Small is bountiful

The impact of foreign investment on the Polish economy is substantial, as was confirmed in mid-February by Mateusz Morawiecki, the Deputy Prime Minister and the Minister of Development, when outlining Poland’s economic strategy for the next few years. According to a new long-term government plan for responsible development, foreign investment is one of the elements of the first pillar of the programme, i.e. reindustrialisation. These issues are important not only for Mateusz Morawiecki, but first of all for local authorities. It is they who are becoming ever more anxious to attract international partners to their towns and regions. Because securing an investor means additional jobs and – as a result – the funds for residents to support themselves. For the local authorities it is also a demonstration of their effectiveness.

Atmosphere not size

In the battle over foreign investors, Polish local councils have to prove how well prepared they are to provide services to such a future partner, starting with cutting through the red tape around the sale of the land and properties, to the effective marketing and advertising of their assets. Because they are competing not just against domestic rivals but also against other cities on the international arena. Our councils have been given a slight boost by the statistics. According to the ‘Europe’s Investment Attractiveness 2015’ survey prepared by EY, Poland is best location in Central and Eastern Europe in this respect, with 38 pct of the respondents holding this view. “Poland also comes first in the CEE region in terms of direct foreign investment (FDI) – 132 projects in 2014 compared to 107 in 2013 (up by 23 pct). Poland is second in the region and third on the entire continent in terms of the number of jobs created thanks to FDI in 2014 (15,485 compared to 13,862 in 2013, or a growth of 12 pct), states the report. However, this data itself is not sufficient for gauging Poland’s success in this field. What counts are the measurable effects. Do smaller cities and administrative districts in Poland have sufficient bargaining power? Do they have the professionalism to secure and keep hold of international partners? The larger and more recognisable cities and towns have an easier task – they have bigger budgets, more funds for marketing and more opportunities to reach potential investors. However, the head of the Polish Information and Foreign Investment Agency (PAIiIZ) argues that it is not the size of the town that determines the ability to acquire investors. “Over the last few years, we have managed to make the authorities of smaller centres realise the importance of cooperation with foreign investors and the profitability of efforts to secure the acquisition. The point is for the smaller centres not to be ashamed of their assets, to recognise them and be able to present them effectively. The main factor that determines the development of new projects is not the size of the town but its investment atmosphere. The degree of preparation for the negotiations and for the investment zones is important, but investors are also looking at the quality of life on offer. And things are getting better and better in this respect. If we look at the statistics, around 40 pct of projects over the last 7–8 years have been located outside large urban centres. That amounts to 160 manufacturing plants and 35,000 jobs, located in such towns as Zajączkowo, Świecie, Nowa Sól, Stargard, Mielec, Niepołomice and Polkowice Śląskie,” says Sławomir Majman, the president of the board of PAIiIZ. Sława Umińska-Duraj, the mayor of Piekary Śląskie, agrees. “Smaller towns can offer a much more individualised approach to investors and can make the necessary arrangements in a shorter time compared to large urban centres. The positions of a small or medium-sized businesses in a larger city, where there will be many investors of a similar scale, will be completely different to their position in a smaller town, keen to realise its economic potential. Besides, it should also be noted that smaller towns and even rural administrative districts are becoming increasingly effective in their search for investors. They also have much better prepared staff and tools for this task,” remarks Sława Umińska-Duraj. Their cooperation with PAIiIZ also confirms the growing competence of local authorities when it comes to securing investors. In mid-December 2015, eight more towns with populations of around 100,000 inhabitants or less signed cooperation agreements with the Agency. They were: Chełm, Legnica, Piekary Śląskie, Płock, Skarżysko-Kamienna, Świętochłowice, Zabrze and Zgierz. Thanks to this, the number of partner towns promoted by PAIiIZ has increased to 55.

The most important thing

Who are the investors who could potentially choose to locate in smaller towns – and what are the factors that tend to sway them? “Smaller towns are mostly important for companies from the production sector, who are more interested in the availability of qualified staff and the grants they can obtain, rather than locations near motorway interchanges or large conurbations, such as is the case of warehouse developers,” claims Tomasz Olszewski, the CEE director of the warehouse and industrial department at JLL. There is no shortage of labour in smaller towns. Not so long ago, some had unemployment rates as high as 20 pct, such as Złotoryja, where thanks to the effort of PAIiIZ 700 new jobs will be created due to the signing at the end of 2015 of investment contracts with two foreign companies: Borgers Polska and Schneider Pojemniki Transportowe. The workforce is there; however, training up such employees is more important and often involves re-skilling and additional training. “Foreign investors are focused on the human capital. This should be well qualified staff, especially in terms of technology, as well as a developed work culture. We do not just want to be one big assembly plant. We also care about having investors who employ modern systems, such as solar or photovoltaic cells to power their facilities. With this in mind, we have set up apprenticeship classes in vocational schools, so that those entering the job market after school are well prepared for professions that require familiarity with the latest technology – for example, electronic or electromechanical specialists. One of these is a heating course (in cooperation with Winkelmann) and another is a smelting course (in cooperation with KGHM). Furthermore, we occasionally respond to the needs of the job market in terms of long-life learning,” says Tadeusz Krzakowski, the mayor of Legnica. Apart from technical qualifications an ideal worker should also know a foreign language. This also applies to town council representatives, whose competences have to reflect the quality of the management of the municipality. “One of our investors with Turkish capital undertook to invest in our administrative district only because the director of the investor service centre in Skarżysko-Kamienna speaks three languages fluently, one of them being Turkish,” says Konrad Krönig, the mayor of Skarżysko-Kamienna.

Noble frugality

Investment incentives form another element of the puzzle. Local authorities can support investors by offering them real estate tax relief. Some of these incentives are also available when a project is located in a special economic zone, mainly through CIT tax relief. Companies can avail themselves of this support until 2026 – when the special economic zones are due to be terminated. Investment in zones that offer preferential conditions for business operations is very popular for this very reason, particularly among foreign companies. “One third of all foreign investment in Poland is located in special economic zones, 20 pct of which is investment with Polish capital and 80 pct with foreign capital,” says Sławomir Majman. Furthermore, municipal authorities can support the investor in their efforts to acquire grants under governmental programmes. “Investors are no longer paying so much attention to local tax breaks. They are relying more on those that can be provided by central government. In a situation where we can secure a business partner thanks to the Polish Information and Foreign Investment Agency, the government also becomes a party and it has greater possibilities in terms of providing discounts and tax exemptions. Meanwhile, we take care of providing the service infrastructure for the area as well as good access to the plots,” explains Tadeusz Krzakowski. And what public support is available for investors? “When presenting our offers, we also show the potential investor a list of all the public help they can receive. There are two categories: cash and non-cash. The first is available for strategic investments – a dozen or so of the largest investments in a year that the government offers grants for. Last year they ranged from 4 to 7 pct of the total investment volume. The requirements in terms of the scale of the employment and capital invested are rather substantial in this case. The non-cash help includes exemptions in the special economic zones. As far as financial support for investors is concerned, Poland is characterised by a kind of noble frugality,” remarks Sławomir Majman.

The most important thing

No business partner, even one as effiective as the Polish Information and Foreign Investment Agency, will do the homework for the local authorities. Administrative districts have to try to prepare as well as they can to secure a partner. However, not all of them are successful in going through all the formalities that form the basis for further negotiations. “The amount of investment in smaller towns is limited by the lack of the preparation by the local authorities needed to start cooperation. Investors need a basis with a uniform ownership structure. It’s best if the function of the land is clearly determined and included in the spatial policy of the administrative district. The land’s service infrastructure and transport links are also not without importance. Unfortunately, there are still gaps in this respect,” remarks Tomasz Olszewski. The growing number of partner towns of the Polish Information and Foreign Investment Agency confirms, however, that this is gradually changing. “Our urban planning policy is largely organised. There are local zoning plans in the places where we have investment plots. We also have a site development conditions and directions study. The function of the areas or the investment is clearly defined. We have town development strategies until 2030, which include expectations regarding the future of our administrative district,” claims Dawid Kostempski, the mayor of Świętochłowice. The authorities of Piekary Śląskie are also aware of the importance of the issue. “Our offer includes investment areas that are varied in terms of their locations (close to the town centre or in peripheral locations) as well as the area and purpose (e.g. production or service operations). We have been systematically undertaking activities aimed at improving the transport links of the investment areas as well as providing them with service infrastructure so that companies considering investment in Piekary can execute the investment process relatively quickly. Some of the sites are included within the Katowice Special Economic Zone,” emphasises Sława Umińska-Duraj. When it comes to investors Legnica is also not planning to be left behind. “We are ensuring that there is the service infrastructure and good transport links to the plots. We offer the local tax relief that it is possible to provide. We have local zoning plans for the most important investment areas. Subject to the needs of investors, we are trying to develop our more attractive areas – one example of which is a uniformly shaped plot and an area of over 100 ha close to the A4 motorway, which is exclusively owned by the administrative district. It is a site that has a great potential and could include a large project important for the country and the region,” claims Tadeusz Krzakowski.

Professional service

The success of negotiations also depends on how well prepared the town is in terms of servicing the investor – in every respect. And towns have a whole arsenal of means for doing this. “In Skarżysko-Kamienna we have set up an economic committee that brings together local businesses from the town and the district, as well as an investor service centre, which provides professional services not only to local companies but also external entities. When I became the mayor of Skarżysko-Kamienna, one of my first decisions was to establish the ‘Municipal Investment Areas Base’, a portal where a potential investor can find all the investment plots in the town – and not just those held by the administrative district, but also private ones,” explains Konrad Krönig. “In our town the entire investment process is monitored by the local authorities. Here we issue the permits and decisions necessary for the execution of a project. We have a team that services and supports investors,” adds Tadeusz Krzakowski. In Piekary Śląskie they also take care of potential investors as well as they can. “Our responsibilities include taking the investor through the entire decision and negotiation process, in order to emphasise our assets and also to eliminate any problems of a bureaucratic nature if possible, as there are difficulties in this respect. Situations in which towns do not provide offer materials or there is a lack of people who can hold negotiations in a foreign language are a thing of the past. In Piekary we are continuing to streamline the operations of the investor service office, while meetings at subsequent stages of the decision making process are conducted by the deputy mayor, who is supported by representatives of the relevant departments,” explains Sława Umińska-Duraj.

Marketing and advertising

Not being huge cities, these towns have to make much more of an effort to promote themselves to make their presence known to potential investors. Some turn to cooperation with PAIiIZ, hoping for access to the agency’s extensive network of international contacts. “Thanks to the Polish Information and Foreign Investment Agency, investors from around the world can find out about us. It could turn out that our offer is more interesting than the proposals of large cities, because of the lower project execution costs, for example” says Tadeusz Krzakowski. As he goes on to add: “We do not organise e.g. economic missions ourselves because these are difficult from the point of view of the administrative district. We are given greater chances and possibilities through the partnership with the Polish Information and Foreign Investment Agency,” he claims. So Legnica relies very much on external promotion. The promotion offered by PAIiIZ is not insignificant. A cooperation contract signed by the agency and a town will entail intensive training programmes for the staff of the administrative district and consultancy in terms of promotion. “We lay emphasis on the online promotion of the town as one of the most effective ways of reaching potential partners. Another option involves the town’s authorities visiting investors. We offer help and consultancy at all levels of this process. More and more Polish cities now have decent websites, well-prepared promotional materials and the right people for negotiations,” remarks Sławomir Majman. PAIiIZ also audits the plots. The national catalogue of investment properties in Poland, which is maintained by the Polish Information and Foreign Investment Agency, includes over 2,600 offers. However, there are towns that are also looking for investors independently. “We attended the MIPIM investment fair in Cannes in March as well as the Expo Real fair in Munich as part of the Upper Silesia Metropolitan Association, which is an informal association of 14 administrative districts. In this way we had a single, coherent investment offer. Thanks to this we are not fighting with each other over investors, but we can present ourselves as one large regional entity offering many sites with a variety of purposes and functions. We have also organised a number of economic missions and are very hopeful about our partner towns, particularly those we have acquired recently – including the town of Tai’an in Shandong province,” emphasises Dawid Kostempski.

PAIiIZ: a hunting club for investment

In 2015 the Polish Information and Foreign Investment Agency signed and sealed 56 projects, thanks to which 9,000 jobs were created in Poland with an investment expenditure amounting to EUR 766.9 mln. The production sector accounted for investment worth EUR 676 mln and 4,300 new jobs. Production companies from Germany, South Korea and the US were the most eager to invest in Poland. Since the beginning of 2016, the agency has secured seven new investment projects, creating 1,500 new jobs. Two companies are to invest in the business service sector, two in research and development centres, one in the IT sector, one in the automotive sector and another in the water and sewage sector. According to a survey of foreign investors carried out by PAIiIZ (in cooperation with Grant Thornton and HSBC), in September and October 2015 98 pct of the companies surveyed were satisfied with their investment in Poland and would invest here again. When asked how they assess the climate for doing business on the scale from 1 (very bad) to 5 (very good), their evaluation of Poland was 3.7 points, which is our best result since 2007, when the survey was carried out for the first time.