December 16, 2013 12:01 am

Entrepreneurship: New golden age

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
View at the first shop of French fashion label Louis Vuitton opening as the first in Poland in the Vitkac department store in Warsaw, Poland©EPA

Success story: luxury stores have opened in Warsaw as Poland’s citizens have become wealthier

In 1633, Jerzy Ossolinski staged a triumphant entry into Rome, preceded by hundreds of servants, velvet-covered camels and horses with golden horseshoes. With a ruby-encrusted sword swinging at his side, Poland’s ambassador to the papacy rode into the Eternal City.

Ossolinski’s goal was to show Poland as a wealthy and powerful state – but even at its opulent height (a few decades before the ambassador’s showy parade), Poland’s per capita income was less than two-thirds of that of the 12 leading western European countries, according to Angus Maddison, a British economist who studied historical gross domestic product.

Poland today is a smaller and more humble country than in Ossolinski’s time – the feathered knights are long gone. Yet at the same time it is undergoing an economic transformation, its thriving cities ringed by business processing centres and factories churning out goods such as the valves and seals used in the production of German cars.

“In 2013 Poland has achieved levels of income, quality of life, and well-being never experienced before,” wrote Marcin Piatkowski, a World Bank economist whose recent paper, “Poland’s New Golden Age”, argues that Poland is finally catching up to the west after centuries of occupation and war left it well behind the continent’s more advanced countries.

“This year, GDP per capita will reach 62 per cent of the level of income in the developed countries of western Europe, Poland’s natural benchmark and an objective of social aspirations, up from below 30 per cent in 1992,” Piatkowski wrote.

“[Poland] will also achieve the highest level of income relative to western Europe since the year 1500, thus in just about 20 years offsetting more than 500 years of economic decline – a historically unprecedented achievement.”

Centuries ago Poland’s wealth was created by the export of natural resources, largely lumber and grain, which created a small, often corrupt, elite that grabbed most of the proceeds for itself.

But today’s success has been built on a strong banking sector and transparent financial markets, leading to an explosion of entrepreneurialism that has transformed the country.

The rules were set in the dying months of the communist regime, especially in late 1989 when the first non-communist government since the war took power. Under the leadership of Leszek Balcerowicz, finance minister, the government cut off financial guarantees for state-owned companies, banned the central bank from financing the budget deficit, made the zloty internationally convertible and ended the state’s monopoly on foreign trade.

The result was a boom in private enterprise, which over two decades has transformed the country. In constant dollar purchasing power parity terms, Poland has seen its GDP per capita multiply from $5,798 in 1989 to $21,085 in 2011 – or in terms that mean much to Poles, from 32 per cent of the German average to 54 per cent.

Not everyone welcomed the changes; many workers in state factories and offices had to watch their salaries being eaten away by inflation, while millions were trapped in villages tied to collective farms.

But many more, driven by desperation and a desire to get rich, opened their own businesses – more than 1m within a year of the launch of the market reforms.

It was in this environment that Zbigniew Sosnowski ditched his job as a car mechanic and began looking for a business idea.

On a trip to Germany he had seen people riding bicycles for leisure. In Poland, bikes were for children, or people too poor to afford a car. “I saw what bikes were in the west – that they weren’t just for transportation but also for recreation, and I decided the same thing might work in Poland,” Sosnowski says.

He started selling badly made Polish bikes, but by introducing novel concepts such as smiling at customers and treating them politely he quickly drove the state-owned bike shop across the road out of business.

Within a few years he had shifted from sales to manufacturing – his Kross company is now one of Europe’s largest bicycle makers.

“We did not expect such an explosion of new businesses,” says Stanislaw Gomulka, an economist and one of Balcerowicz’s advisers in the early 1990s. “That first phase of Polish capitalism was impossible to repeat. We have not seen such rapid private sector growth in any other ex-communist country.”

It was not just bicycles. The list of things that were lacking in those days was long: cars, supermarkets, hardware shops, construction materials, coffee, soaps, paints, cosmetics and even romantic novels.

With the country suddenly open for business, the smart, the aggressive and those with access to capital got rich quickly. Profit margins of 50 per cent or more were not uncommon.

“It was normal to break even after just a month,” says Leszek Czarnecki, sitting in his Warsaw office tower, the headquarters of his banking empire.

Czarnecki got his start in democratic Poland running a small diving business. He saw the need to supply companies with equipment and set up one of Poland’s first leasing businesses, which he sold in 2001 for about $300m to Crédit Agricole, the French bank.

Three years later he bought a small, struggling bank from western Poland called Getin. It is now Poland’s sixth-largest, with assets of 53bn zlotys ($17bn), while Czarnecki is one of Poland’s wealthiest individuals, with a net worth of $1.4bn, according to Forbes magazine.

Those kinds of opportunities are a thing of the past, and it is now significantly more difficult to start a business. Many of the obvious ideas have been taken, and it is no longer easy to simply pinch business strategies and technologies from the west and shift them to Poland.

Polish workers still earn less than their counterparts in western Europe, but the gap is closing, making it difficult to build a lasting business relying only on inexpensive workers.

However, the more successful businesses formed in the past two decades have not stood still – and are now looking to expand into new markets.

“Many of the earliest businesses grew out of import substitution,” says Jacek Korpala, managing partner at Arx Equity Partners, a Warsaw-based private equity fund.

“Over the years their technology has caught up to their competitors in the west. Now many of them have hit the limits of domestic growth and are looking to expand abroad.”

Pesa was in the 1990s a near-bankrupt rail wagon repair yard. That was before the company was bought out in 2001 by its management, who transformed it into a leading maker of trains.

Arriva train

On track: Pesa, once a struggling rail repair yard, now supplies trains to Deutsche Bahn

Last year, Pesa won a €1.2bn contract to supply up to 470 locomotives to Germany’s Deutsche Bahn.

It is thanks to companies such as Pesa and Kross that Poland’s economy has been able to grow by an average of 4 per cent a year for much of the past quarter century.

That growth rate has slowed in the past couple of years due to the eurozone crisis, but growth is again picking up, and many economists predict GDP expansion of close to 3 per cent next year.

“Poland is well placed to continue converging with western Europe,” the World Bank’s Piatkowski wrote.

“Long-term projections … suggest that Poland will likely reach up to 80 per cent of the EU-15 [the longest-serving members of the bloc] level of income by 2030, the highest relative level ever.

“In doing so, Poland will have largely moved from the economic periphery of Europe … where it languished for centuries, to the European economic centre.”

Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE