro Poroshenko rejected the claim saying that all Ukrainian aircraft were on the ground at the time. The situation got even worse, after Moscow had sent a convoy of more than 250 trucks to the two countries’ border. The Kremlin insisted the trucks were carrying food and supplies for residents in the besieged Ukrainian city of Luhansk and other locations. In the end, the convoy was allowed to enter Ukraine after border control and left the country without any incidents. The Ukrainian army continues to fight separatists in Eastern Ukraine
where more than 2,000 civilians and combatants have been killed so far. The situation got so bad that even Polish PM Donald Tusk warned in early August that risk of an invasion “is growing,” he said. “The threat of a direct intervention by Russia into Ukraine is greater than it was a few days or a couple of weeks ago.” He added that the Polish government is closely monitoring the situation. NATO has also warned that Russia has gathered 20,000 troops on Ukraine’s eastern border. The troop presence includes tanks, infantry, artillery, air defense systems, as well as logistics troops, special forces, and various aircraft, Reuters reported.
Image: Shutterstock
Tension in Ukraine rises
NEWS
WBJ OBSERVER • SEPTEMBER 2014
5
NEWS
>> INTERNATIONAL
Russia in trade war with West
A
fter announcing an embargo on Polish fruit and vegetables, Russia made a follow-up move just a few days later, clearly stating this time that it is a response to western sanctions. In early August, the country said it would ban imports of food from EU countries, the USA, Australia, Canada and Norway. “Russia is introducing a full ban on imports of beef, pork, agricultural produce, i.e. vegetables and fruit, poultry, fish, cheese, milk and dairy products,” said Russian PM Dmitry Medvedev. Russia may reconsider the restrictions, he added, if the situation with respect to the sanctions changes. In mid-August, the European Commission said it would spend €125 million on helping fruit and vegetable producers harmed by the embargo. The funds are going to be used on withdrawing a part of the crop from the market to secure the stability of the prices. Poland’s Ministry of Economy has meanwhile asked the European Commission to start a dispute at the World Trade Organization concerning the Russian embargo on EU food.
#eatapples #jedzjabłka
2.56 million
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SEPTEMBER 2014 • WBJ OBSERVER
is the number of Poles who declared that they would like a 2.92 percent income deduction to keep going to a chosen private pension fund.
Image: Shutterstock
are hashtags used in social media in Poland, as part of a consumer movement started by daily Puls Biznesu and meant to counter Russia’s embargo on Polish apples. Scores of posts using the tag showed people eating apples and apple pies or drinking cider.
NEWS
WBJ OBSERVER • SEPTEMBER 2014
7
Shorts
NEWS
Gear up
>> BUSINESS
KGHM launches Sierra Gorda P
oland’s copper and silver mining giant KGHM has announced the launch of copper production at its Sierra Gorda mine in Chile. The facility is scheduled to be officially opened in autumn. “We developed this project with our partners remarkably quickly, while at the same time maintaining the highest safety and environmental standards,” said the company’s CEO Herbert
Coal comes first
Segway
Exclusive ride through Warsaw
Coal will remain Poland’s main energy source, though other sources will also be used, according to a draft of the country’s energy policy until 2050. The Ministry of Economy has published the document, at the same time launching a consultation process. The strategy stipulates a domination of coal, which is set to decline gradually. At the same time, the role of natural gas is showing growth and the share of renewable energy sources is expected to rise to 10 percent in transportation and to 15 percent in the primary energy balance. The share of nuclear energy is seen at 15 percent in the future. The draft also stipulates investments into new conventional power generation units, in order to use Poland’s coal deposits. “Clean coal” technology would be used there, including carbon capture and storage.
Segway City Tours organizes exclusive guided tours in Warsaw in many languages. It offers two types of trips: three-hour journey through the Old Town and neighbourhood where you can watch all the must-sees of the capital or three-hour tour through the Praga district, which is off the beaten track. The guests are happy to explore the city in a comfortable way and sightsee more in a shorter time without tiredness thanks to the modern vehicle. A voucher for a free cocktail in Karmnik Restaurant in the Old Town is the additional bonus included in the tour.
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SEPTEMBER 2014 • WBJ OBSERVER
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Wirth. “It took us only ten years from exploration drills to actual production. This very fast pace could only be achieved because we have the highest managerial standards.” After a ramp-up period that will last until early 2015, the mine will produce 120 thousand metric tons of copper, 50 million pounds of molybdenum and 60 thousand ounces of gold annually.
Images: KGHM, Shutterstock
Poland is enhancing its military equipment purchases in response to the crisis in eastern Ukraine. As Deputy Defense Minister Czesław Mroczek told Reuters, the ministry has already launched the first stage of procurement of new military helicopters, originally scheduled for 2016.So far, ten companies have submitted offers. The ministry expects to have the helicopters ready for operation in 2019 or 2020. The Polish government is also working on a regulation increasing military spending to 2 percent of the GDP. This means, that the army will be able to spend PLN 800 million more every year. The new law gives more flexibility to the budget, the percentage is calculated as an average over the years, so the authorities can spend more when needed. Now, the state is obliged to spend 1.95 percent of the GDP every year regardless of needs.
NEWS
WHO’S NEWS Aleksandra Magaczewska has been appointed president of the state-run Industrial Development Agency (ARP), which invests in strategic sectors of the Polish economy. She will be responsible for preparing the agency’s strategy for 2014-2020. She said that the new plan would emphasize innovation, though state aid and restructuring would still remain important aspects of ARP’s activity. Tobias Solorz, son of Zygmunt Solorz, one of the wealthiest Poles, is climbing up the corporate ladder in the companies owned by his father. Starting from September, he has been appointed deputy president of Cyfrowy Polsat digital TV platform. In February, he was promoted to the CEO position at Polkomtel, operator of the mobile Plus GSM network. PGNiG appointed Waldemar Wójcik as its new vice president. Wójcik replaces Andrzej Parafianowicz who resigned from his post. Between January 2009 and August 2010, he served as Vice-President of the Management Board of PGNiG in charge of Crude Oil Extraction. In September 2010, he was appointed to the Management Board of Polish Oil and Gas Company Libya BV. Adam Cich, general manager for Eastern Europe at Electrolux, was appointed as the new president of CECED Polska, an association of Polish-based white goods producers. “My duty will be to ensure that the white goods sector in Poland will have a significant place in the Polish economy and make sure that it will continue to grow,” said Cich.
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WBJ OBSERVER • SEPTEMBER 2014
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NEWS / ECONOMY
FACTS AND FIGURES Data overview
-0.2%
“We concentrate on what is happening beyond the eastern border, not recognizing the negative signs from the West.” Deputy Prime Minister Janusz Piechociński on the reasons behind slower growth recorded in the second quarter of 2014.
was the value of year-on-year CPI inflation in Poland in July.
Trade volumes on WSE as of July 2014
11.9%
3.2%
was Poland’s registered unemployment rate in July.
€183.8 million
GDP GROWTH IN Q2 2014
Shares
PLN 136.42 billion
Bonds
PLN 576 million
was Poland’s foreign trade surplus in January-June 2014.
Futures
2.5%
Change of main index (WIG), ytd
PLN 5.57 billion
remains the National Bank of Poland’s reference interest rate.
-2.43%
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2-4
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EUROPEAN CONGRESS OF SMES
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17-18
WARSAW INTERNATIONAL MEDIA SUMMIT
24-25 MOBILITY RESELLER DAY
24-25
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SEPTEMBER 2014 • WBJ OBSERVER
Event: A regular meeting of retailers and shopping center developers organized since 2005. It’s the largest event of its kind in Central Europe. Location: EXPO XXI Center, Warsaw Web: shoppingcenterforum.com/en
Event: The leading idea of Mobility Reseller Days is to strengthen partnerships of Polish trade with foreign industry and to present appropriate business culture. Location: EXPO XXI Center, Warsaw Web: en.mobilityresellerdays.pl
Event: CEOs of key companies in the telecommunications sector and the media, the controller, the main representatives of the central government will take part in the summit discussing the past and the future of the media market. Location: Sheraton Warsaw Hotel Web: en.telekomunikacjaimedia.pl/wims
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COMMENTARY / LAW
OLAF JĘDRUSZEK LAWYER AT WIERCIŃSKI, KWIECIŃSKI, BAEHR SP.K.
New regulations regarding Controlled Foreign Corporations
In
June 2014, the lower house of the Parliament passed legislation amending, among others, the Act on Corporate Income Tax. One of its significant changes is the introduction of rules of taxation of Controlled Foreign Corporations (CFC), similar to solutions introduced in other EU states, such as Great Britain, Sweden, Italy and France. The unique character of the new regulations consists in the fact that revenues of the CFCs will be taxed directly in Poland. According to the Ministry of Finance, such a solution constitutes a serious measure for tightening up the Polish tax system and limiting the possibilities of establishing tax optimisation structures. In order to be perceived as a CFC, the foreign company must meet certain specific criteria. First of all, the Polish tax resident (an individual or a company) must hold for over 30 days continuously, directly or indirectly, at least 25% of shares or 25% of voting rights in the company’s management board or supervisory board. Moreover, 50% of the foreign company’s revenue has to come from the so-called passive income (such as dividends, interests, royalties etc.) and income from the sale of shares. Finally, at least one of the above-mentioned
types of revenue has to be exempted or excluded from taxation abroad or be subject to a tax rate equal to or lower than 14.25% (i.e. at least 25% lower than the 19% tax rate prevailing in Poland). Also, it is noteworthy that companies having their seat in so-called tax heavens or in a state which has not entered into an agreement with Poland or the European Union allowing for obtaining relevant information from tax authorities, can be regarded as CFCs. Subject to taxation in Poland will be the CFC’s revenue limited by the period, in which the Polish tax resident held the specified percentage of shares or voting rights, and by the part that corresponds to the possessed shares entitling the resident to participate in the CFC’s profits. Importantly, adverse tax regulations shall not be applied if the CFC’s revenue does not exceed €250,000 in a given tax year or if the CFC actually conducts business activity. The CFC regulations will most likely come into force at the end of 2014 or at the beginning of 2015, and until then entrepreneurs considered to be CFC shareholders should give a thought to different optimisation solutions. u
WBJ OBSERVER • SEPTEMBER 2014
15
COMMENTARY / LAW
PAWEŁ KRAWIEC A TRAINEE ATTORNEY AT THE WARSAW BAR ASSOCIATION, LAWYER AT NOWICKI AND ZIEMCZYK ADWOKACI I RADCOWIE PRAWNI LAW FIRM
Reverse engineering – a permitted imitation?
P
eople share an innate, deep-rooted tendency to imitate and copy others. This is particularly visible in a business environment, where copied solutions or even entire products often make plagiarists successful. In this situation, how to decide what is more important: the interests of an entrepreneur or the development of new technologies? Basically, the phenomenon of imitation is not reprehensible, as taking over efficient solutions is one of the drivers of technological progress. An absolute ban on imitation would lead to a monopoly of one company on an unlimited usage of once developed technological solutions. Few people are aware of the fact that the Germans built a rocket launcher named Panzerschreck, using reverse engineering methods (by copying a dismantled Bazooka of American origin), while Polish and British cryptologists developed a device named Bombe, used to decode messages from the war front encrypted by the German Enigma. Slavish imitation vs. reverse engineering Not all types of imitation techniques are banned in Poland. Imitating a finished product by copying its outward appearance is deemed as a prohibited act of unfair competition if it might mislead the consumer as to the true identity of the manufacturer or the product itself. This phenomenon is called slavish imitation. The aim of its prohibition is to disable competitors from a crude “milk-skimming” of successes achieved by other entrepreneurs. The situation differs with respect to the copying of functional features of a product. Therefore, the question arises: what if one obtains information on product
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SEPTEMBER 2014 • WBJ OBSERVER
functionality as a result of a reproductive analysis? Such actions are defined as “reverse engineering” and, in essence, they consist of the dismantling of a product and testing its operating principles, usually in order to manufacture an improved version of the given product or to find other applications of the tested solutions. Solutions related to the functionality of a product are generally classified by a manufacturer as business secrets. Winning them requires extraordinary measures (e.g. breach of security). But the question is whether obtaining information through reverse engineering should be recognized as a legal action? It depends on the legal system. For example, reverse engineering is permitted under US law and, at the same time, prohibited under German law. However, under Polish law, reverse engineering is accepted as a legal method of obtaining a company’s business secrets, regardless of the type and the number of safeguards and can only be treated as illegal in case of statutory prohibition on circumvention of specific types of safeguards. Nonetheless, it’s worth noting that effective actions in this area may have various implications for an entrepreneur, including delisting of the copied solution from the manufacturing company’s list of business secrets. But what to do when a given product is placed on the market as an outcome of a license agreement with a user? Such contracts usually contain a so-called “blackbox clause” which imposes a ban on reverse engineering actions. Nevertheless, limitations drawn by a license agreement are binding solely upon a user and invalid in terms of all participants of the market. The black-box clause can be commonly found in agreements with gaming console manufacturers. It is
Image: Shutterstock
Can imitation lead to higher quality?
COMMENTARY / LAW
worth noting that, despite the above-mentioned restrictions, reverse engineering methods are used by those who modify the original settings of game consoles. There is a famous book, published by an American hacker named Andrew Huang, titled: “Hacking the Xbox: An Introduction to Reverse Engineering,� in which he sets out the rules of reverse engineering adopted on the other side of the Atlantic. The book has been temporarily withdrawn from sale owing to the intervention of Microsoft lawyers.
developing concepts and principles constituting the basis of each component of such a program. Furthermore, decompilation of a code (its modification or duplication) is acceptable, if it is necessary to obtain indispensable information to ensure its cooperation with other computer programs. However, it should be noted that legal provisions clearly prohibit the use of decompiled code for purposes other than ensuring compatibility, particularly developing programs of similar content and their subsequent commercial use.
Right to decompile computer programs The situation of a licensee, in the event of introducing a black-box clause into a license agreement, is unclear in terms of their entitlements to the reverse engineering (decompilation) of computer programs. Polish law, following European regulations, provides for some restrictions on the scope of contractual prohibition of computer program decompilation. Legal restrictions governing the decompilation of computer programs should not be absolute in their nature. The Act on Copyrights and Related Rights provides a licensee with some minimum entitlements. It is permissible to observe, research and test the functioning of a computer program with the purpose of
Opportunity or threat? Reverse engineering seems to be a very effective way to stay close to the competitors. It is a generally accepted method of reproducing functionality of a device. Protection stipulated by the Act on Fighting Unfair Competition may often prove insufficient to secure the interests of an entrepreneur or a manufacturer. It appears that it is worth temporarily securing innovative solutions through patents or other applicable absolute rights. From the perspective of a person performing reverse engineering, it is important to take full precautions, especially with regard to the decompilation of computer programs, in order to avoid any allegations of the breach of copyrights. u
WBJ OBSERVER • SEPTEMBER 2014
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INTERVIEW / MARIUSZ GRENDOWICZ
PUBLIC-PRIVATE PARTNERSHIP IN POLAND
INVESTING WITH
A STRAIGHT HEAD I N T E R V I E W B Y E WA B O N I E C K A
WBJ Observer: How did you feel when Wprost weekly published private and illegally recorded conversations in which Interior Minister Bartłomiej Sienkiewicz said that PIR is a “pile of stones,” adding also some vulgar words to it? Why was there no public reaction on your part regarding the statement? Mariusz Grendowicz: Prime Minister Donald Tusk reacted sufficiently to the words of Bartłomiej Sienkiewicz, explaining that they were said two weeks after PIR’s registration, so there was nothing that could be added to the prime minister’s words. If you ask on a purely personal level, both I and the rest of the team, who have worked very hard over the past year, simply felt upset.
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SEPTEMBER 2014 • WBJ OBSERVER
Mariusz Grendowicz Before becoming the president of PIR, he worked in the banking sector for 30 years. He studied economics in Gdańsk and international banking at the Charters Institute of Bankers in London. His professional career started in 1983 at Grindlays Bank. More recently, he was the CEO at ABN AMRO Bank Polska and then at BRE Bank (now mBank).
Image: Polskie Inwestycje Rozwojowe
WBJ OBSERVER TALKS WITH MARIUSZ GRENDOWICZ, THE PRESIDENT OF POLISH INVESTMENTS FOR DEVELOPMENT (PIR), ABOUT PLANNED PROJECTS, PIR FUNCTIONING AND BUILDING CONFIDENCE BETWEEN THE PRIVATE AND THE PUBLIC SECTOR OF THE POLISH ECONOMY
INTERVIEW / MARIUSZ GRENDOWICZ
PIR is presented as the leading vehicle for developing investments in Poland based on cooperation between the public and the private sectors. You have held the position of president at PIR for a year and a half. What do you consider to be the most important projects and when will the first one be carried out? Prior to my appointment, PIR’s operational formula was defined very precisely by the government’s decision in December 2012. It was further expanded through PIR’s investment policy, which was widely consulted prior to its finalization in December 2013. The formula calls for a thoroughbred infrastructure fund, which implies that PIR does not have its own projects, but that it supports our partners’ projects. It is they who drive the projects and define their tempo. We can support them by not being a brake, but cannot be the accelerator.
Our task is to maximize the funds flowing into infrastructural investments by selecting the right projects from among those presented to us. The selection process is very precisely defined. The projects evaluated positively by PIR have to belong to a closed list of strategically important sectors, but also have to be carried out through a special purpose vehicle (SPV), which has been used relatively infrequently in Poland so far. Structuring such projects anywhere in the world takes years – the projects PIR is working on are no exception. The first project to be signed by PIR is likely to be the B-8 oil production project, jointly developed with Lotos Petrobaltic, a subsidiary of the Lotos Group. The PLN 1.8 billion project, which will enable production of oil from under the Baltic Sea, will be structured on the basis of an SPV. This SPV’s oil sales’ revenue will repay the bank loans and provide returns to shareholders. Poland is currently the only country capable of extracting oil from the bottom of the Bal-
tic and Lotos Petrobaltic is the only company with the relevant know-how in this area. Once the project is operational, as expected at the beginning of 2016, it will deliver 250,000 tons of oil per year. Although it will not substantially reduce Poland’s oil imports, it will certainly help. It will also help secure some highly qualified new jobs. What are the procedures of accepting projects submitted to PIR? The process is based on a detailed analysis performed by our investment team, whose members all come from the private sector – banks, investment banks, investment funds and consulting companies. They are all highly qualified experts with relevant long-term experience. Following due diligence, the project is submitted for approval to PIR’s management board. The second stage is the acceptance of the project by our Investment Committee,
KATOWICE
Główne obszary tematyczne: · szanse i wyzwania dla przedsiębiorstw, · perspektywa finansowa UE 2014-2020, · trójkąt wiedzy: nauka-biznes-samorząd, · innowacyjność, · badania i rozwój, · współpraca gospodarcza Europa-Wschód, · edukacja i HR, · prawo i podatki w MŚP
Organizator:
IV Europejski Kongres
10 lat
przedsiębiorczości bez granic
Honorowy Patronat Prezydenta Rzeczypospolitej Polskiej Bronisława Komorowskiego, Patronat José Manuela Barroso, Przewodniczącego Komisji Europejskiej oraz Honorowy Patronat Parlamentu Europejskiego
Współorganizatorzy:
Bezpłatna rejestracja na stronie: www.kongresmsp.eu
WBJ OBSERVER • SEPTEMBER 2014
19
INTERVIEW / MARIUSZ GRENDOWICZ
formed for each individual project from PIR’s supervisory board. The third and final stage is the approval by the entire Supervisory Board consisting of nine members. So three different voting processes are required before the project is finally accepted and the investment agreement is signed.
Yes, we are working on several renewable energy projects, but these are still in the early stages. However, the projects are realistic and have a strong chance of being delivered relatively quickly, as they are all being developed by private investors which simplifies investment processes. What does not help is the current uncertainty surrounding the entry of the new renewable sources of energy law into force. The bill is to implement a new support system for renewable sources of energy. Until entry into force is confirmed in January 2016, or at a later date, many investors will hold their projects back.
“WE ENCOURAGE COMMERCIAL INVESTORS TO UNDERTAKE PROJECTS AND WE ASSIST IN STRUCTURING THESE PROJECTS IN A WAY WHICH MAXIMIZES DEBT FUNDING FROM BANKS AND INVOLVEMENT OF OTHER EQUITY INVESTORS. PIR’S INVOLVEMENT CONTRIBUTES TO THE PROJECTS’ STABILITY AND CREDIBILITY.
PIR’s financial activity is based on market principles, while the funds for investments are coming from PIR and from the private sector. How do you evaluate the present flow from those two sources ? We have to distinguish between two different fund flows: money to fund PIR and money to fund the projects in which PIR invests. The former comes principally from the State Treasury (98.75 percent) and to a lesser extent from BGK Bank (1.25 percent). Currently, no other investors for funding PIR are anticipated. A completely different story applies in the case of our projects. As stated earlier, we encourage commercial investors to undertake projects and we assist in structuring
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SEPTEMBER 2014 • WBJ OBSERVER
www.dlcongress.pl
Image: Lotos Petrobaltic
Do the projects include development of renewable sources of energy, which are so strongly advocated by the European Union, but so poorly developed in Poland?
INTERVIEW / MARIUSZ GRENDOWICZ
Image: Lotos Petrobaltic
UN
WBJ OBSERVER • SEPTEMBER 2014
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INTERVIEW / MARIUSZ GRENDOWICZ
To what extent is PIR’s activity dependent on the economic priorities set by the government? In other words to what extent are you politically independent? PIR is an unprecedented and courageous project, which from the very beginning was meant to be apolitical, mainly because of long lead times of the undertaken projects. Power plants, fiber optics networks or motorways are completed over many years. So the traditional “cutting of the ribbons” will not necessarily occur during the current term of the parliament. Due to linking economic growth with market requirements, PIR will be an institution standing above party politics, functioning for the benefit of our country. How would you compare PIR to publicprivate economic holdings functioning in other European countries, like French CDC Infrastructure or Fondi Italiani per la Infrastrutture F2I?
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There are two basic kinds of infrastructural funds. In one model, funds develop a specialization in a few, precisely defined asset classes. Such funds typically take a majority position in a project and are prepared to assume operational responsibility. Most private sector infrastructural funds fall into this category. Some others, including the French statefunded CDC Infrastructure, or the Italian F2I, whose investors include state financial institution Cassa Depositi e Prestiti, but also Italian private sector banks and insurance companies, invest only as minority partners, leaving operational responsibility to the private sector. PIR is much closer to the second model, which enables us to keep our sectoral focus as broad as possible, thus maximizing the potential number of projects. However impatient we may be, PIR’s progress is much faster than that of the other funds created in EU countries in the last decade, also those in the private sector. The role of the state in the economy is growing in EU countries. Is it a reaction to economic crises or an evolution of the whole market economy system? How do you look at it with your experi-
“PARTICULARLY IMPORTANT IN THE CASE OF PUBLIC-PRIVATE PARTNERSHIP, IS THE DEFICIT OF CONFIDENCE. TRUST IS ESSENTIAL FOR BUILDING PARTNERSHIPS IN BUSINESS, ALSO BETWEEN THE PUBLIC AND THE PRIVATE SECTORS OF THE ECONOMY.
ence in the private economic and banking sectors and as the president of PIR, which is an example of a growing state role in the economy? The economic crisis exposed many dysfunctions of the market, especially in the area of long-term investment. The equity funding available for investment in energy and road infrastructure was significantly reduced. The amount of debt funding available from the banking sector for these investments was also reduced due to restrictions contained in the new global banking regulations. The reaction of the state to those dysfunctions was in many cases the establishment of state-funded infrastructural funds, which did not aim to replace the private investors, but rather to encourage them to continue investing in infrastructure. Many traditional investors in infrastructure consider such investments to be long-term contracts entered into with the state. For them, the presence of a state-related entity increases the security factor, so important when investing long term. France and the UK, European leaders in the field of public-private partnership, are clear examples of markets where such a new active role of the state functions well. PIR should perform a very similar role. What are, in your view, the biggest obstacles to PIR’s effective functioning? Two issues spring to mind. First is the very low level of knowledge in the field of project finance, which is the formula on which PIR’s projects are meant to be based. This is visible inside many of the industry investors, our partners in projects, who have traditionally funded large investments through their balance sheets. It is also visible in banks, where project finance competences were rarely transferred to Poland, while in Frankfurt, Paris, or London, the level of know-how in their parent banks is very high. We need to deepen this know-how in Poland in order to speed up investments. Second, particularly important in the case of public-private partnership, is the deficit of confidence. The latest European confidence index ranking shows Poland at an alarmingly low position. And trust is essential for building partnerships in business, also between the public and the private sectors of the economy. u
Image: Shutterstock
these projects in a way which maximizes debt funding from banks and involvement of other equity investors. PIR’s involvement contributes to the projects’ stability and credibility, which facilitates this multiplier effect. In the case of the B-8 project, PIR’s involvement of some PLN 430 million will enable a PLN 1.8 billion project to go ahead. The balance will come from the project sponsor and banks. Another case, a PLN 400 million local roads project to be completed jointly with the Kujawsko-Pomorskie voivodship, will go ahead with PIR’s involvement of only PLN 50 million. Again, the rest will come from the private sector investor and banks. There is no doubt, however, that PIR’s involvement galvanized these, and other, projects.
Image: Shutterstock
INTERVIEW / MARIUSZ GRENDOWICZ
WBJ OBSERVER • SEPTEMBER 2014
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COVER STORY / WARSAW STOCK EXCHANGE
B Y JA C E K C I E S N OW S K I
QuoVadisWSE ? FROM ONE TRADING SESSION A WEEK TO THE BIGGEST BOURSE IN THE CEE, DURING NEARLY 25 YEARS OF ITS EXISTENCE, THE WARSAW STOCK EXCHANGE HAS MADE PARAMOUNT PROGRESS. BUT THE NEXT FEW YEARS WILL BE CRUCIAL FOR ITS FUTURE
THE WARSAW BOURSE HAS MOVED INTO ITS CURRENT HEADQUARTERS AT UL.KSIĄŻĘCA 4 IN 2000. IT HOUSES ONE OF THE LARGEST (40 METERS LONG) ESCALATORS IN POLAND
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COVER STORY / WARSAW STOCK EXCHANGE
A rented-out room and computers, no phones and a bourse logo designed by the WSE CEO’s neighbor; such were the semiguerilla conditions in which the first trading session of the Warsaw Stock Exchange took place in April 1991. For the first few years of its activity, the bourse trademark were the red suspenders worn by stock brokers who have seen the movie “Wall street” too many times. The conditions were modest and so was the number of listed companies. Only five companies were traded at the beginning (with clothing manufacturer Próchnik traded to this day). “We were looking for companies that were export-oriented and as such had some experience with the freemarket economy. Except for Exbud, which was enthusiastic about being listed, firms were hesitant at first. The ones that agreed to debut on the Warsaw Stock Exchange, did so because they were forced to do it,” said Wiesław Rozłucki, WSE’s first and longest-running CEO (he helmed the bourse for 15 years). Rozłucki himself convinced the Minister of Economy at that time Leszek Balcerowicz that Poland should reopen its stock exchange after over 50 years of inactivity. “It wasn’t difficult to persuade others to my idea. We were all enthusiastic about the transformation process and for many having our own stock exchange was the definitive signal that communism had passed,” Rozłucki said. The know-how came from the French bourse, which signed a cooperation agreement with Poland to help set-up the local stock exchange. “The idea was that we would start trading as soon as possible on a small scale, with simple solutions and in the next year, year and a half we would implement more modern solutions,” Rozłucki explained, adding that thanks to the initial simplicity of having one session per week with fixed listings, they could, along with Polish investors, learn the stock game as they went along. The WSE has came a long way since its rebirth. New indices, trading instruments and systems have been introduced throughout the years. Most have benefited trading, helping the bourse became the biggest stock exchange in CEE. Now, the question everyone is asking – what’s next?
WBJ OBSERVER • SEPTEMBER 2014
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COVER STORY / WARSAW STOCK EXCHANGE
Regional hub For years, the CEE region has been dominated by two stock exchanges, the Warsaw Stock Exchange and the CEE Stock Exchange Group (including exchanges in Vienna, Prague, Ljubljana and Budapest). In the past, the Vienna-led group wanted to take over the Warsaw bourse. But all incorporation attempts failed and the WSE has become a bigger stock exchange than all the exchanges within the CEE SEG combined (WSE capitalization in 2013 reached €132 billion, while the four exchanges in the CEE SEG had a cap of €129 billion). So it was no surprise that the group made another offer, but this time Warsaw would be the one to take over Vienna. But that won’t be easy. The concept of Warsaw being the regional hub has been talked about for years. In its strategy for 2014-2020, WSE boasts that its goal is “to achieve, either independently, via strategic alliance or partnership-like cooperation with significant entities from the capital markets, a dominant role in the region and an important position on the European capital markets scene.” Of course, it’s easier said than done. “We should first see if such a transaction would be profitable for us. Such international mergers are very complicated and can have numerous unforeseen implications. Such a move has to be good for the stock exchange and for the whole economy,” said Rozłucki. The complicated nature of the deal is
something that worries former Treasury Minister and current partner at consultancy PwC Jacek Socha. “Warsaw and Vienna have completely different trading platforms and different services. Integrating them will come at a huge cost. Who will cover it?” he asks, pointing out that if the reason for the sale of CEE Group is Vienna’s inability to deal with its own problems, then Warsaw would be even less qualified to solve them. One of the problems stopping the WSE from merging with or even taking over the CEE Stock Exchange Group is the Warsaw bourse ownership structure. While the State Treasury only owns 35 percent of the bourse, it has a majority of votes at the general meetings. The WSE was recently put on the “important to the national interest” list of companies. This means that the Treasury won’t sell its shares in the company in the near future. “Every company, especially a listed one, should be open to all options, including a sale of that company at some point,” said Socha, pointing out that in his opinion, the WSE should be privately owned because treasury interests and investors’ interests are very often incongruous. “It’s highly unlikely that [the Treasury] would vote in favor of recapitalization of the company as it would dilute the shares they own. This hurts the Warsaw bourse as without additional capital expansion would be difficult,” Socha adds. The state-controlled stake and its special status is something that concerns Waldemar Mar-
kiewicz, CEO of DB Securities Poland and president of the Polish Chamber of Brokerage Houses. “From the perspective of the whole economy, the interests of one company are less important,” suggesting that the WSE should act like a public service company and have the investors’ best interests in mind first and foremost, as they are driving stock exchanges forward. He pointed out that high transaction fees are what is stopping the WSE from growing. “Today, the Warsaw bourse is among the most expensive exchanges [for traders] in Europe and for stock brokers this is an important factor. When choosing an emerging market to invest in, they’d rather go to Istanbul where it is much cheaper to trade and explore more investment opportunities,” Markiewicz said. 300,000 investors This point of view is not shared by Jacek Socha. “Some 300,000 investors bought WSE stock during its IPO. They invested their money in the company in hopes of profiting from it. To let them earn their money, the bourse needs to increase its profits, control its expenses, etc.” explaining that for the WSE as a company, cutting fees might result in lowered income which won’t bode well for its investors. The decision regarding a potential merger with Vienna should be known within the next few months, according to recently appointed WSE CEO Paweł Tamborski. “We have to in-
IN 2013, THE WSE REPLACED THE CLOCK SHOWING TOKYO TIME TO ONE WITH BEIJING TIME, WISHING FOR AN INFLUX OF CHINESE COMPANIES, SO FAR TWO ASIAN IPOS HAVE BEEN SEEN AS FAILURES
“TODAY, THE WARSAW BOURSE IS AMONG THE MOST EXPENSIVE EXCHANGES [FOR TRADERS] IN EUROPE AND FOR STOCK BROKERS THIS IS AN IMPORTANT FACTOR.
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COVER STORY / WARSAW STOCK EXCHANGE
THERE ARE CURRENTLY 462 COMPANIES LISTED ON THE WARSAW STOCK EXCHANGE, INCLUDING 49 FOREIGN FIRMS
clude the matter of cost and income synergies when making our decision. I want the decisions regarding cooperation with Vienna to be known as soon as possible.” He added that “regardless of potential geographical expansion, we have to take care of our organic growth by improving liquidity and being open to new investors. Currently, we’re evaluating our strategy regarding this topic.” Tamborski is only the fourth CEO in the exchange’s history. But his tenure might be the most important one, as he will be making crucial decisions regarding the bourse’s future. “I’d like the WSE to be more market-friendly and to strengthen its position as a regional financial center. We want to create a good atmosphere surrounding the capital market in Poland. That’s why we will be actively pursuing new investors. We also want to undertake actions to make the market more attrac-
tive to issuers. Our main objective is to improve its liquidity,” he said. If not Vienna then what? Even though, according to many, the acquisition of Vienna is a must, naysayers have come to the fore. “The foreign investors that I’ve talked with are saying that Warsaw taking over the Vienna bourse won’t make Polish companies more accessible to them,” Markiewicz said. In his opinion, Warsaw shouldn’t proceed with international expansion and should remain local. “Poland is a market with huge potential coming from the investment needs of our economy. Even in the economic crisis, Poland posted growth.” He thinks that the WSE should change its strategy in order to lower its costs, which is in the best interest of the Polish capital market. “The WSE should concentrate on introducing new products which would be accepted by investors and this
has not been the case recently. It should also have a system which works, and the recently implemented UTP system should be the answer. Finally, the trading fees should be lowered, which would allow [the stock brokers] to take full advantage of the new system.” The new trading instruments, or lack thereof, is a bone of contention between the WSE management and traders. The former bourse CEO Adam Maciejewski promised new products and instruments, but few were introduced and those that were did not satisfy brokerages. “The change of the WIG20 futures multiple to PLN 20 is the most controversial move,” said Mateusz Adamkiewicz, financial market analyst at HFT Brokers. “This change increases the minimum required deposit, which makes a difference for individual investors. On the other hand, the commission has not changed, which makes short-term investments more attractive for institutional
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WBJ OBSERVER • SEPTEMBER 2014
27
COVER STORY / WARSAW STOCK EXCHANGE
History of the WSE The Warsaw bourse, established in 1991, wasn’t the first stock exchange in Poland. The first ever Polish stock exchange was established in 1817 in Warsaw. Situated in the now-destroyed Saxon Palace, it was moved in 1828 to the Polish Bank Building on Plac Bankowy before relocating to ul. Królewska where it stayed until the breakout of World War II. For the first few decades, it mostly traded bonds and promissory notes with the first shares being floated in 1840 (the Warsaw-Austrian Railway was the first company traded).
Less money, more problems No matter where the bourse’s future lies, the WSE’s new boss faces tough challenges. The exchange, which for years has been fueled by money from the private pension funds (OFE) and IPOs of huge state-owned companies, has to look for new ways to expand its trading. According to equity fund manager at BPH TFI
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SEPTEMBER 2014 • WBJ OBSERVER
1817 Jarosław Lis, the pension system reform could cause the value of funds with OFE investment to drop by PLN 30-40 million a month (from the PLN 1 billion figure observed before the reform). The extent of the damage will be known soon, based on how many Poles have decided to stay in OFEs. With all the biggest state-owned companies already listed, there are only a few left which could boost trading at the very least. Even the Polish airline LOT, still owned by the Treasury, will most likely be sold to a strategic investor rather than be floated. Others, like rail operator PKP and coal miner Kompania Węglowa, have huge debts that need to be paid off before the Treasury will even consider listing them. All these issues, as well as the macroeconomic situation, factor into the bourse’s recent lackluster performance. The total value of trading on the WSE in the first seven months of this year dropped by 4.4 percent year-on-year to
“IF SOMEONE THINKS THAT THE STOCK EXCHANGE IS A NATIONAL TREASURE THAT CAN’T BE SOLD, THEY ARE WRONG.
PLN 122 billion. The bourse’s main index has increased by a mere 0.5 percent since the beginning of the year, which is a lackluster result compared to the S&P 500, which grew by 7.5 percent in the same time. Looking east The Warsaw Stock Exchange has ideas to bolster its activity. One of them was to attract Chinese companies which have had trouble being floated domestically. “It’s a matter of prestige for them. Being a publicly traded company brings trust and prestige. The Chinese public is well aware of IPOs,” said Benjamin Kroymann, partner at Squire Sanders, a law firm which advised several Chinese companies in their European ventures. Chinese companies are looking towards Europe, because being listed in their own country is very difficult. “It’s a very lengthy and political process. Interest is so huge that smaller companies are not even considered for IPOs. Only state-owned companies [are accepted] and the biggest ones are lucky enough to be listed either in Shanghai or Hong Kong. The process can take two years and is very political. Some 800 companies are in the queue” Kroymann added. The first such IPO on the WSE was initially successful. Machinery manufacturer Peixin entered the Polish bourse in October of last year and everyone had hoped that they would pave
All images: WSE, Mateusz Gołąb/WBJ
investors,” Adamkiewicz added. In 2000, 85 percent of traders on the WIG20 futures were individual investors, while in 2013 that number dropped to 35 percent. Newly appointed bourse CEO Paweł Tamborski also promised to introduce new instruments, but for some this won’t change a thing. “New instruments will generate costs. The question is if the bourse will make enough profit to justify their introduction,” said Socha. To others, like Rozłucki, a scenario involving the Treasury selling its shares in the WSE is simply impossible in Poland because of political reasons. “Even if such a move would profit all sides involved in the transaction, it would never happen. No politician would allow it in Poland,” he explains, saying that the bourse has been a giant success story and selling it to someone else would be seen by many voters as unpatriotic. “If someone thinks that the stock exchange is a national treasure that can’t be sold, they are wrong. All major stock exchanges in the world are privately owned, the only exceptions being Malta and Turkey. I don’t think that the City of London would operate better if it was run by the state,” counters Socha, adding that many had argued that since the banking sector in Poland was privatized, the stock exchange should remain national. But, as he explains, those sectors are completely separate from each other.
COVER STORY / WARSAW STOCK EXCHANGE
the way for others. The exchange management even replaced a clock showing the current time in Tokyo for one with Beijing time. Investors were even more excited when on the day of its floating, Peixin stock shot up by 30 percent. Very soon it all crumbled and nowadays its stock is hovering around the PLN 12 threshold (from the PLN 28 heights it recorded in October). Recently the company had to cancel its SPO, because of lack of interest from Polish investors. The listing of the second Chinese company, car part manufacturer JJ Auto, was also a flop. The company wanted to sell 1.78 million shares, but managed to find buyers for only 100,000 shares, a mere 1.24 percent of the company’s stock. The company had to file additional documents to be traded in Warsaw and its shares have dropped some 17 percent since its debut. Adamkiewicz points out that Warsaw will never attract significant companies from Beijing. “Such companies will more likely choose Germany, as both countries have far more significant economic connections than Poland. Our market doesn’t have sufficient capital to attract them and on the other hand, Asian companies have little presence here.” Kroymann agrees with that sentiment. “Companies, like e-commerce giant Alibaba, will choose the
BPCC_adv_WBJ_08_2014.indd 1
New York or London stock exchanges because of their global position and reputation; others, especially state-controlled companies, will be listed domestically, but Poland can be attractive for Chinese SMEs,” he adds. His company is already working on another Chinese IPO on the Warsaw bourse. Broadening the horizon The Warsaw bourse has also broadened the scope of its products. It started trading commodities, which in the first seven months of this year brought PLN 20.3 million in revenue, a 65.2 percent increase y/y. It also acquired some 36 percent of shares in Aquis Exchange, a new “pan-European equities trading exchange.” The Warsaw Stock Exchange has also launched a crowdfunding platform, Warsaw Startup Space, to help finance Warsaw start-ups together with the City of Warsaw and the Aula Polska business association. The project, besides the platform, includes a co-working space and help from advisors. At the crossroads Vienna or not, some crucial decisions need to be made. According to Socha, CEE exchanges will undertake an “atomization process,” meaning they will grow to the size of their respective economies, just like it happened in
some western countries. “The Madrid stock exchange has some €900 billion capitalization and it is not considered a financial center at all. Its value only represents the size of the local economy.” He thinks that it will be hard to create a regional hub on its own, as previous attempts have failed. “Years ago, Vienna [along with German Deutsche Börse] tried to attract companies from the whole region by setting up a special stock exchange called NEWEX. This was a failure as no one was interested in an exchange which was not only small but also disconnected from any major financial markets.” The former treasury minister thinks that the only way for a CEE exchange to become a regional hub is to find an established partner. “It will increase its growth dynamic, attract more investors and upgrade the market. It would be a part of a larger structure,” he said. “I can’t imagine a Russian company being listed on the WSE, but if the London bourse would have its CEE hub here, all companies from the region that wanted to be floated in London would be listed in Warsaw, including Russian ones,” Socha said. The former treasury minister is somewhat optimistic in his views, as London had the chance to become WSE’s strategic partner back in 2010 before the bourse IPO, but did not show any interest at all. u
8/20/14 12:51:51 PM
WBJ OBSERVER • SEPTEMBER 2014
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FEATURE / MIDDLE CLASS
GREAT ASPIRATIONS THE MIDDLE CLASS IS THE DRIVING FORCE OF THE ECONOMY IN ANY DEVELOPED COUNTRY. WHILE THE SMALL-IN-NUMBER AND EXCLUSIVE UPPER SOCIAL MILIEU SHOP IN PARIS AND MILAN AND SPEND THEIR HOLIDAYS IN PRIVATE VILLAS ON THE FRENCH RIVIERA, IT IS THE MOST NUMEROUS AND RELATIVELY AFFLUENT MIDDLE CLASS THAT GENERATES MOST OF THE DOMESTIC DEMAND
D
30
ue to Poland’s recent history, the country’s social structure is considerably different from what we observe in Western societies. For example, some 20-30 years ago, education had little to do with income and material status: a university diploma hardly increased people’s chances for advancement in the material and social hierarchy. One could argue that 44 years of communism left Poles with modest material wealth and with an undifferentiated social structure. However, the past 25 years have seen the rise of more coherent and increasingly exclusive social classes in Poland. Family background is starting to play an increasingly important role: children born in one class are now more likely to remain in that strata throughout their lives. Climbing up the ladder is therefore increasingly more difficult. “If we try to define the Polish middle class on an occupational and economic basis, it will encompass both small employ-
SEPTEMBER 2014 • WBJ OBSERVER
ers and self-employed professionals, such as lawyers, doctors, various consultants, as well as civil servants and the upper strata of the working class etc.,” said sociology professor Juliusz Gardawski. No doubt, the Polish middle class is very eclectic. It also has the strongest influence on the country’s economy and political scene. “The middle class in Poland is very significant. I think this is the best thing about Poland. In other post-communist countries, the middle class never grew to such a size and is not nearly as powerful as in Poland. Look at Ukraine, for instance,” said Arie Koren CEO of developer Okam, whose residential projects target mainly the upper middle class. Money, money, money Income has traditionally been the deciding criterion for placing people in different economic and social strata. But sociologists
Images: Shutterstock
B Y B E ATA S O C H A
FEATURE / MIDDLE CLASS
Right in the middle
Income (in)equality
The Gini coefficient* in different countries 70 63.1
60
50 41
43
40
22.6
23
24.4
35
35.1
Spain
33 30.6
30
Serbia
40 30.9
26.7
20
10
South Africa
US
Argentina
Russia
Poland
Romania
EU27
Austria
Sweden
Slovakia
Norway
0
In terms of income equality Poland is as close to the EU27 average as it gets. Europe’s front-runners include Scandinavian welfare states as well as Poland’s southern neighbors: Slovakia and the Czech Republic. On the other side of the spectrum are southern Spain and Greece as well as post-communist Serbia and Romania. Elsewhere in the world, inequalities tend to get bigger. Russia is on par with the US in terms of wealth distribution, but neither of these countries comes even close to African record-setters, such as South Africa or Sierra Leone.
Source: Eurostat, Portdata, World Bank * The Gini coefficient equals 0 for perfect equality and the higher it gets the more unequal income distribution is.
WBJ OBSERVER • SEPTEMBER 2014
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FEATURE / MIDDLE CLASS
say that what really distinguishes the Polish middle class from other social groups is their need for validation – they want more than just bank statements to stand witness to their success. They want other people to be aware of it as well. They live predominantly in large cities (in cities with a population above 500,000, spending per person was 56.8 percent higher than Poland’s average and income was 65 percent above average in 2013, according to the statistics office GUS) and most have a university degree. Most of them entered adulthood in the 1990s and early 2000s and depending on their wit and skills have already managed to accumulate sizable wealth. They have comfortable, well-furnished apartments and some dream of or already own a weekend house somewhere in the suburbs. They don’t skimp on their children’s education, neither do they forsake life comforts and status symbols such as premium cars or expensive furniture. But
Saving and investing With higher earnings, Poles are saving
Nice ride
4.32%
16.18%
they are also more adept at long-term planning, willing to forgo pleasures for the sake of financial security. The number of high earners is definitely increasing in Poland. In 2012, 768,000 people fell into the higher of the two tax bands, paying 32 percent, reserved for those whose gross annual income exceeded the equivalent of €21,000. In 2016, that number will reach 1 million, according to projections by consultancy KPMG. It doesn’t necessarily follow that 97 percent of all Poles make less money than €21,000 per year. There is also a large number of self-employed professionals and businesspeople who pay a flat CIT rate of 19 percent. In fact, self-employed people had the highest disposable income among all groups last year, at €1,230 per household per month, 81.5 percent of which they spent.
25.23%
Premium segment market structure BMW 25.23% Audi
21.75%
Volvo 19.38% 19.14%
Mercedes 19.14% 21.75%
Lexus 4.32% Other 16.18%
19.38%
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more and more each year. GUS data show that while in 2003 households spent 95.2 percent of their disposable income, in 2013 they spent 81.7 percent. Altogether, in 1996, Poles had less than €20 billion in savings accounts, in 2013 – over €200 billion, according to NBP figures. Poles’ accumulated wealth is still nowhere near the levels seen in Western European countries. According to Credit Suisse, only about 45,000 Poles have assets exceeding $1 million. Meanwhile, in France there are as many as 2.2 million people worth at least $1 million, in Germany – 1.7 million, and in the UK and in Italy – 1.5 million each. No wonder then that financial services such as private banking or asset and wealth management services are more easily accessible in Poland than in the West. A Pole doesn’t need millions to become a member of the “private banking” club. All it takes is some €10,000 in savings and you can choose from asset management
Source: Samar
FEATURE / MIDDLE CLASS
services offered by a dozen or so financial institutions. Traveling in style But it’s not only the income, education or family name that puts Poles in a given strata. Sociologists agree, that people’s lifestyle and aspirations are becoming the common denominator for social classes. What we drive, what we wear, and increasingly what we eat – makes us members of the middle class. The car you drive is the most prevalent status symbol and Poles are choosing premium models increasingly often. Some of the popular car makes, such as Kia, Hyundai, Nissan and Fiat, recorded declines in registrations of between 6.5 percent (Hyundai) and 14 percent (Fiat) during the first six months of 2014 compared to the same period in 2013. Meanwhile, the premium segment has seen strong growth figures this year. Each of the most popular premium makes: BMW, Audi, Volvo,
Something borrowed Similarly to most developed societies, Poles have also taken a liking to living off debt. According to the credit information office BIK, 59 percent of men and 57 percent of women between 32 and 46 years old are repaying some form of a loan. Every fifth Pole from the X generation has a mortgage loan on a house or an apartment. The Y generation (between 18 and 31 years of age) are less frequently burdened with mortgage loans, as only 8 percent of women and 6 percent of men in that group have one.
Mercedes and Lexus saw an increase in registration figures, some of them quite impressive (Lexus saw a whopping 195.5 percent increase), according to automotive consultancy Samar. Where Poles go on holidays is also strongly correlated with their income. During the communist era, Poles rarely vacationed abroad, and if they did, they traveled to other communist countries, with Bulgaria being the most popular destination. Shortly after the transition, holidays abroad were often considered an unnecessary expenditure, but the sentiment is changing. Just like with cars, Poles like their holiday choices to reflect on their material status. For years, Greece gas been the most popular tourist destination. But each year, an increasing number of Polish tourists are choosing much more exotic places, like Ghana or Thailand. After several years of thrift, Poles are finally beginning to believe the economy is back on track. This year, the average household income of families planning on going on holiday abroad is PLN 4,500 (€1,070), while in 2013 it was PLN 6,000 (€1,400), according to data released by Mondial Assistance, an insurance firm. Poles are also choosing increasingly expensive accommodation. The share of stays in four-star hotels has risen from 37 percent in 2006 to 44 percent in 2012, while the figures for three-star hotels are showing the opposite trend (41 percent in 2006 against 27 percent in 2012, according to travelplanet.pl). Fashion aware What if you don’t drive a car, because your apartment is conveniently located next to the subway? One of the easiest ways to show off your material status is through the clothes you wear. The Polish middle class is increasingly aware of that and new brands keep replacing old favorites. Only in 2013, 13 new fashion brands entered the Polish market, including some premium ones, like Manila Grace, Karl Lagerfeld and Armani Jeans. Interestingly, tailor-made designer clothes are no longer seen as a luxury commodity, available only to the very few affluent members of society, but are attracting ever larger crowds. “The group of clients who appreciate tailor-made clothes is getting bigger,” said Tomasz Ossoliński,
a Warsaw-based fashion designer. “My clients represent different professions. They are lawyers, politicians, businesspeople and actors. … And they’re not only men, but often also women who like tailormade suits,” he added. Healthy, wealthy and young Gym membership is another status symbol – so much that an increasing number employers include it in their job perks, right next to a competitive salary and private health insurance. Still, Poles are not a nation of athletes, as only 5 percent of the population pursues sport or fitness on a regular basis. Another 23 percent do it “with some regularity,” as data from Eurobarometer show. “Our experience and available data show that it is 20-40-year-olds who are most engaged in sports and fitness activities,” said Tomasz Józefacki, CEO of Benefit Systems. Last year, the value of the fitness market in Poland stood at some €250 million and is expected to increase. Physical activity is only one facet of a healthy lifestyle and a growing number of Poles are also becoming conscious about their nutrition. With a total value of €4.2 billion, the health and wellness food and beverages segment represented 21.2 percent of the total Polish packaged food and beverages market in 2013, according to data from Euromonitor International. Analysts have no doubt that the health and wellness market has a lot of potential for growth. Last year, despite being difficult for the Polish economy, saw an increase in the the healthy foods consumer base, meaning more and more Poles visit organic food stands in supermarkets as well as specialist organic shops, a trend retailers are eager to capitalize on. Carrefour for instance is adding organic food aisles to its supermarkets in Gdańsk, Łódź and Wrocław. Food craze The Polish middle class is also increasingly eager to eat out. They are not afraid to experiment and prefer exotic cuisine to traditional Polish restaurants. Granted, it’s still a budding market compared to Italy or France, where eating out is part of the daily routine. In Poland, only about 3 percent of Poles, mostly those living in major cities, eat in restaurants regularly.
WBJ OBSERVER • SEPTEMBER 2014
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FEATURE / MIDDLE CLASS
Varied and volatile
Ewa Boniecka: Who are Poland’s middle class? Juliusz Gardawski: In Poland, the middle class is far more varied and volatile than elsewhere. Generally the middle class is defined by their income. They are above the 20 percent with the lowest income and below the 20 percent with the highest income. In Germany, for example, the middle class are those with disposable income between 70 and 150 percent of the median income in society. If we try to define the Polish middle class on the occupational and economic basis, it will encompass both small employers and self-employed professionals, such as lawyers, doctors, various consultants, as well as civil servants and the upper strata of the working class etc. From the economic point of view, the most important group are entrepreneurs. Is the Polish middle class getting bigger and stronger? I think that as all social groups improve their standards of living, also the aspirations and influence of the Polish middle class will be growing, further stabilizing our democratic system. It is after all the middle class, that has the largest influence on the direction in which the country is going. So it is in our national interest to grow and strengthen the middle class. Are the divisions between different classes in Poland strong? Some sociologists say that traditional class divisions are no longer applicable, due to the technological revolution and globalization of the world economy. The divisions between groups are mostly cultural, ethnic and related to lifestyle rather than anything else. The role of big corporations and corporate culture is growing and influencing the behavior of all social groups. Your research focuses on small and medium-sized entrepreneurs. How much do they contribute to the Polish economy? Statistical research shows that privatelyowned micro-firms provide about 29 percent of the gross national product, large enterprises about 24 percent and small and
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medium-sized firms about 19 percent. This means that big corporations are not the largest contributors to our economy. Polish entrepreneurs come from various social groups and almost half of them come from the working urban and rural class. Half of them have higher education. Some of them are also people from the old establishment, those working in high positions during the communist era, in state-owned companies. There is also a group of craftsmen who are now trying to expand their businesses. In 2010-2011 you conducted research on 70,000 small and medium-sized employers. How has this part of the middle class evolved over the past 15 years? What is interesting in comparison to my findings made in 1999-2000, is that despite their business successes and greatly improved financial standing, many entrepreneurs feel frustrated and claim that their interests are being ignored and neglected by the state. They say that big corporations have much easier access to public contracts and EU funds and that they enjoy more tax privileges than SMEs do. What is very positive is that their businesses are open to innovation. However, they do not trust their workers, they have a rather paternalistic approach to them and they are reluctant to cooperate with trade unions. Very few are members of industry and business organizations because they also do not trust them. In my view, these are the consequences of the very low level of social capital the Polish society had under communism. Polish entrepreneurs are still very self-reliant and do not believe that business and trade organization could serve their interests. They also have an ambiguous attitude towards the state. They do not trust it, but on other hand they support at least some of its involvement in the economy: social services and health care. They expect that the state will support modernization and innovation in the economy. So if we look at entrepreneurs as members of the middle class, it is a picture of a class of people satisfied with their accomplishments, yet somehow frustrated.
Nerd power The Polish job market favors the IT caste. The median monthly salary for computer science majors in 2013 was €1,800, with 25 percent of all IT specialists making more than €2,600 a month, according to research firm Sedlak & Sedlak. Computer wizzes place less value on established status symbols, like cars and clothes. Instead, they favor good food, comfortable living space, cutting-edge entertainment equipment and maybe some exotic holidays every now and again. They spend a lot on their hobbies, too.
In 2012, Poles spent on average only 2.8 percent of their disposable incomes on restaurants and hotels, three times less than the EU average. The entire gastronomy market in Poland is valued at some €6 billion. By comparison, the French food service industry is valued at some €80 billion. But recent figures are showing some promise. In 2012 alone, 1,500 new restaurants opened across Poland, increasing the total number of establishments by some 10 percent. Even though some of that growth was the product of the football championship held in Poland and Ukraine in 2012, most of them managed to survive, which bodes well for the future of the market. Even though internally varied and still in the early stages of development, the middle class is Poland’s biggest growth engine. They are ambitious, entrepreneurial and ready to fulfill their dreams. “As all social groups improve their standards of living, also the aspirations and influence of the Polish middle class will be growing, further stabilizing our democratic system. It is after all the middle class, that has the largest influence on the direction in which the country is going,” said Professor Gardawski. u
All images: Shutterstock, Juliusz Gardawski
Juliusz Gardawski, director of the Institute of Philosophy, Sociology and Economic Sociology at the Warsaw School of Economics
FEATURE / MEDIA ON DEMAND
Right here, right now BY JOHN BEAUCHAMP
WHILE DOMESTIC MEDIA ON DEMAND SERVICES IN POLAND ARE WELL ESTABLISHED, INTERNATIONAL PLAYERS ARE YET TO PROPERLY CASH IN ON THE MARKET
With the increase of Poland’s broadband network, both wired and wireless, the market for media on demand, whether it be video or audio, is ripe for expansion. But while Polish online services have mushroomed over the past years, foreign players have yet to cash in on this segment. With over 72 percent of Polish households hooked up to the web in 2013, according to Eurostat, one would have thought that despite the rise of digital TV broadcasting, the appeal of being able to watch something through the home PC or on a smartphone would have greater traction. Alas, this is not so. Or so you would think. In fact, the figures tell a different story. Domestic appeal There are a great number of video on demand services (VoD) in Poland – an audit by the National Broadcasting Council (KRRiT) lists 21 companies – ranging from the hugely popular, such as the Polsat-sponsored Ipla.pl
and Onet’s Vod.pl, to smaller companies which, while do not have a great market share, still manage to keep up their game. One such smaller service is Iplex.pl. Despite having a market share of 0.65 percent in January 2014, “currently, the service has 200,000 unique users and 3 million page visits per month,” explains Deputy CEO of Iplex.pl Łukasz Skrzypek. He adds that revenue from paid content accounts for 25 percent of the company’s total income. At first glance, the figures look impressive for a company with such a small market share. In fact, they are a drop in the ocean when compared to the big players on the Polish VoD scene. Player.pl, which is run by media giant TVN, has around 3.7 million unique users and that’s only through their website. “You have to remember that this does not include the number of users and views generated by mobile devices and smart TVs,
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FEATURE / MEDIA ON DEMAND
Not a problem With the rise of domestic services, the market is ripe for foreign investment. Earlier in 2014, a rumor made the rounds that US-based VoD provider Netflix was mulling over entering the Polish market
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after they published a job offer which involved Polish-English translation. In the end, the rumors proved to be false. A short but polite email from Netflix’s Joris Evers informed me that “we have nothing to share on our planned European expansion,” although he did add, somewhat enigmatically, that “we do hope to be a global provider at some point.” Later in May, however, Netflix did announce that it will commence services in a further six European countries by the end of the year: Poland was not one of them. If Netflix were to enter the Polish market, which it eventually must, it wouldn’t cause much of a headache for Polish VoD providers. “The market is very capacious and constantly growing,” Iplex.pl’s Skrzypek underlines. “Paradoxically, if the entry of Netflix is accompanied by a suitable ad campaign, it could help Polish companies in reaching out to a mass audience.” TVN also doesn’t see a problem if Netflix were to come onto their turf. “We have a loyal audience, so the entry of Netflix wouldn’t cause an earthquake,” Maciejowski says. “Our trump-card is a localized and attractive offer. Users love
Polish series and programs, while the offer provided from the USA is already available in Poland, albeit, unfortunately, mostly through pirate services.” Piracy problems And here we come up against the greatest enemy of media on demand in Poland. A huge number of services are available on the internet which allow for downloading or streaming material free of charge. According to a report released in April 2014 by the consultancy PwC, some PLN 700 million annually is lost from annual GDP due to video piracy. According to PwC’s estimates, one in five Poles use platforms which offer illegal access to video content, with the report claiming that “most of those who watch video content on the internet use both legal and illegal sources (73 percent among film viewers, 49 percent among series viewers and 45 percent of those who watch sports coverage).” Furthermore, according to the antipiracy initative “Oglądaj Legalnie,” around 2.4 million internet users
Images: Shutterstock
which make up a 37 percent share of our platform’s total views,” counts out Maciej Maciejowski, a member of TVN’s board responsible for business development. Indeed, TVN wipes out its direct competition. According to figures published in October 2013 from the Gemius Megapanel, Player.pl comes up trumps with 67.9 million page views. This is a far cry from its contenders, with Ipla.pl managing to muster 22.5 million views and Vod.pl achieving 34.2 million views. The average time per user also plays a part here, with Player.pl grabbing users’ attention for over 9 hours a month. Second only to Player.pl here is Ipla.pl, with over 2 hours a month. By comparison, public broadcaster TVP garners little under 30 minutes a month on its VoD service.
FEATURE / MEDIA ON DEMAND
(18 percent of VoD users) above the age of 14 paid for video content in the belief that they are gaining legal access, although nothing could be further from the truth. Meanwhile, almost twice that amount watch illegal online video content fully cognizant of their actions. “Due to the complexity of the phenomenon, it is necessary to take actions aimed at informing users of internet services and to show alternatives in the form of legal sources, as well as to tighten the system of legal regulations and penalize violations,” said Piotr Baranowski, a partner at PwC. “It is necessary to enact solutions aimed against dishonest service providers, which will make it more difficult for them to derive financial benefits from their pirating activities.” In simpler terms, Polish film director and producer Dariusz Jabłoński told Variety that “in Poland the use of distribution windows makes less and less sense, and that the best way to beat the pirates is to make pics available as soon as possible on VoD.”
“IT IS NECESSARY TO TAKE ACTIONS AIMED AT INFORMING USERS OF INTERNET SERVICES AND TO SHOW ALTERNATIVES IN THE FORM OF LEGAL SOURCES.
Audio stream Apart from video, audio services are also gaining ground in Poland. Before the Swedish-based Spotify entered the market in 2013, Muzo.pl started offering audio streaming services after all the Polish radio stations managed to get on the on-demand bandwagon. And then, of course, there’s the ubiquitous iTunes, one of Apple’s most popular products. Spotify entered the Polish market in 2013, and while it doesn’t provide any country-specific figures, “the average
proportion of paid subscription users in relation to all active users is around 25 percent,” the Spotify press office informs. Furthermore, during its first year in Poland, Spotify users here listened to over 40 million hours of music. Deezer, a French music streaming service, also offers similar services to Spotify with similar pricing, as does Muzo.pl. Here and now There is no doubt that media on demand in Poland is a segment of the media industry which has enormous potential. A number of factors contribute to this: greater internet bandwidth availability thanks to better ISP connections and mobile 4G/LTE services in bigger cities; more and more mobile devices being purchased in Poland (ABC Data, an IT distributor in Poland, believes that sales of tablets will see double-digit growth this year after 2013 sales amounted to around 2 million units); and, more pertinently, greater disposable income, which will allow people to ween themselves of pirate providers. If Poles can afford to watch satellite TV, then it is only a matter of time before media on demand services really start bringing in the cash. u
How VoD platforms differ in terms of usage PLATFORM
AVERAGE TIME/USER/MONTH
PAGE VIEWS
REAL USERS
TVN / Player.pl Polsat / Ipla.pl Onet / Vod.pl Agora / Kinoplex.pl TVP / tvp.pl
09:12:13 02:09:26 01:04:41 00:55:00 00:26:17
67,853,237 22,500,761 34,244,645 1,251,234 9,047,515
1,993,182 2,236,545 3,678,658 130,296 703,159
Source: Gemius Megapanel, October 2013
WBJ OBSERVER • SEPTEMBER 2014
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Co robią TUI, PZU i Play w Valkea Media? – Custom Publishing
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ECONOMIC FORUM IN KRYNICA
Economic Forum in Krynica
ECONOMIC FORUM IN KRYNICA
Krynica Economic Forum 2014
Energy policy and international politics are bound to be on everyone’s mind. Plenary sessions, panel discussions, dozens of press conferences, exhibitions and workshops will take place with an aim to come to a consensus on topics ranging from the
above to macroeconomics, business management, NGO activity, health care and, of course trade. In our current issue, Cindy Miller, head of UPS Europe talks in detail about the run-up to the Transatlantic Trade and Investment Partnership and its impact on EU-US trade relations. According to the Forum’s website, “the Economic Forum [is conducive to] such a dialogue, which will bring agreement, taking into consideration large initial diversity of views...” Perhaps, the value of this meeting is even greater this year. The debates taking place may be a precursor to further cooperation in the region, all the more important for a need to reinvent political relations in Central and Eastern Europe.
Images: Shutterstock, Economic Forum
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wenty-four years in a row, politicians, economists and subject-matter experts have met in Krynica to debate about Central and Eastern European questions. This year the sleepy mountain resort will open its doors again to visitors from far and wide. Majority of the participants hail from Poland, Russia, Germany, Hungary, the Czech Republic or Slovakia; guests from more distant places like the US, India or China, will also be present.
ECONOMIC FORUM IN KRYNICA
24th Economic Forum
Krynica-Zdr贸j, Poland 2-4th September 2014 (Tuesday - Thursday)
Preliminary schedule: Day 1: Inauguration with a Plenary Session, Panel discussions, Thematic Blocks, Concert, Economic Forum Awards Ceremony Day 2: Plenary Sessions, Panel discussions, Thematic Blocks Day 3: Plenary Sessions, Panel discussions, Thematic Blocks, Recreational events, Closing Ceremony
2014 Economic Forum programme topics: Macroeconomics Business and Management International Politics International Security Forum of Regions NGO Forum and Society Energy Forum Innovations and Sustainable Development The European Union and its Neighbours New Economy State and Reforms Healthcare Forum
ECONOMIC FORUM IN KRYNICA
Pulling down barriers WBJ Observer: Trade between the US and EU countries has been growing for decades. Why is the Transatlantic Trade and Investment Partnership so important now?
For UPS, and we are certainly a stakeholder in this process and a supporter of removing trade barriers, the success of the TTIP is important because of the benefits we believe it will bring to our customers. We work with thousands of small businesses in Poland and across Europe, who are looking to expand their horizons and trade with the US, and we work every day to provide solutions to help them achieve their goals.
Cindy Miller, head of UPS Europe: Alongside the e-commerce boom, we have also seen what you might call a fragmentation of supply chains, as more and more goods are made up of components which are produced in several stages in different places around the world. This is As a facilitator of trade, moving goods between markets, UPS conwhat “Global Value Chains” are all about – imports and exports in any tinues to encourage the negotiating parties to make the overall customs given country are increasingly complex, having process as efficient as possible. Moderndifferent parts of value added at different stages ization of these procedures on the EU “Sometimes complicated side, including release of goods at the first and across different geographical locations. point of arrival, is one of the priorities we customs processes So what we are finding is that many businesspromote. We also welcome efforts to inweigh more heavily es, including a lot of SMEs that actually specialtroduce a single window for customs on on smaller companies, ize in the production of specific components or both sides of the Atlantic as this would forcing them to abandon make the import and export process easier services, are looking to transport intermediate ambitions of expanding goods which then go on to form part of a finand more transparent for traders. their business from ished product. These intermediate goods now represent 56 percent of all trade in goods and The framework for the TTIP was the EU to the US 73 percent of all trade in services, according to announced over a year ago. What or vice versa. OECD. has been accomplished over the past year? In these kinds of supply chains, delays, heavy administration and unnecessary costs, no matter So far, there have been six rounds of how low, reverberate along the value chain. So a missed shipment, or negotiations between delegations from the EU and the US, with the next extra time spent on paperwork for customs clearance has a domino ef- negotiation session taking place in Brussels between September 29 and fect and can be amplified along the supply chain. October 3. We think the negotiations have a healthy momentum and good will has been demonstrated on both sides of the Atlantic in the efWhat is the role of the logistics sector in fostering free fort to reach an agreement. trade between the EU and the US? Over the past year, there have also been numerous public hearings in the US and the EU that UPS has contributed to, along with many other At the heart of the matter, the TTIP is really about building on stakeholders such as businesses, civil society organizations and members the foundation of existing transatlantic political and economic ties, of the public, and we want to stress the importance UPS places on all and identifying areas where it makes sense for the US and the EU stakeholders being able to be involved and heard in this process. to work together, all whilst maintaining sovereignty and upholding the tenets of democracy, which are the historical backbone of both What remains to be done to ensure unhindered trade between the US and the EU. the EU and the US? What are the next steps that need to be taken?
ECONOMIC FORUM IN KRYNICA
We believe the TTIP has the potential to address several trade obstacles. The agreement includes eliminating tariffs and reducing the cost of differences in regulations and standards by promoting greater compatibility, transparency and cooperation.
first time, out of all the markets surveyed, with the US being an important export market. According to the survey, SMEs operating in the retail sector are the most optimistic about exports increasing in the next 12 months.
Sometimes complicated customs processes weigh more heavily on smaller companies, forcing them to abandon ambitions of expanding their business from the EU to the US or vice versa. By reducing those administrative burdens, simplifying and speeding up those customs processes, and achieving greater regulatory coherence between the EU and the US, this agreement has the potential to give a much-needed boost to small businesses on both sides of the Atlantic, and make transatlantic trade more accessible for millions of individuals.
Speaking globally, we are seeing that transcontinental and trade across borders is predicted to grow at rates that are in excess of the growth rates of global gross domestic production for the foreseeable future. As a result, economies are becoming more inter-connected and dependent on foreign trade. A successful EU-US free trade agreement will also help US and European exporters alike and create the largest trading bloc on the globe.
At UPS alone, we estimate that an ambitious and successful TTIP, which moves beyond tariff barriers to address a broad range of nontariff, regulatory and supply chain barriers to trade, could boost our trading volume by 13 million packages and support 2,400 jobs annually. What is Poland’s current position in terms of trade with the US and how do you think it will change over time? According to the latest Transatlantic Economy Report by the American Chamber of Commerce to the European Union, Poland has attracted significant sums of US foreign direct investment. US FDI in Poland was $14.2 billion in 2012, the highest level since 2007. Poland’s exports to the US have increased sharply over the past few years, more than doubling from $1 billion in 2000 to over $2 billion in 2006 and reaching its high of $2.9 billion in 2011. In 2012, US imports from Poland fell to $2.7 billion, representing 7.0 percent of Poland’s extraEU exports. Imports include heavy machinery, chemicals and agricultural products. Although Poland’s total imports fell by over 6 percent in 2012, imports from the US increased by roughly 6 percent to $2.5 billion in 2012, accounting for 4.5 percent of extra-EU trade.
Images:UPS, Shutterstock
A recent UPS survey held among European SMEs found that SMEs in Poland are among the most likely to start exporting for the
What opportunities does the agreement offer Poland and other CEE countries? An EU-US free trade agreement will improve economies on both sides of the Atlantic and will help business of all sizes, and particularly SMEs, to broaden their horizons and offer consumers more choice. The TTIP holds the promise of increased international trade, which is vital to economic growth and recovery, especially as the global middle class will likely double in size by 2030. The recent UPS SME survey shows that there is still work that needs to be done to educate businesses on the benefits of a transatlantic agreement. Across the board, in all markets surveyed, SMEs had limited knowledge on the TTIP and views were mixed on its impact. This emphasizes the need to educate SMEs on the benefits of the TTIP for all businesses both in Europe and in the US. Additionally, in Poland over half of SMEs who are aware of the TTIP feel it will make it easier to export to the US: the main perceived benefits are that the TTIP will remove tariff barriers & duties and that it will make customs clearance faster. While negotiations are ongoing, we think that this time presents an opportunity for a logistics company like UPS to help SMEs understand the benefits of the TTIP, and to engage in an honest and open dialogue with SMEs.
WBJ Observer presents
Getting a grip on the information tsunami The majority of managers think that speed is inextricably linked to their business culture. However, organisations appear to be slow in dealing with change. Is this a question of wanting to, but not being able to? Efficiently organising and managing information flows increases the versatility of organisations.
is unknown? Or does the management have to wait endlessly for budget information because the data is ‘locked’ in different systems? Speedboat Commissioned by Ricoh, the Economist Intelligence Unit researched the vision of senior managers on anticipating change quickly. The study, titled ‘The Challenge of Speed’, shows that managers worldwide have a lot of confidence in the flexibility of their organisations. It revealed that 48% see themselves as a speedboat instead of a supertanker (17%), while believing the opposite of their competitors. An impressive 92% say that speed is part of their busi-
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he quantity of data is developing so quickly that numbers are losing their significance. Facebook users are sending nine million messages per hour. Google indexes approximately 1.67 billion pages daily. Every second 9,100 tweets are added to Twitter. Some researchers claim that 90% of all data in the world has been created in the past two years. It is no longer an information explosion, but an information tsunami. On average, employees spend 20% of their time looking for the correct information and documents. This needs to change and needs to be quicker in particular. Simply digitising data is not sufficient. Information has to flow along and through business processes and employees must be able to extract the correct information quickly and share it with each other. After all, should a customer have to tell the same story every time he calls because the contact history
WBJ Observer presents ness culture. However, three quarters also admit they cannot adequately keep up with changes. The organisations that are successfully doing business in a world in which technology disrupts traditional businesses excel in three areas: innovation of products and services, effective use of new technology and optimising business processes. The latter is not just about arranging work systems more efficiently, but also about getting employees to work in a different way. So, simply launching innovative products or throwing all data into the cloud is not sufficient. Real results are achieved by a combination of innovation, technology and optimisation. Learn to let go The aforementioned study shows that effectively linking the various technology platforms is the largest obstacle for European companies. For example, the systems of the front and back office are often separated in such a way that the Sales department does not have access to inventory data and the Purchasing department has no insight into payment arrears. That costs time and money. The second obstacle is cultural. Many traditional managers find it difficult to let go of unnecessary checks and approvals, so that it’s possible to work more quickly. They prefer a manual check on paper instead of a computerised approval in an electronic document. The financial sector ‘The Challenge of Speed’ also looked at the financial sector separately, which is wrestling with the need for speed even more strongly than other branches. Managers in this sector are not only experiencing pressure from customers and shareholders, but also have to deal with national and international legislation. Regulation has been tightened and mobile banking is rapidly growing, and that in a world where trust in banks has drastically decreased. More than half of the senior managers (54%) say that they have lots of ideas about how to approach future changes, but do not see the opportunity to implement them well. The lack of implementation of ideas reaches 43% in other sectors. Managers in the financial sector are afraid of losing customers (38%), higher costs (36%) and new, unknown risks (35%). The financial sector is wrestling with the same problems as other markets, but states that the bureaucratic decision-making process is the greatest challenge. The first step So where to begin? Not with the technology, but with the people. The first step is a committed (senior) management sharing a vision that is clear for the entire organisation. The most important business processes and the information flows that form a part thereof should be subsequently identified. Management ought to determine, possibly together with an expert, which processes can be optimised. Next, they will seek advice, where necessary, in order to determine which technology best supports the desired changes. Finally, the leaders need to set up a change management programme and involve those employees who understand the importance of speed and who appreciate how technology and business operations can reinforce each other Source: In ‘The Challenge of Speed’, the Economist Intelligence Unit was commissioned by Ricoh to interview 461 European senior executives from numerous sectors. In total, 49% of them work as a CFO, COO or CTO and 23% are directors or (senior) Vice Presidents.
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43
ENTREPRENEURS / SOCIAL BUSINESS
GOOD PROFITS B Y K A M I L A WA J S Z C Z U K
“CSR SHOULD BE MORE ABOUT REGULAR BUSINESSES FORMING PARTNERSHIPS WITH SOCIAL ONES AND NOT JUST ABOUT CHARITABLE DONATIONS.
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ocial business is a term made popular by 2006 Nobel Peace Prize laureate Mohammed Yunnus. A company involved in this kind of activity remains a business and generates revenue. At the same time, it serves a social goal, such as supporting the poor, nourishing children or empowering the underprivileged. In Poland, social businesses are usually based around NGOs and act in connection with them. Many have been formed thanks to the ideas and perseverance of individuals. Their activity ranges from cleaning services and car repair to selling designer jewelry and home furnishings. Is this already a boom? “I cannot say that social business is in now, we have been working on the issue for about ten years,” said Magdalena Klaus who manages a support program for social enterprises at the Foundation for Social and Economic Initiatives (FISE). Agata Stafiej-Bartosik, country director for Poland at global NGO Ashoka, agrees and stresses that many innovators in Poland have been doing business with profits going to socially important causes for a considerable time. “Ashoka always supported that,” she said. “The situation is changing. People are beginning to realize that profits can be reinvested,” Stafiej-Bartosik said, pointing to EU funds as one of the major factors. “It is also becoming more common for NGOs
to start thinking about a stable source of income in order not to be dependent on authorities’ policies and the whims of donors,” she added. EU funding may not be enough, though. “At first, there was a trend for establishing new businesses, only then did Poles start thinking of the necessary infrastructure,” Klaus said. “Funds from the EU triggered the creation of many social cooperatives, but they often ceased to operate when the funding stopped.” Changing the job market in Biłgoraj Funds from the EU were used only at the very launch of Biłgorajskie Przedsiębiorstwo Społeczne (BPS), which operates in the city of Biłgoraj in southeastern Poland, a region known for high unemployment. In 2007, with the help of NGOs, the city’s authorities established a social enterprise that helps battle the problem. The concept of creating a business unit came after many training sessions, visits to other places and discussions, said Mariusz Wołoszyn, management board member at BPS. “At first, it was supposed to be a social cooperative, but it then became a limited liability company and it turned out to be a good choice.” The company has two main goals. One of them is employing people who would normally have problems with finding a job. The other is providing services, as any other company would, Wołoszyn
Images: Fundacja Być Razem, Nurture the World
Companies involved in social business bring profit and aim to make positive social changes
ENTREPRENEURS / SOCIAL BUSINESS
“IT IS BECOMING MORE COMMON FOR NGOS TO START THINKING OF A STABLE SOURCE OF INCOME IN ORDER NOT TO BE DEPENDENT ON AUTHORITIES’ POLICIES AND THE WHIMS OF DONORS.
said. These now range from office cleaning services to car washing and taking care of city lawns. The company operates without external financing, the proceeds come from customers. “Just like any other enterprise, we have to find new customers, new orders. We operate on the open market,” Wołoszyn said. “We look for tenders and any other types of orders, also from other businesses.” Not long ago, BPS obtained several large orders through a tender organized by the city of Biłgoraj. There is no rule as to the clients, though. It has also started working for companies building roads in the region. This required training the firm’s employees, but that was not much of an issue, as BPS is flexible. Being Together for a better cause The story of the “Being Together” (Być Razem) Foundation, which runs a social enterprise in Cieszyn in southwestern Poland, goes back 18 years. “At first, we were an association directing its activity to people in Cieszyn who did not cope with their lives in one way or another,” said Mariusz Andrukiewicz, president of the board at the foundation. “The ‘Being Together’ association initially organized a network of homes for the underprivileged in the city, mostly in ruined buildings that needed to be refurbished.” “At some point, we came up with the idea to give the people
we were taking care of some kind of employment. They usually had problems with getting employed for various reasons. That is how we decided to start a social enterprise,” Andrukiewicz said. The idea came to life about 10 years ago and was followed by the establishment of a foundation. The group of activists then found a former factory building and refurbished it with the help of EU funds. “Currently, each of our divisions performs differently in terms of business. The laundry is self-financed. The carpentry workshop is also doing well, though it depends on the specific moment,” Andrukiewicz explained. “In the case of the catering business, we are now relaunching it after an unsuccessful attempt to manage it through a social cooperative.” The “Being Together” social business now manages to finance about 85 percent of its activity on the market. The remaining 15 percent comes from a subsidized project. “Our aim is to be 100-percent market-financed, though I do have second thoughts about that,” Andrukiewicz said. “Wisely-applied subsidies may be a good way of supporting social business.” One of the things that makes the Cieszyn-based business unique is the WellDone® brand of designer goods made in its carpentry workshop (see pictures). They have recently formed a partnership with furniture producer and retailer Vox Meble, which started selling the products in its stores.
WBJ OBSERVER • SEPTEMBER 2014
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BUSINESS AGAINST HUNGER Interview with Monika Jabłońska, CEO of Nurture the World, a global social business that makes and sells designer products with the aim of ending child hunger
What made you come up with the idea of getting into a social business? I think that at a certain moment, most people stop to reflect upon their professional life, and make the necessary changes and set goals to define themselves. This is exactly what I did in order to design the life that I want to live. Inspired by my own business, by both legal and life experiences, including people I met, travels I took, and also following my own beliefs and passions, I decided to launch a global and social business called Nurture the World. I believe that through giving back we are not only becoming a part of the change we want to see in the world, but we also gain inner peace, happiness, and balance in our own lives.
How does your business work? Nurture the World sells different products such as handbags, t-shirts, jewelry and other items, and a portion of the proceeds from each product sold goes toward different organizations that are working to end child hunger. To encourage and help growth, Nurture also forms partnerships with a variety of firms from all over the world. Nurture makes its own products in the US, Brazil and Europe. At this point, we are trying to support local economies in different countries; creating new job opportunities for people; promoting local brands and products and opening opportunities for them on the domestic and global arenas.
After a long and careful due diligence process, we sign a grant agreement with the organization that we select to work with and we transfer a portion of the sales proceeds to the selected entity. Then, the organizations distribute the funds to local schools and children in need. All organizations, agencies or foundations we work with are obliged to provide us a report on the money donated by Nurture and distributed to children.
What is the business angle of your activity? Does it make sense from that perspective? Nurture the World is a socially responsible project that combines the altruistic features of a non-profit organization with the economic self-sufficiency of for-profit business. Nurture is designed to address the social causes in the fight against child hunger. However, as a business we do not rely on donations and instead focus on marketing and developing our products in a manner that also fosters economic development. Like with all ventures, one must be willing to work hard, be persistent, ready for sacrifices, and be patient enough to see the positive results of the first business steps.
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Monika Jabłońska
Caring for those who care “Being Together” has yet another goal – to teach others about social business and corporate social responsibility. “In our view, CSR should be more about regular businesses forming partnerships with social ones and not just about charitable donations,” Andrukiewicz said. “What social enterprises need the most is real cooperation with an ‘older brother’ business.” Stafiej-Bartosik also feels the need for such cooperation. “An interesting example of social business is co-creation, when social entrepreneurs join forces with a company to reach a common goal. However, this is still very rare in Poland,” she said. Both she and Klaus agree that social entrepreneurs themselves also need to brush up their skills. “Polish social entrepreneurs usually have good ideas, but they lack business-related skills. They have problems in areas such as customer service. We are now at a point where it is not direct financial support that is necessary for social business to grow, but knowledge and skills,” Stafiej-Bartosik said. “Polish social enterprises are now becoming more professional, they know they must do so in order to stay on the market,” Klaus said. This can be a challenge sometimes, as they often employ people who would otherwise remain outside the job market. Nevertheless, with regular business partnerships and wise support from the authorities, they should be able to grow. u
Image: Nurture the World
And how do you transfer the money?
SEPTEMBER 2014
INTERVIEW WITH ALAN COLQUHOUN INVESTORS' CHANGING PERSPECTIVE >66
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THE RECORD BREAKING LOGISTICS PIPELINE BEGS THE QUESTION HOW FAST THE SEGMENT CAN GROW >56 FIGHTING FIRE WITH FIRE RETAILERS EMPLOYING TECHNOLOGY TO FEND OFF THE E-COMMERCE THREAT >62
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Immofinanz sells logistics portfolio for €33 million
BOKSERSKA Distribution Park
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mmofinanz Group has sold two logistics properties, Bokserska Distribution Park in Warsaw and Westpoint Distribution Park in Prague, for a total of €33.2 million, the company said in a statement. The Warsaw property, comprising 17,500 sqm of space, was purchased by UK & European Investments, while the Prague facility (64,000 sqm) was bought by Czech-based investment firm Central Group. u
Prologis buys two warehouses from Invesco Prologis purchased two logistics facilities, one in Poland and one in Hungary, from Invesco Real Estate. The value of the deal was not disclosed. The portfolio totals 94,200 sqm and is fully leased for an average term of six years. The property in Gliwice, Upper Silesia, Poland, comprises 56,700 sqm leased to Tesco and will be renamed Prologis Park Gliwice. The property in Hungary is located in Budapest and is occupied by Auchan. u
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AMBASSADOR was completed in March 2013
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Hines buys Ambassador office scheme in Warsaw
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eal estate fund Hines Poland Sustainable Income Fund (HPSIF) has acquired the Ambassador office building located in Warsaw from Kronos Real Estate. The value of the transaction was not disclosed. The Ambassador Office Building is located at the junction of ul. Domaniewska and ul. Pęcherska, in the Mokotów district. The class A scheme was completed in March 2013 and offers 14,900 sqm of office space and 1,000 sqm of retail space on the
ground floor. The building’s tenants include Coty Poland, Gras Savoye (Pol-Assistance), DSV, Ipsos and CBRE Corporate Outsourcing. “The purchase of Ambassador is the first transaction completed by the HPSIF fund. The strength of the tenants and the quality of the asset make the Ambassador an attractive acquisition for the portfolio,” said Leo Chen, senior managing director and fund manager of HPSIF. “We intend to continue our expansion in this attractive investment market,” added Chen. u
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Ghelamco completes portfolio sale to Starwood
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eveloper Ghelamco has finalized the sale transaction of three office buildings to an American private equity investor – Starwood Capital Group. The terms and conditions of the transaction remain confidential. Two of the offices, T-Mobile Office Park and Łopuszańska Business Park, are situated in Warsaw’s southern business district, while Katowice Business Point is situated in the center of Katowice, Upper Silesia. The offices have a total GLA of 78,000 sqm. u
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l OFFICE
Raiffeisen Polbank leases 20,000 sqm in Wola Raiffeisen Polbank has signed a lease agreement for 19,500 sqm of office space and the entire retail space in the Prime Corporate Center scheme, currently under construction on ul. Grzybowska in Warsaw. The scheme will be completed in 2016. This is the biggest lease transaction recorded this year. The project will feature 21,000 sqm of office space on 23 floors plus five underground levels featuring 200 parking spaces. The investor, a company established by GetHouse and Golub & Company, launched construction in spring of this year. u
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Images: Advanced PR, Ghelamco, Immofinanz Group, Colliers, Griffin Group
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WHO’S NEWS
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Griffin gets green light for Hala Koszyki
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eveloper Griffin Group has obtained a valid building permit for the redevelopment of retail/ office scheme Hala Koszyki in Warsaw’s city center. Construction is scheduled to be launched by the end of August and completed in 2016. The project’s total cost is estimated at €80 million. Apart from 6,000 sqm of retail space
within the historic Hala Koszyki, the developer will add 15,000 sqm of modern office space, located on the mezzanine of the main building and in three office buildings that will be built around Hala Koszyki. The complex will also feature underground parking garage for 200 cars and a 600-sqm public square in front of the historic building. u
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Serenada mall in Kraków with €140 million financing
Warsaw office vacancy may reach 19% in 2016
France-based investment holding Foncière Euris will finance the construction of the Serenada retail center in Kraków. The investment is valued at €140 million. The developer of the scheme, Mayland Real Estate, is scheduled to start construction in October of this year and deliver it in 2016. Serenada will offer 43,000 sqm of GLA and will be erected near the Krokus shopping center, which features a 20,000-sqm Real supermarket and 8,000 sqm of retail gallery. u
he Warsaw office market continues to experience strong supply pushing up the vacancy rate, which currently stands at 13.4 percent and is expected to increase up to 19 percent within the next two years, according to CBRE. As much as 190,000 sqm of office space have been delivered to the market this year within 18 schemes. Another 375,000 sqm is scheduled to be delivered by the end of 2017. u
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Panattoni to build 90,000 sqm of warehouses in Upper Silesia
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anattoni will build four warehouse schemes totaling 90,000 sqm of space in Sosnowiec, Upper Silesia. The park will be located at the intersection of the A1 and A4 highways. Its first phase will deliver 21,900 sqm of space. u
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l H O S P I TA L I T Y
Agnieszka Kołat has been promoted to National Director in the field of CEE retail investment at JLL. Kołat has over 12 years’ experience in real estate and has been involved in a number of investment deals, including the sale of Silesia City Center in Katowice (for some €400 million), Galeria Dominikańska in Wrocław (€152 million) and Manufaktura in Łódź (€390 million). Overall, she has advisory experience on deals totaling €3.22 billion across the CEE region. Kołat graduated from the Warsaw School of Economics and the Sheffield Hallam University. She has also completed a post-graduate Valuation course at Warsaw Technical University and is a RICS member. Agnieszka Ciupak has been promoted to the position of Head of Office Leasing at Griffin Group. She will be in charge of leasing and marketing strategy for the group’s entire office portfolio, including Hala Koszyki, Prima Court and Nordic Park in Warsaw, as well as Centrum Biurowe Lubicz in Kraków. She has 16 years of experience in real estate. She has previously worked at Globe Trade Centre and UBM Polska. She graduated from the Warsaw School of Economics and University of Silesia in Katowice.
LOGISTICS
Hampton by Hilton hotel will be built in Wrocław
853,000 SQM
est Real Estate will build a Hampton by Hilton hotel in Wrocław, set to be completed in 2015. The company has already obtained a credit loan for the construction and, through its subsidiary Rialto, signed an agreement with a general contractor. The hotel, dubbed Hampton by Hilton Wrocław City Centre West, will feature 100 rooms. It will be the city’s first hotel under the Hampton by Hilton brand. u
OF LOGISTICS SPACE WAS UNDER CONSTRUCTION ACROSS POLAND AT THE END OF JUNE, ACCORDING TO CBRE.
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LOKALE IMMOBILIA / LOGISTICS
Trend or hype No one doubts that the warehouse segment is where the money is right now. With record high pipeline and investment deal volume outstripping office and retail, the sector continues to attract attention. Tenant demand is also nearing pre-crisis levels. Is the growth trend sustainable, though, or has it reached its peak?
At B Y B E ATA S O C H A
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€218 million, the investment transaction volume in the warehouse segment in Q2 2014 was for the first time higher than the total deal volume in the office and retail segments combined. That may sound impressive, but is largely the result of lower deal volume in the other two segments, as recorded in the second quarter of the year. Altogether, real estate transactions in the second quarter, totaled €409 million in Poland. This was significantly lower than in the first quarter of the year, when close to €1 billion in real estate deals was recorded, according to CBRE. Still, it does put the logistics segment in the spotlight for major investment funds and for developers. Western Poland remains the hottest location for new warehouse developments. At the end of June, there were 853,000 sqm of logistics space under construction across Poland, the highest volume since 2008, with the majority being built near Poznań (316,100 sqm) and Wrocław (314,600 sqm). The stock currently under construction will increase Poland’s warehouse supply by 10 percent (it now stands at a little over 8 million sqm) and the pipeline might get even bigger in the future. “Developers are increasingly eager to buy land for warehouse development. A year ago, they would buy land only after they had secured a tenant,” said Tomasz Olszewski, head of the Industrial Department at JLL. There is also more speculative space being built. At the end of H1 2014, 77,500 sqm of warehouse space under
construction (10 percent of the entire pipeline) was not secured by pre-leases, according to JLL data. West-bound The two western cities of Poznań and Wrocław are definitely the hot zone, mainly due to greatly improved transport infrastructure and their proximity to the German border, as a lot of goods are being distributed to and from Germany. Out of the total net demand for warehouse space of 527,000 sqm recorded in the first six months of 2014, Poznań accounted for 103,000 sqm and Wrocław for 88,500 sqm, according to JLL. Warsaw suburbs also continue to attract tenants, with 89,000 sqm of space leased in H1 2014. “Poznań and Wrocław have been experiencing a real boom over the past year and a half. It started even before Amazon came in,” Olszewski said. Last year, the e-commerce giant leased 300,000 sqm in built-to-suit centers, scheduled to be completed this year near the two cities. Change in demand The demand figures for the first half of the year may be quite impressive, with gross take-up reaching 912,000 sqm in H1 2014, 17.2 percent more than in the same period last year and 62 percent more than in H1 2012, according to JLL. But what some would color as a longterm boom, may in fact turn out to be rather incidental.
LOKALE IMMOBILIA / LOGISTICS
Image: Shutterstock
The spike in demand for warehouse space seen over the past months is at least partially the product of changes in public support for investments announced in late 2013. Starting July 1, 2014, investors applying for permits in any of Poland’s 14 special economic zones can count on far less favorable tax incentives. For example, the maximum level of tax relief in the areas around Poznań and Wrocław fell from some 40 percent to about 25 percent. No wonder then that the changes prompted investors to storm Special Economic Zones and apply for permits en masse before July 1. “We’ve seen artificially pent-up demand for SEZ investments before July 1 of this year,” said Olszewski. Over the first six months of 2014, investors pledged to invest PLN 21 billion, 40 percent more in year-onyear terms. They obtained 438 permits and said they would create 20,500 new jobs. The figures are expected to drop in the second half of the year.
Warsaw area
2,828,300
Silesia
1,517,900
Central Poland
1,068,400
Wrocław
920,500
Poznań
993,600
North
338,800
Kraków
338,800
Eastern Poland
130,100
Szczecin
62,100
“Now there is little activity in SEZs, new investors are no longer lining up in front of SEZ offices,” he added. However, developers remain convinced there is still a lot of potential in the warehouse segment. “Poland’s internal demand is at 1 sqm of warehouse space per person, which translates into 40 million sqm in total,” said Robert Dobrzycki, managing partner of Panattoni Europe. He added that, “A lot of demand is also generated by companies shipping goods outside Poland, like Amazon, which will service Western Europe from its Polish centers, as well as production facilities delivering spare parts to German automotive manufacturers.” Outsource it Even though industrial space may be less in demand in the coming months, logistics firms and retail chains will likely make up for the loss. Nine out of the ten largest new leases in H1 2014 were signed by logistics operators and retail chains, according to JLL data. These two
Source: CBRE
Poland’s logistics stock (sqm)
sectors have been leasing more and more space over the past years, and nothing indicates the trend is going to stop. “The dynamic development of logistics centers built for logistics and retail companies, which have traditionally generated the highest demand for warehouse space, is proof that these assets are in demand,” said Magdalena Szulc, head of SEGRO for the Central European market. “Logistics centers in Poland serve both the domestic market and the entire Central European market. Many Poland-based logistics firms also operate in more remote locations, including Scandinavian and eastern markets,” she added. Logistics operators’ demand for warehouse space is definitely increasing. “In the first six months of 2014, logistics firms signed new leases for 254,000 sqm of space (48 percent of the net demand). Meanwhile, their demand in all of 2013 stood at 295,000 sqm,” said Kamil Szymański from Industrial Agency at JLL.
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w Robert Dobrzycki, managing partner of Panattoni Europe
Record breaking H2
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he beginning of 2014 saw high volumes of supply, as signified by the 270,000 sqm of space delivered in the first quarter of the year. Builtto-suit schemes dominated in H1 2014, particularly those built for the manufacturing industry. In the warehouse sub-segment, logistics firms were the most active tenants.
The warehouse market in Poland is relatively balanced at present. Good road infrastructure is helping the industry. We can see that the newly delivered sections of highway have spurred new demand. Companies that until now have leased smaller units in different locations are consolidating their facilities. The good condition of the warehouse market should continue throughout the second half of the year. We can see an overall macroeconomic recovery in Europe, which should improve both business and consumer sentiment. The better availability of financing for warehouse projects, which is usually a major challenge both to developers and tenants, also bodes well for the industry. Investor activity in the warehouse segment is also evidence that the market is getting stronger. The sector’s yields stood at 7.25 percent for the first six months of the year.
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“A lot of firms decide against running their own warehouses. Instead they outsource to companies specializing in warehousing and logistics services, which offer not only space but also machines, people and even specialist computer software,” JLL’s Olszewski explained Retailers gear up Meanwhile, retail chains took up 19.3 percent of all new space leased in H1 2014, which is some 102,000 sqm. The figures are consistent with a long-term growth trend in the amount of warehouse space leased by retail firms. In H1 2013, retail chains leased approximately 72,000 sqm of new space (15 percent of total net takeup), while in the first half of 2012 and
their share in total net demand was a mere 5 percent. “The increased activity among retail tenants is the product of growing consumer demand for FMCGs as well as the rapidly developing e-commerce sector, which has been fueling changes in the logistics and retail segment for the past few years. We expect that internet shopping will increasingly stimulate demand for modern warehouse space in Poland,” Szulc said. Olszewski explained the trend saying that “the number of new stores being opened is no longer that high, so retailers are looking for a competitive edge in operational efficiency, delivery times and low costs. We can see that retail chains are gearing up to compete also in this area.” About 15
Image: Shutterstock, Panattoni Europe
Panattoni Europe delivered 100,000 sqm of space during that period. We still have 307,170 sqm under construction, including two BTS projects for Amazon totaling 201,300 sqm. Their completion will make the second half of 2014 a record-breaking period in terms of new space delivered. Additionally, we launched the expansion of five logistics parks.
LOKALE IMMOBILIA / LOGISTICS
OUT OF THE BOX Though still largely experimental, unmanned vehicles are also making headway into the commercial domain. Using drones to deliver items directly to clients’ homes may seem a bit far-fetched, but there could be other applications for the technology, like carrying parcels and assembling shipments inside storage facilities.
“We’ve seen artificially pent-up demand for SEZ investments before July 1 of this year.
percent of all demand came from the e-commerce sector, JLL estimates. The exact size of the sector’s demand is difficult to asses, as some of this demand is included in the retail chains category and some falls under logistics operators. u
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Amazon, which recently applied for permission from the US government to test its drone-based delivery service, is hardly the only pioneer. At least a dozen other US companies are filing for drone permits as well. The drones would serve a variety of commercial applications, including movie-making and inspecting oil rigs. In Poland, Postal service provider Grupa Integer.pl, which introduced the concept of parcel lockers in Poland and in several countries abroad, is researching whether unmanned vehicles could be used to deliver parcels to their lockers instead of delivery vans. However, most remain skeptical about dronebased logistics. “We did our test shipment from one side of the Rhine to the other. We know they can work but there are considerable limitations. This is all prototype stuff at the moment,” said John Pearson, CEO of DHL in Europe. “Ultimately, one day it could be the cheapest form of delivery known to man, but right now there are probably three or four commercial drones in the world,” he added.
Cheap space
P
oland continues to have highly competitive rent levels compared to other CEE countries, ranging from a little over €2 per sqm per month for
big box sheds in Warsaw suburbs and Central Poland up to €5 per sqm per month in small business units (SBU) located within Warsaw. Relatively low
land prices, lower construction costs and competition between developers are some of the factors maintaining competitive rent levels.
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WBJ Observer presents
Global trade barometer The logistics sector has grown remarkably over the past few years, while almost all other industries have struggled to stay afloat? Why is that? When the domestic economy isn’t doing so well, people will always look to trade and exports. Spain and Italy are great examples. When the market wasn’t that strong over the past few years, and when the euro currency favored them, they naturally looked to overseas trade. We are a natural beneficiary of that. When the economic slowdown was at its worst, our business in Greece, Italy, Spain and Ireland grew volume-wise close to 20 percent at a time when you’d think it would be flat. And while the economy is coming back on track in Europe, there is still a strong export profile. Logistics is a great barometer of where trade is happening. Which countries are the biggest importers? Wherever the demand isn’t matched by local supply, particularly in the B2C market, there will naturally be inbound flow. In the UK, people buy from UK-based websites; in the US, they buy from US-based websites. But in Russia, or in Poland for that matter, people buy a lot from Spanish websites (e.g. Zara, Inditex, Mango) or from the UK. There are also very high flows of B2C trade from Europe to Australia. For instance, there are lots of people buying Liverpool or Manchester United T-shirts in Australia. How many markets do you cover with your services? Our advantage is that we service every kind of customer, every industry; but most importantly that we’re in every country in the world. So when we say that we deliver to Africa, we don’t mean just South Africa, Angola and Kenya. DHL is in all 51 countries in sub-Saharan Africa with our own brand and our own people, offices and aircraft. When it comes to Africa, what is the predominant direction of shipments these days: to or from? Both ways. Africa has a number of export products, such as leather goods, textiles, etc., but it is becoming a great consumer market, too. There is a growing need for inbound services to Africa from China and Europe, including Poland. Do Poles export a lot to Africa? Yes. It’s a reasonable size trade lane. Polish exports to northern Africa and the UAE are among the fastest growing export directions. Not the biggest yet, but gaining in importance quickly. The bulk of your revenue comes from SMEs, but you are also involved in the B2C market. Is e-commerce changing the way logistic companies do business? E-commerce poses unique challenges to every express organization, but I think we are positioned extremely well for two reasons. We have a division called Post – eCommerce – Parcel, which used to be named the Mail division, with services tailored to the B2C market. Maybe it is a little bit slower, but also less expensive. We also offer our services to what I call emerging exporters. Say, a handbag producer from Warsaw is putting his products on the web and he suddenly discovers that he has customers in Estonia, Latvia or
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John Pearson is the DHL Express CEO for Europe
Spain. These emerging exporters use our services to get their products to the market. Depending on the value of the goods, they will use either express transportation for more valuable items, our eCommerce unit for less expensive ones, or another intermediate service. So e-commerce relies predominantly on the cheaper services, right? When someone sets up their business they probably think of DHL Express first to get their product safely and quickly to the consumers. It evolves over time and once their business takes off, their margins will get squeezed by high transportation costs, especially with cheaper products. Eventually, they will move to mail, air or even sea freight. But high-end producers can afford express transportation and decide to use it due to high service and customer service quality, in order to raise their profile. For example, in the UK we have premium, high-end brands that would never entertain the idea of using mail or any slower service. They are very conscious about security and making sure that the goods get to the hands of the people who bought them. Where do you see the biggest growth opportunities in the coming years? Is it the SME market? The SME market, for sure. Over the last four or five years, we’ve had a very strong focus both globally and regionally, including in Poland, on being more attractive and accessible to SMEs. Five years ago, the feeling among smaller enterprises was that DHL was a premium brand. They felt it was too expensive for them. That’s no longer the case. As I travel around Europe, different countries have a different percentage of their business coming from SMEs. In Turkey, a large number of companies are SMEs. In Italy a large proportion of the GDP comes from SMEs, as it does in Belgium and Poland. Also, there are many multinationals here with distribution or manufacturing in a number of industries like life sciences, automotive, electronic components. Poland is a growing export base. In which of these industries is the demand for logistics services growing the fastest? Life science is more of an emerging industry, the other two are well established, both in Poland and in other European countries. The life sciences industry has been expanding very rapidly in Poland over the past two or three years. The industry relies on the premium-end of logistics, which suits us. The pharmaceutical companies and clinical trials require fast, reliable and premium services.
BROUGHT TO YOU BY DHL
Shipment routes are helping give an insight into tendencies in trade
LOKALE IMMOBILIA / RETAIL ABplus Events together with the Association of Polish Architects - SARP are pleased to invite you for the 5th edition of
ARCHITECTURE EXPO CONFERENCE interior architecture | design | lighting | furniture 2014, October 22, Warsaw
International Speakers arch. Nini Andrade SILVA
International Design & Architecture Awards, Overal Winner. She is one of the most highly-awarded designers of the moment and the Special Guest of GIS Warsaw 2014. ATELIER NINI ANDRADE SILVA, PORTUGAL
arch. Johannes BAAR-BAARENFELS
Author of Palais Rasumofsky, winner of the first prize of the category “New and Old” at the 2013 World Architecture Festival in Singapore. BAAR-BAARENFELS ARCHITEKTEN, AUSTRIA
arch. Dominic HARRIS
The winner of Lighting Design Award 2014, the most important international competition in the field of lighting. CINIMOD STUDIO, GREAT BRITAIN
arch. Cristian Santandreu UTERMARK
The author of the only European project awarded in 2014 in USA by the International Interior Design Association, IIDA, within the most important international competition dedicated to interior architects and designers. A2ARQUITECTOS, SPAIN
arch. Voon WONG
Winner of the President's Design Award Singapore, Designer of the Year and member of the jury at INSIDE World Festival of Interiors 2014. VW+BS, SINGAPORE
Erik NISSEN JOHANSEN
Multiple award-winner of the most important international design competitions of the past year and nominated at Best Restaurant, Best Bar and Best Café categories at the 2014 edition of the world's only event dedicated exclusively to the design of food and drink spaces. STYLT TRAMPOLI, SWEDEN
arch. Fokke MOEREL
Winner of the internationally acclaimed Red Dot Design Award 2013 for high quality design, exceptional projects and refined detail solutions. MVRDV, THE NETHERLANDS
Martin GRAN
Managing Director and Partner of an award winning, transdisciplinary design agency, one of the most discussed and sought-after practices today, due to their radical rethinking of the relationship between design, building and landscape. SNØHETTA, NORWAY
INFO / CONTACT www.warsaw.iegis.eu / gis@abplusevents.com konferencje.architektoniczne WBJ OBSERVER • SEPTEMBER 2014
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LOG IN OR LINE UP? Retailers are increasingly aware of the dangers and opportunities of e-commerce. They turn to new technology to drive up sales in traditional stores – but to what end? B Y B E ATA S O C H A
same-day deliveries, retailers need their own delivery systems because they cannot solely rely on courier companies. It also requires efficient order processing and expanding the order picking team,” he added. Point of no return However, online shopping and goods delivery is not without its problems. Return logistics seems to be the biggest issue. “A lot of online stores receive so many returns that they are no longer profitable,” said Eduard Zehetner, CEO of Immofinanz Group. “You want to go to a party, you order a new dress, wear it and then return it the next day,” he added. Naturally, making returns easy for the client can be extremely costly for the store. “It’s a major challenge, as not every company can afford to expand its logistics base and, at the same time, return to the client to collect individual items,” Czerwiak explained. But if a company somehow manages to work it into its business model, it
can become a huge advantage. Take Zalando, for instance. The Berlin-based web fashion retailer may not have been the first one to adapt the “Free shipping! Free returns!” rule. In fact, it has been widely criticized as a rip-off of US retailer Zappos. In any case, Zalando is Europe’s definite market leader in online-only fashion retailing. It managed to pass the $1 billion mark in annual revenue just four years after its founding. Niche filling Even though internet shopping has been around for well over a decade (Poland’s biggest web auction site Allegro was established in 1999), it made its way into the FMCG market only a few years ago. Online sales is a way for most hypermarkets in Poland and elsewhere to make up for their ever declining sales results in traditional stores. Last year, hypermarkets’ food sales dropped by 5.7 percent, according to research firm Nielsen.
Price on convenience
What do Poles find to be the most important in e-commerce? Price
37%
Convenience
35%
Product range, transparency, reliability
27%
Current promotions
25%
Assistance from sales personnel
11% 438
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Source: IRCenter and SW Research, June 2014
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he e-commerce industry in Poland was worth some PLN 15.5 billion in 2010. In 2013, the market’s value stood at PLN 26 billion. This year, its total value will exceed PLN 35 billion, according to analysts from research firm Forester Research. While the pace of e-commerce growth seems to be decelerating in global terms, it seems to be picking up speed in Poland. With the cake getting bigger so quickly, no wonder there are so many contenders, both global and local, looking to make a play for it. Each of them comes with a different bag of tricks. Most hypermarket chains operating in Poland already have well-developed online shopping and delivery systems. The dispatch of goods usually takes no more than two days and the client can select the delivery time that is most convenient for him or her. Same-day deliveries seem to be the next logical step in the retail evolution, one that can be a game changer for the entire industry. Are same-day deliveries a viable option for Poland, though? “They are absolutely possible and we expect that some internet stores as well as brick-and-mortar retailers offering online sales will soon adapt this model. It will definitely be an important competitive advantage for them,” said Mariusz Czerwiak, associate director, Retail Agency at JLL. “It’s a matter of logistics. In order to have
LOKALE IMMOBILIA / RETAIL
Auchan, just like all other major hypermarket chains, already has an online shopping site with home delivery service. It is now trying to fill another niche. It is looking to implement its click-and-collect concept, dubbed Auchan Drive, in its Eastern European stores. In France, the concept is one of the giant’s flagship services, but in Central and Eastern Europe the click-andcollect model is still relatively fresh. “This is an intermediate solution between online purchases with home delivery and shopping in a brick-and-mortar store. You can order goods on the internet and then collect them already packaged and ready to go,” JLL’s Czerwiak explained. “This type of service is a significant change
compared to traditional shopping and we believe it will find its place in Poland, particularly in large cities,” he added. Digital gap Still, there are many retailers that have a lot to learn when it comes to operating in the digital world. Even though mobile devices generate some 38 percent of internet traffic in Poland, some major players, like discount retailer Biedronka, convenience store chain Żabka, and fashion giants LPP and 4F, have no mobile platforms, according to researchers from Boston Consulting Group quoted by daily Rzeczpospolita. Despite lagging a few years behind the west in retail habits, Poles are increasingly
open to new forms of shopping: traditional, virtual and combinations of the two. Augmented shopping, as marketing wizards like to call it, is making its entrance. Augmented experience A Kraków-based start-up created a smart-tagging system, called Estimote Beacons, which is getting a lot of traction abroad. These beacons are small sensors that are located in various places around the store. They interact with mobile devices, like smartphones and tablets, thus providing a digital communication channel with the client. They can be used for in-store analytics, proximity marketing, indoor navigation as well as contactless payment.
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A
mid all this technological revolution, developers remain optimistic that the Polish market still has some niches to fill, both in small cities and in major agglomerations. The volume of retail space under construction in Poland stood at 794,000 sqm at the end of the second quarter 2014, with shopping centers representing 720,000 sqm of that space, a recent report by JLL said. Some 564,000 sqm of the space in the pipeline should be completed by the end of 2014, with shopping centers representing 455,000 sqm of said space. According to Anna Wysocka, head of retail agency at JLL, as much as “37 percent of the developing pipeline will contribute to the growth of stock in cities with a population below 200,000. Nevertheless, major agglomerations remain very active – 44 percent of future shopping center floorspace will open in these cities, with the remainder in cities of between 200,000 and 400,000 residents.” Throughout the first six months of the year, some 252,000 sqm of new retail space was delivered to the market (205,000 sqm within shopping centers), predominantly in smaller cities and towns, with a population below 100,000. The biggest shopping center opened in H1 2014 was Atrium Felicity in Lublin, with 73,000 sqm of GLA. Poland’s total retail supply now stands at 12.1 million sqm of GLA, including: shopping centers (8.7 million sqm), retail parks (1.3 million sqm), retail warehouses (1.9 million sqm) and outlet centers (163,000 sqm).
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The company is now working on prolonging the beacon’s battery life, which is probably the biggest obstacle for this type of technology. Meanwhile, IT giant Apple and a myriad of startups are introducing their own beacon systems. Applications seem limitless. These sensors are great tools for gathering
to become an increasingly important ingredient in the shopping experience. The term “retailtainment,” first coined about a decade ago, refers to using positive reinforcement stimuli to make shopping more enjoyable for the client, in order to increase the time shoppers linger in the mall and consequently the amounts of money they spend.
data about customers, which has been troublesome for brick-and-mortar stores thus far. More importantly, however, these systems are perfect sales tools. They can guide people to current special offers. If you need to clear more merchandise before a new shipment, just offer clients visiting the mall an exclusive 20 percent discount valid for the next 30 minutes. Sales aren’t going so well and you wonder if it’s the pricing policy, the marketing or the visibility of the product? Test different prices and ads when traffic levels in the store are comparable and you’ll have the answer immediately.
Investors have thus far relied on making food courts and lounge areas bigger and more comfortable, and adding a variety of entertainment venues, like movie theaters, bowling alleys or even themed stores. Now, they are adding a digital component to the mix. It could be a funny short film about a product played either on a store display or on your mobile phone when you pass it by. It could also be more practical, for instance a virtual comments sec-
Entertain and prosper If things go the way they are headed now, data gathering and store management will become one and the same. We will have algorithms running the store, analyzing swathes of data every second, controlling the beacons, the price tags, telling floor staff where to display things and when. And on top of it all, they will have to provide entertainment to the clients. Shopping center operators are well aware that entertainment will continue
PLN 35 billion is the projected value of the e-commerce market in Poland in 2014, according to Forester Research.
tion about the product popping up on your phone while you examine it. Though a little scary, experts agree that the digital incursion into traditional shopping is all but inevitable. “We have to create a new environment where we integrate online and offline features and combine the advantages of both worlds,” Eduard Zehetner said. u
Images: Shutterstock
VOLUMES UP
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AN INTERESTING ALTERNATIVE Michael Rausch, management board member of Poleczki Business Park (CA IMMO): Poleczki Business Park is a project that is being developed in stages, which is the most convenient solution for a project of this scale. It enables us to react quickly to the needs of and changes in the market. We have already completed two stages consisting of four buildings with a total area of more than 60,000 sqm. Construction work on the third stage started at the beginning of this month and will be finalized in autumn 2015. The total size of stage three is roughly 17,000 sqm located in two separate buildings. How is the commercialization process going?
Rudolf Grossmayer, management board member of Poleczki Business Park (UBM): All the existing buildings are almost fully leased, with only one bigger unit of 2,000 sqm and just a few smaller units still available. As for the third stage, we have already signed three letters of intent and we are in negotiations with further potential tenants. Definitely, the demand for quality offices seems strong from our perspective. PBP is located within 3 km of the Warsaw Chopin Airport but it’s quite a long way from Warsaw’s city center. What kind of companies choose to locate there? Smaller or bigger companies, local or international, from which industries, are there any common features? RG: We definitely benefit from the location next to the city ring road and the excellent connection to the airport. We are also in an area with significantly lower traffic congestion compared to e.g. Służewiec. Thanks to that you can get to the city center by car in 15-20 minutes. Just in front of the building there are bus stops with 4 bus lines operating and the business park itself offers two shuttle bus lines. The majority of our clients are companies that simply value their time as we are an interesting alternative to the congested office hubs like Służewiec. It is much easier to get here by car and also much easier to find a parking space both for tenants and visitors. Our clients also appreciate the quality of the buildings and low service charges which have been stable over the last couple of years. Poleczki Business Park houses the offices of companies from various industries, although the complex has been especially favored by pharmaceutical and medical enter-
prises. Apart from them one can also find here the offices of a bank, a marketing agency or one of the biggest state agencies. The roster of our clients includes among others: Sharp, Idea Bank, Stryker, Teva, Glenmark, Astellas Pharma, Kone, PORR and USP Zdrowie. Do you have a lot of competition from other projects in the area? Are you anxious about the office oversupply in the coming years? MR: No, because there are no other business parks in the vicinity which can offer their clients the flexibility which we provide. Single-tenant buildings, the possibility of expansion within the park in the following phases, amenities, campus style environment are the clear advantages of our business park. We are aware of the huge competition but the occupancy level in the existing buildings and the amount of inquiries for the next phase indicate clearly that there will always be demand for a high quality product in an interesting location. Besides, we notice that a lot of companies are looking for an alternative to overcrowded business hubs like Służewiec and we are confident it will be to our benefit. You introduced your own bus lines. How do they work: are they free of charge, who do they service, how often do they run? RG: Indeed, our tenants are offered special conveniences: two private bus lines operating 11 times a day, in the mornings and afternoons, to the Imielin subway station and to the airport, as well as a sponsored Veturilo bicycle rental station that allows people to use the bicycle path running alongside the complex. A new Veturilo station will be implemented next season. Since many employees use this means of transport, apart from bicycle parking spaces located on supervised parking lots, we also offer shower facilities on each floor of the building. We regularly poll our tenants to check if they are satisfied with the amenities and services rendered by us and we adapt in accordance with their comments. E.g. the shuttle bus’ departure times have been recently changed to address the needs of our clients. What is important – all of those services are available to our clients at no extra charge.
BROUGHT TO YOU BY POLECZKI BUSINESS PARK
Poleczki Business Park is one of the biggest office parks in Europe. How much of the project has already been completed and how much space is still under construction or is planned? How much space will be delivered in phase three of the project and when?
LOKALE IMMOBILIA / INTERVIEW
Slice and dice
Alan Colquhoun is the head of DTZ for the CEE region. Only a few years ago, real estate investors were willing to buy prime schemes in Poland’s major cities “on the block.” Now, they are far more selective and careful. Warsaw is no longer seen as the CBD plus outer districts. Meanwhile, regional cities are still largely viewed as homogenous markets. What is on the investors’ radar and where do the opportunities lie?
I N T E R V I E W B Y B E ATA S O C H A We’ve seen some fairly significant office deals in the first half of the year. The volume of office transactions has thus far outstripped that of the retail segment. Will the trend continue? In retail, one huge deal can skew the statistics. I would normally rank office and retail somewhat equally, but in the first half of this year, there were three large retail transactions in Warsaw and eight more in provincial cities. Office usually has a larger number of deals, while deals in the retail segment are far bigger in volume. So all it takes is one or two major transactions to outstrip the office segment. Four industrial and logistics deals saw volumes in that sector almost reach those in retail. These are the three main sectors that we involve ourselves in. We do sometimes encroach on development land, hotels or even residential, if it’s part of a mixed-use scheme. Warsaw’s office market continues to see further rent pressure, and in turn lower yields. Are we going to see a rent crunch in all major cities in Poland or is it just the capital that is overheating? In general, as advisers we look at the market from different perspectives. From the perspective of the tenant, you could argue the market is good at the moment. Further downward rental pressure in Warsaw is possible due to the higher supply levels; tenant incentives will probably increase to maintain headline rents. Provincial city rents will likely remain where they are; I would expect demand from the outsourcing sector to shore them up. Core investors are now much more
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discerning than they were a few years ago. They are very specific about what they want to buy: generally only the very best in terms of quality and location in the Central Business District. Whenever one of the prime CBD schemes is up for sale, for instance Skylight Tower, Lumen, Rondo 1, Warsaw Financial Center or the Metropolitan, a certain group of investors will look at any one of these but probably not consider much else. There is also a more recent trend. As the economy and the financial market have recovered, more investors are looking at provincial cities, seeking higher yield. For instance, they are looking at buildings with a long-term blue-chip BPO tenant with a lease for 7-10 years. That might be more attractive for certain investors because the yield might be a bit higher than taking a risk in Warsaw, where we will see a lot of supply in the future. Including the Arka portfolio, eight provincial city office buildings have been sold in the first half of this year in Kraków, Wrocław, Gdynia, Poznań and Łódź. Let’s focus on Warsaw. Hines recently started building its next project – the Proximo building, a 30,000-sqm office scheme in Warsaw’s western Wola district. The 100,000-sqm Warsaw Spire continues to rise less than 200 meters away. Wola will soon see a slew of prime office space come online. What will be the investors’ response to that? Between 2000 and 2010, investors were far less discerning when it comes to buying properties than they are now.
They considered Warsaw to be divided into two submarkets: in-town and suburban. Now, they are very specific, almost on a building-by-building or street-bystreet basis. To give one example, we’ve dealt with an investor who, because of the oversupply issue, would only look at a couple of more prestigious locations where there is less competition. Investors are now interested in some micro-locations, such as in the eastern end of Warsaw’s city center, from Aleje Ujazdowskie and Krakowskie Przedmieście towards the east. It’s perhaps not an established office location, but architecturally, it’s arguably the “nicest” part of Warsaw. There are a lot of ministries, embassies and the Warsaw Stock Exchange is in this area. And you don’t see five new office towers being built on your doorstep. Because of the planning regime and historic nature of that part of the city, there will always be a natural block on supply. I’m not saying that investors will flock there, but at least one big fund in particular is focused on that area. Other areas of interest are Powiśle and around Dworzec Gdański, each with large developments that reportedly have pre-lets to auditing firms in place. As the market matures, it becomes much more specific, “sliced and diced” by investors. So you’re saying we’re going to see more interest in the eastern part of Warsaw now? Yes, I think so. For example, investor interest in Mokotów, a well-established office location in Warsaw, has been cooling
LOKALE IMMOBILIA / INTERVIEW
“AS THE ECONOMY AND THE FINANCIAL MARKET HAVE RECOVERED, MORE INVESTORS ARE LOOKING AT PROVINCIAL CITIES, SEEKING HIGHER YIELD.
off. The success of the district as an office location has even begun to work against it, because of the heavy traffic in the area. I’m not saying that the issue will put tenants off entirely, but it will make them consider other locations, such as around Dworzec Gdański, which is an up-and-coming office area on the north side of Warsaw. One area I’m going watch with interest is Praga, particularly the central part around Wileńska, near the metro line. It will take some time and people will have to get used to commuting across the river. There are a lot of middle-class housing projects being built around in the northeast, on the eastern side of the river. This will influence where companies locate their offices. After Dworzec Gdański and little pockets in Powiśle, I think the next thing will be Praga, particularly the metroconnected parts. Outside of Warsaw, how would you rank Poland’s provincial cities in terms of attractiveness for investors? The most developed provincial cities in terms of the office market are Kraków and Wrocław. They have clearly developed better than the other provincial cities, Wrocław perhaps even a little better than Kraków. The Tri-City comes next. Poznań has also developed, but in terms of demand it didn’t achieve the same initial success as Wrocław did. Wrocław has a higher vacancy rate than most other regional cities. Isn’t that a bit alarming? The city initially did very well because
of the BPO boom and because of the efforts of the city authorities. In consequence, Wrocław saw more speculative supply than Kraków did. But looking at them from a helicopter view, these cities are all much of a muchness and outsourcing/BPO sector demand is expected to remain strong. What about smaller, third-tier cities, like Rzeszów, Olsztyn and Kielce? Are they prospective markets for developers and investors? Any city with a university has significant attraction, particularly for the BPO operators, because there is a ready supply of a multilingual and qualified workforce. The first entrants into such a market avoid competition. In some of the larger cities, like Wrocław, the employment market has become tighter. It not only raises cost, but also makes it more difficult for some companies to get all the people they need. If you’re setting up a BPO and you need a couple hundred people in phase one, it’s difficult to get them in one hit as the labor supply gets tighter. Having a university is one thing. The other one is the supply. When we did a BPO lease acquisition on behalf of Hewlett Packard in Wrocław in 2004/2005, a big issue we faced was the lack of office space. It was an issue that could have jeopardized the whole deal. It so happened that we put them in the Renoma building, which at the time was considered strictly as a retail location by its owner. But it had a lot of empty and flexible office space upstairs, which we convinced them to refurbish. Then as the
landlord refurbished the space, HP grew into it very nicely. Could these smaller second and third-tier cities repeat Wrocław’s success? Some of the obvious places for me would be Lublin, with over 300,000 people and universities. They already have had some successes, as has Olsztyn with Citi Bank. I think that all of these tertiary cities have possibilities, but I wouldn’t say it’s going to be a huge boom. Why not? One thing to bear in mind, is that in order make it a success, almost all developers need to have an exit route. Once they’ve built, they need to sell it. It’s not easy to get one of the institutional funds, thus far only focused on Warsaw and maybe a few first-tier provincial cities, to buy these properties. What would help these smaller cities, apart from a proactive local authority supporting the planning process, would be loosening of the investment legal framework allowing Polish pension funds to invest directly in real estate. If we could create more of a local institutional investment market, the smaller cities would have better prospects. Local funds would be much more likely to buy an 8,000-sqm or a 15,000sqm office building in Kielce or Ostrów Wielkopolski. When you’re in your own home environment then your investment risk will be perceived to be lower than for foreign investors.◆
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LOKALE IMMOBILIA / HIGH STREETS
The High Streets: Al. Jerozolimskie PA R T S E V E N O F A S E R I E S
Recently:
A
lthough located in the very center of Warsaw, Al. Jerozolimskie is rarely considered a high street. It is visited by millions of passersby per year and features retail space on the ground floors of most tenements on both sides of the street, but has a rather limited offer in terms of high street merchandise. About 70 percent of the street’s fashion and accessories brands, mostly luxury and premium names, are showcased in the Vitkac department store located at the corner of Al. Jerozolimskie and ul. Bracka. The Cedet building, situated between ul. Krucza and ul. Bracka and currently under refurbishment, will add 7,000 sqm of new retail space in 2017. Its completion will definitely bring more retail to Al. Jerozolimskie.
Immobel has launched the redevelopment of the Cedet department store, scheduled to be completed in Q1 2017. It will offer 7,000 sqm of retail space and 15,000 sqm of office space. Retail segment: Premium and luxury fashion brands (Vitkac department store), restaurants and cafes Top tenants: Louis Vuitton Gucci Giorgio Armani Bottega Veneta Givenchy
Not a destination As
Agnieszka Mielcarz, Head of Asset Retail Management at Knight Frank
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Warsaw’s main eastwest thoroughfare, Al. Jerozolimskie sees a lot of foot traffic, particularly in its central section between ul. Marszałkowska and ul. Nowy Świat. However, I wouldn’t call it a typical retail destination, let alone a high street. The street is not very convenient for walking, which is an important aspect of high streets. It is more of a city thoroughfare with major public transport hubs. It provides a steady flow of pedestrian traffic to other streets in its immediate vicinity:
ul. Mysia, ul. Bracka, ul. Szpitalna and Pl. Trzech Krzyży. Currently, the street’s tenant mix is positioned towards the convenience segment and is dominated by cafes, fast food restaurants, banks and medical centers. There are relatively few luxury and popular fashion brands. Thus, Al. Jerozolimskie are not a default shopping destination. The Cedet building is a remarkable retail scheme, and clearly stands out on Al. Jerozolimskie. The building is located in the very heart of the city
and has a long retail tradition, deeply ingrained in Varsovians’ memory. It will combine both the retail and office function, in line with the Highest Best Use principle. However, it will likely strengthen the retail potential of ul. Bracka and ul. Szpitalna, rather than that of Al. Jerozolimskie. The scheme will definitely be a new format on Warsaw’s map. With all its retail units accessible from the street via individual entrances, it will be sort of a strip mall or retail park for the city center.
LOKALE IMMOBILIA / HIGH STREETS
Lanvin Louis Vuitton
MCQ Celine Chloe
Images: Immobel, Knight Frank
Which market segment will the tenants represent? Will there be luxury brands? It will not be a place exclusively for the topearning white collars, but for average Varsovians living and working there. All the brands in our tenant mix will be financially accessible to people working in the building and living in the neighborhood. When is the project scheduled for completion? It will be delivered in late 2016 or early 2017.
The building will also feature 15,000 sqm of office space. Aren’t you afraid of the oversupply in the Warsaw office market? When you look at the space under construction at the moment, there aren’t that many projects being developed in
Stella McCartney Kids Alexander McQueen Cristobal Balenciaga Diane von Furstenberg
iat
Gucci Kids Givenchy
Saint Laurent Paris Likus Concept Store
Concept 13 Delikatesy 13
Brioni
Vinoteka 13
Bar 13 Dsquared2 Bar Szampański 13 Emporio Armani Giorgio Armani Stella McCartney
Source: CBRE, 2014
Diesel Gucci
Nowy Św
What is your commercialization plan for the scheme? Cedet will have three levels designated for retail space, that is -1, 0 and 1, which altogether will offer 7,000 sqm of retail space. Each retail module will have its own entrance from the street. What we want to build there is a convenience center, with a supermarket, a drug store plus a few fashion boutiques, at least one restaurant and three coffee shops. We are also talking about the return of the building’s previous tenant – Smyk.
Mommo good food
Are you planning to sell Cedet once you’ve completed redeveloping it? Yes. We are a typical developer: we buy property, procure administrative decisions, design a building, build and lease it and then we sell it.
Nowy Świat
You bought the Cedet building in 2011, at the trough of the crisis. Weren’t you concerned with where the market was at the time? It was a long-term plan for the start. There will always be business cycles, and once the crisis is over, the market will always rebound. Besides, a building in the city center always leases and sells well.
Zapiecek
Vitkac
Bracka
Millennium Bank
Apteka Cefarm
Hebe
Fresh Point
W. Kruk
Jeweler’s
KFC
Krucza
Aptekarz Warszawski
Między Bułkami
1 minute
Carrefour Express
Andrzej Jedynak
Stefczyk
Skok na sok
Eventim
Jean Louis David
Credit Agricole
Apart
Bank BPH
Monnari
Deutsche Bank
Subway
Santander
Jeweler’s
Coffeeheaven
Retail will follow
PKO BP
Bottega Veneta
Paul Smith
managing director of Immobel Poland
Antykwariat
Aleje Jerozolimskie
Aleje Jerozolimskie
Interview with Bartłomiej Hofman,
Życie Warszawy
Getin Bank
Medicinus
Mleczarnia Jerozolimska
ING Bank
City Handlowy
Orbis
Alior Bank
Green Caffe Nero
ka ac Br
Cedet building
Krucza
Rossman
Bulldog
Kebab King
Hest
Kava & Vino
Aren
Carrefour Express
Gerda
Prestige
Kelly Melu
Marszałkowska
Salamander
Sphinx
PKO BP
the very heart of the city. There is a lot of supply and fierce competition in the Wola district, for instance. The companies that will choose to locate their offices in our building probably won’t be considering large office schemes, anyway. We do not want to compete with them financially. We can offer a different type of office space. An average tenant with 1,000 sqm of space is “lost” in a 100,000 sqm office project. Even when a company occupies 3,000 sqm – it is still but a fraction of the entire space. In our building that would stand for 20 percent of the total office area. What kind of units will the scheme offer? We can offer tenants 3,000 sqm of space on one floor, as well as divide the space into smaller modules, 500-1,000 sqm each. Our scheme will be unique in terms of its history, architecture and quality of space. Our offices will be fully glazed, with windows spanning 3 meters each. The gross floor height will be 4 meters, which leaves office clear height at 2.9 meters, both in the offices and hallways. Do you believe Warsaw high streets will eventually flourish like the high streets in other European cities? They are still a far cry from the high streets in Paris or London. Yes, but they are changing for the better for a number of reasons. First of all, the city continues to invest in public space, refurbishes streets and public squares, like Plac Powstańców and ul. Świętokrzyska recently. Secondly, the public transport system is constantly improving. Good public transport generates a lot of foot traffic. And once more people start walking along streets, retail will follow.
WBJ OBSERVER • SEPTEMBER 2014
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CITYSCAPE / KRAKÓW
Did you know?
Jagiellonian University
K
raków is one of the oldest settlements in Poland. Its history dates back to the Stone Age, when a settlement on Wawel Hill was established. According to legend, the city was founded by the mythical prince Krakus who is credited with building the Wawel Castle and slaying the Wawel Dragon. The legend further states, that his daughter, princess Wanda, committed suicide when she was forced to marry a German leader. The first mention of the city dates back to 966, when it was already an important commercial center in what today is Southern Poland. In the mid-11th century, it became the second Polish capital (after the capital was moved from Gniezno) and kept that role until 1596, when the seat of power was moved to Warsaw. During the Middle Ages, Kraków’s role as the country’s prominent trading center rose. Attracting traders from all over the world. It became one of the biggest Jewish communities in Poland. After 1495 jews settled in the quarter of Kazimierz, which to this day is one of the city’s biggest tourist attractions. During the Renaissance, the city
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was, in big part, under Italian influence, especially in the realm of culture. Queen Bona Sforza, who married the Polish king Sigismund I the Old, brought with her numerous Italian artists and architects who remodeled the city into a pearl of the Renaissance. Wawel Castle was turned into a modern residence, the huge Sigismund’s Bell was hung in the Wawel Cathedral. Italian chefs were also brought in and introduced southern cuisine to Poland. The city lost its momentum after Poland’s capital was moved to Warsaw. Alas, it took a big part in the Polish independence movement during the time when Poland did not exist. Although the Kościuszko Insurrection and the Kraków Uprising failed, these events paved the way for the city to become more independent than other regions of the partitioned country. Between 1815 and 1846, it became the Free City of Kraków and many great Poles moved there, including Jan Matejko, Stanisław Wyspiański or Jan Kasprowicz. Nowadays, Kraków is a vibrant city, the second biggest in Poland, with offshoring and IT as one of the main sectors of specialization. u
Favorite son
Stanisław Wyspiański, playwright, poet and painter, successfully joined the trends of modernism with themes of the Polish folk tradition and Romantic history. He depicted Kraków in many of his paintings and plays. His most famous work was the drama Wesele (Wedding), which describes Poles failure to regain independence and the reasons behind it. In the play, interspersed with the real guests are the ghosts of well-known personas of Polish history and culture, who represent the guilty consciences of the living. Wyspiański is often mentioned alongside Poland’s Three Bards (Mickiewicz, Kochanowski and Krasiński) as the fourth most-important Polish storyteller.
Images: Shutterstock, Wikipedia, facebook.com/jacek.majchrowski
Rich past, bright future
is the second oldest university in the CEE region, after Charles University in Prague. Founded in 1364, it has educated the entire intellectual elite of the country for many centuries. Nicolaus Copernicus, Jan Kochanowski, Jan III Sobieski, Carl Menger, Karol Wojtyła, Stanisław Lem, Wisława Szymborska and Norman Davies are only a few of the school’s notable alumnis. Its main library, the Jagiellonian Library, houses some 6.5 million volumes, including Copernicus’ De Revolutionibus and the Balthasar Behem Codex. ••• The city hosts a few famous mounds, the oldest of them being the Krakus mound. Artifacts found at the site date back to around 500 BC. It has been suggested that it might be of Celtic origin, as the Krakus mound and the Wanda mound (7th-8th century) are astronomically aligned, just like Stonehenge. The city is home to two other mounds, named after Kościuszko and Piłsudski.
LONDON 1,641 KM PARIS 1,539 KM BERLIN 597 KM
MOSCOW 1,476 KM
PRAGUE 533 KM
ROME 1,584 KM
MAYOR: JACEK MAJCHROWSKI AREA CODE: 12 AREA: 326.8 SQ KM NEAREST AIRPORT JOHN PAUL II INTERNATIONAL AIRPORT KRAKÓW-BALICE DISTANCE TO THE CITY CENTER 11 KM
POPULATION (MAR. 2013) 759,144 HIGHWAY A4
WORKING-AGE POPULATION (DEC. 2012)
486,000
UNEMPLOYMENT RATE (JUN. 2014)
5.6%
MEDIAN PAY (JUN. 2014)
PLN 4,102.26 MODERN OFFICE SPACE 556,000 SQM
NUMBER OF UNIVERSITIES
NUMBER OF STUDENTS
NUMBER OF GRADUATES A YEAR
22
181,000
48,400
PERCENTAGE OF CITY COVERED BY ZONING PLANS: 42.9% MAJOR INDUSTRIES: outsourcing, IT RECENT MAJOR INVESTORS Akamai, Amer Sports EDF Euroclear Herbalife Cisco Comarch Delphi
OFFICE VACANCY RATE 3.4% PRIME HEADLINE RENTS €10-16
WBJ OBSERVER • SEPTEMBER 2014
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OBSERVER RANKING
OBSERVER TOP 10
AUDITING & ACCOUNTING COMPANIES RANKING Ranked by revenue from auditing and accounting in 2013
1PwC
2 KPMG
3 Deloitte
Adam Krasoń
Andrzej Ścisłowski
Marek Metrycki
President
President
Revenue from auditing and accounting:
Revenue from auditing and accounting:
Revenue from auditing and accounting:
PLN 233,7 mln
PLN 176,5 mln
PLN 146 mln
Total revenue: PLN 543,3 mln No. of audited entities: 1122 Number of auditors: 469 Selected clients: Aviva, Avon. Bank BPH, Coca Cola, Credit Agricole Bank Polska, Citi Handlowy, Cyfrowy Polsat
Total revenue: PLN 460 mln No. of audited entities: 1530 Number of auditors: 512 Selected clients: WND
Total revenue: PLN 445 mln No. of audited entities: 1369 Number of auditors: 349 Selected clients:Bank Zachodni WBK, Orbis
4
5
6
President
Rödl & Partner
Therese Baginski, Magdalena Ludwiczak, Liliane Preusser, Martin Wambach
Mazars w Polsce
Michel Kiviatkowski
Cecylia Pol
Revenue from auditing and accounting:
Revenue from auditing and accounting:
PLN 36,5 mln
PLN 32,2 mln
Total revenue: PLN 41 mln No. of audited entities: 315 Number of auditors: 71 Selected clients: ABNP Paribas, Schneider Electric, AXA
Total revenue: PLN 41,6 mln No. of audited entities: 380 Number of auditors: 100 Selected clients: TELL, LPP, Wielton
Managing partner
Partners
Revenue from auditing and accounting:
PLN 38,5 mln Total revenue: PLN 50 mln No. of audited entities: 286 Number of auditors: 54 Selected clients: WND
Grant Thornton Frąckowiak
President
Data source: Warsaw Business Journal Book of Lists; www.bookoflists.pl
This ranking is based on a survey conducted by the Book of Lists team. Companies not responding to our survey are not listed.
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OBSERVER RANKING
7
8
Alina Rudnicka-Acosta President
Krzysztof Horodko President
Revenue from auditing and accounting:
Revenue from auditing and accounting:
PLN 14,7 mln
PLN 14,6 mln
Total revenue: PLN 33,7 mln No. of audited entities: WND Number of auditors: 8 Selected clients: WND
Total revenue: PLN 26,2 mln No. of audited entities: 98 Number of auditors: 6 Selected clients: Erbud, STRABAG
9
10
Impel Solutions
Accountants & PKF Consult business advisers
TPA Horwath
KR Group
Ewa Jakubczyk-Cały President
Tadeusz Robinski Managing director
Revenue from auditing and accounting:
Revenue from auditing and accounting:
PLN 13,4 mln
PLN 11,7 mln
Total revenue: PLN 21,5 mln No. of audited entities: 452 Number of auditors: 68 Selected clients: Aplises. ATM, HELIO
Total revenue: PLN 17,4 mln No. of audited entities: 28 Number of auditors: 2 Selected clients: Axon Pharma, Cleon Energy
WBJ OBSERVER • SEPTEMBER 2014
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INTERVIEW / ZBIGNIEW GAJEWSKI
Thinking about Europe Interview with Zbigniew Gajewski, Deputy General Director of the Polish Confederation Lewiatan, Director of the European Forum for New Ideas This is the fourth edition of EFNI. How has the forum changed over the years? From the outset, the Forum has been a European conference. Our aim has been to convince European businesses, politicians, and intellectuals that Sopot is a great place for a debate on the future of our continent. We have been persistent in pursuing this objective year after year. This year’s conference will have many more agenda events hosted by EFNI international partners. A Weimar Triangle Business Meeting will be dedicated to finding ways of stimulating the European economy. A BUSINESSEUROPE panel discussion will focus on determining energy security requirements in Europe. In a panel discussion, the OECD business committee will present OECD projects on regulatory reform, trade, and investment. A European network of prestigious liberal think tanks has planned a debate on the future of the European welfare state. At the European Publicists’ Forum, media representatives will share their opinions on how to
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report on the EU in order to bring it closer to its citizens. Günter Verheugen together with Lewiatan and employers’ confederations from Germany, Swit-
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EVENTS / EFNI
zerland, and Turkey will present a report: “’Competitive Europe’: what does it mean? Agenda for the next 5 years.” A list of New Europe 100 Challengers will also be announced, while the EESC Employers' Group – an EFNI partner since the beginning – will examine the opportunities and threats arising out of an EU-US trade agreement (TTIP), currently under negotiation. All this will give EFNI 2014 quite a global dimension.
Images: EFNI
During the forum, just as the name suggests, new ideas are being discussed. Have there been any effects stemming from these discussions or are they strictly academic? I think that the merit of such meetings lies in the debate itself as a confrontation of opinions, a group effort of seeking solutions and an opportunity to broaden the participants’ horizons. But as a business organisation, we have also taken a more pragmatic approach. Each Forum ends with recommendations for governments and EU authorities, recommendations that are subsequently published and sent out. This year we have posted a study on our website which shows, first of all, that EFNI topics – which have always pertained to key problems in Europe – are well chosen, and second, that many decisions taken by EU authorities reflect the direction outlined in our recommendations. Growing international prestige of EFNI translates into its more tangible influence over the fate of Europe. What are the main areas covered by this year’s event? The main theme of EFNI is unchanged. We will continue to debate about the future of Europe and its economy. We will also discuss how to prevent our continent from losing the achievements of its civilization and to ensure a dignified and secure life for Europeans. This year’s Forum coincides with the new term of office for the European Parliament and Commission. That is why the fourth EFNI will put forward a European business agenda proposal for the new EU authorities. The proposal will cover issues pertaining to the economy as well as the future of European integration. The conference comprises more than thirty sessions, panel discussions, and debates. Discussion topics include: political, economic, energy, and digital security in Europe; today’s threats to freedom; the future of democracy; the need to rebuild relations between financial markets and the real economy; the ramifications of growing social inequality; culture as one of the most obvious platforms for creating European identity and public opinion. The current crisis in Ukraine clearly shows that Europe is divided and in turn ineffective during the crisis. Can such a big community speak in unison, when many countries have their own, often contradictory interests? For many reasons, Hungary has different relations with Russia than Poland and can’t be forced to favor strict anti-Russian policy. Europe is indeed divided; it also has a problem with unity and solidarity – values that had shaped the European project several decades back. But if Europe is to ensure another 70 years of peace, it must be united and decisive when taking actions and reacting to threats. This is true for the Ukrainian crisis and all other challenges. Hungary and all other opponents of EU sanctions against Russia will ultimately have to change their attitude of enjoying all the benefits of EU membership, and yet having a selective approach to responsibility. I think that if there is no other way, we will have to get rid of such free riders. One of the main agendas of this year’s forum, is “reinventing the EU.” Is it still possible? Hasn’t the bloc gotten too big and too diverse to be reinvented? Maybe its diversity can be its strength? Yes, Europe has to be reinvented. The global financial crisis, which
began in 2008, has damaged European solidarity for good. It drove member states to protect their own interests to the detriment of the interest of the community. But let us think where this egotism of nations will lead us. Let us remember that Europe is responsible for 20 percent of global GDP and as much as 50 percent of social spending. This discrepancy cannot be sustained in the long run. So will Europe successfully cope with global competition? Will the model of a European welfare state survive? Without being reinvented, the European project does not stand a chance. What it needs now is a new momentum and framework. We have to rid ourselves of old sins such as excessive bureaucracy and an over-regulated economy; more power has to be given to the citizens of the Union. We need to maintain as much diversity as possible, at the same time striving for unity. This will also be a topic of this year’s EFNI discussions. EFNI is not only about panel discussions. It also has an unofficial part, with many off-the-record discussions. Are these kinds of discussions popular among the attendees? What are the main topics discussed late at night over a glass of wine? Informal meetings are an important element of every conference of this type. We even try to inspire and shape them. Last year, we introduced “night owl discussions,” which started at 23:00. I have to admit we feared a low turnout, but EFNI participants attended in great numbers, so this year there will be more meetings of this kind. What will be discussed? Threats to European democracy; ways to achieve healthy relations between business and politics; growing role of cities in the changing of our lifestyles; and many more fascinating topics. Join us at EFNI – this year’s event will be even more interesting than previous editions.
WBJ OBSERVER • SEPTEMBER 2014
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E V E N T S / A R A B I A NE VHEONRTSSE / D EA CY C S
THE 45TH PRIDE OF POLAND AUCTION RAISES MORE THAN €2 MILLION Horse-breeders and other visitors flocked to Janów Podlaski in mid-August for the annual show.
B Y K A M I L A WA J S Z C Z U K
T Image: Kamila Wajszczuk/WBJ
he 45th annual Pride of Poland Sale, held on August 17 as part of the Arabian Horse days in Janów Podlaski, raised a total amount of €2.089 million. The value was €17,000 higher than last year’s figure. The highest bid was for Piacolla, a two-year-old bay filly bred in Poland’s
Michałów Stud. Her new Saudi Arabian owner paid €305,000. The gray Norma, last year’s senior gold champion mare, also bred at Michałów, was sold for €250,000. She will also travel to Saudi Arabia. The Janów Podlaskibred Cenoza was sold for €240,000 and Perfirka, raised at Białka, was sold for €220,000.
Around the world
Out of 28 mares on offer, 22 were sold to breeders from Saudi Arabia, Qatar, the United Arab Emirates, Iran, the USA, Great Britain, Switzerland, Germany, Sweden and Namibia. Another two mares were purchased by Polish breeders. UK horse breeder Shirley Watts, better known as the wife of Rolling Stones drummer Charlie Watts, was at the auction as usual. She bought three mares this time; Cenoza, Alhambra and Elima. A day after the auction, the Summer Arabian Horse Sale was organized. Out of 30 horses, 23 mares and one stallion found new owners. The sale’s total value amounted to
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€352,000 and was €220,000 higher than last year. Sheikh Isa bin Salman Al Khalifa, the grandson of the king of Bahrain, was a special guest at the show. He presented the Janów Stud with a unique gift – a desert-bred stallion named Maidaan.
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Champions of the equine world
The Arabian Horse Days are not only about the sale of the
beautiful animals though. The 35th Polish National Arabian Horse Show took place on August 15-17,
under the honorary patronage of the President of Poland Bronisław Komorowski. The star of the show was Pepita, a gray nine-year-old from the Janów Podlaski Stud that claimed the Senior Champion Mare prize. She was also awarded the Best in Show title. Pepita’s achievement was not the only one for the stud. A horse from Janów was named Junior Champion Mare (one-year-old Al Jazeera). Michałów-bred stallions, one-year-old Morion and four-year-old Equator, fetched the champion titles in the respective junior and senior categories. Paweł Kozikowski, who works in the Janów Podlaski Stud, was recognized as Best Handler and Best Trainer. After the prizes in the championships were presented, the public was entertained with an equestrian show. Horseback archers for the Sports Club in Supraśl gathered rounds of applause as did hucul ponies from the Gładyszów stud. u
Images: Kamila Wajszczuk/WBJ
EVENTS / ARABIAN HORSE DAYS
EVENTS / ARABIAN HORSE DAYS
SHORT
MEDIUM
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2014-06-06 13:35:32
LIFESTYLE / ON A FINAL NOTE
ALEX WEBBER EDITOR OF THE WARSAW INSIDER
How I spent my summer holidays A TALE OF JESUS AND A PYRAMID
Bloody well, it goes on. Clocks keep ticking and the world keeps spinning. Can someone just press pause for a moment? You know, hit the pause button and keep us permanently suspended in August. Instead, what have we got, September. Yay! Find my flipping party hat. Some people reckon January, but for me the hardest month in the Third Republic is actually this one – aka “back-to-work month.” Just brilliant, isn’t it? It might be ice blue at the start of the year, but at least you know the sun is around the corner – a long way around the corner, but around the corner nonetheless. September, though, it’s all downhill from there. No more holidays, no more beer gardens and no more idling on the balcony in my improvised hammock. There is, however, another Polish winter to look forward to. Remember that old git who laughed at you when you slipped on the ice? Yeah, the same bastard will be laughing at you again – and sooner than you think. At least I have memories. It was a good summer, certainly for me. As always, I spent it sniffing around the lesser visited parts of Poland and enjoyed every second. You had Miami and Mauritius, I had something infinitely superior. I had Świebodzin. Brilliant place, and as mad as a bag of snakes. Biggest Jesus in the world it’s got, bigger than the one in Rio. It’s immense, and also immensely creepy when you open the curtains in the morning and see him staring at you. And I mean right at you. “Jesus Christ, it’s Jesus Christ,” you say to yourself. It’s a nervous moment, that split second. Of course, Świebodzin’s Jesus lacks the wow factor of Rio’s. For starters, it’s not perched on a great big cliff overlooking a glittery party city. No, Świebodzin’s sits in a cabbage field looking down on Tesco. So for real wow factor head to Łagów, my favorite find of the sum-
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mer that’s gone. Remember those Brothers Grimm stories from infancy – well, Łagów is how you had them pictured in your head: tight, winding streets, cross-timbered houses, and a castle – nested between lakes and forests – presiding over it all. Climbing up the castle tower is a breathless affair, but so is the view – a panty postcard moment that reminds you of all that is good about Poland. All of a sudden, you fancy hanging around. I did hang around Łagów for longer than expected. One night it was meant to be. But one night turned to two and two turned to three. And so forth. Though it wasn’t really Łagów I was staying in, rather a wonderful little farmhouse just out of town. Frankówka, it was called, and it was owned by an art collector called Jerzy. He was elderly and wore a Panama hat and a crumpled cream suit – I imagine Graham Greene’s man in Havana would be similar. Jerzy’s lack of English meant he spoke to me in French. I can’t speak French, but it didn’t seem to matter – we got on and got by. His wife, meanwhile, swanned around wearing a scarlet, dragon-print dressing gown, refilling wine glasses and tinkling on the piano. Nothing eventful happened, but then it didn’t need to. In the morning, I’d take their bike out and bump across the roads cycling for miles and noting the weirdness – pristine rolling fields, bucolic meadows and what can only be described as absolute nuttery: a Pyramid shaped hotel (called Piramida); underground Nazi bunkers down which you could abseil; a zoo with a rabbit as the star attraction; and a roadside brothel called Alibi Drivers Club. Regretfully, I didn’t enter any of these (okay, I did visit the bunkers), but I saw enough. I saw enough to realize, that you know what, it’s not summer I love – it’s Poland. u
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