WHAT SHOULD YOU INVEST IN IN POLAND IN 2021?
You will have probably noticed that without investing your money, not only do you not gain much, but rather you regularly lose out. How it is possible? Well, no matter how much you earn, it is always important to invest some of your money. Why? You ask. You might be thinking that it is only about multiplying capital. Not necessarily. When your money simply sits uninvested in your account, it loses value, and in the wake of a crisis compounded by the Covid-19 pandemic and rising inflation its value goes down even faster. What should you do about it? Invest! Where – in Poland. Why – read below.
Multiple rankings confirm that Poland is a great place to invest in and develop. The 2019 Global Best to Invest Ranking puts Poland in fifth place after China, Germany, the UK and India. By contrast, according to fDi Markets (an in-depth crossborder investment monitor from the Financial Times), Poland is the third favourite location in Europe for foreign investment. According to data from fDi Markets, foreign investors announced 306 projects in Poland in the first three quarters of 2020, putting Poland ahead of Spain (305) and France (264). As for the top positions in the ranking, those went to the UK and Germany with 407 investments each.
In 2020, according to a report by the Polish Investment and Trade Agency based on the fDi Markets monitor data, the total value of projects supported by the agency approached 9 billion Euros, and US and South Korean companies were particularly active on the investment market. The industries that benefited from the highest number of projects were business services (44), e-mobility (18), automotive (15) and research and development (15). It was also noted that of the projects located in the Polish Investment Zone, Polish companies accounted for 75% of their total number in the first half of 2020. If you still unconvinced that Poland is a good investment market then please read on.
Unfortunately, COVID-19 has had an impact on the global market. According to the Investment Trends Monitor report by UNCTAD published on 24 January 2021, global foreign direct investment (FDI) collapsed in 2020, falling by 42% from $1.5 trillion in 2019 to about $859 billion. The last time such low level of investment was seen was in the 1990s, it is also over 30% lower than the investment dip that followed the global financial crisis of 2008-2009.
Despite forecasts of a global economy surge – however uncertain and uneven they are – in 2021, UNCTAD expects FDI flows to remain weak due to the uncertainty of the direction in which the COVID-19 pandemic will evolve. There is almost no place in the world that has not been affected by the crisis. Even in these difficult times, Poland can nevertheless boast of an increase in the number of sources of investment.
Let’s look at what industries foreign investors may find interesting in Poland and why.
The potential of the outsourced business service sector in Poland
The business service sector has done well during the pandemic. According to representatives of ABSL (Association of Business Service Leaders), thanks to an extensive back office and a network of centres carrying out advanced projects, not only in Warsaw but also in many other regional locations, Poland has an opportunity to take over some of the processes carried out in other countries. One can therefore say that the business service sector, which in terms of employment is the second largest in the Polish economy, can achieve substantial gains from the pandemic. And this will be achieved primarily through home office working. A home office requires adequate housing conditions and access to technological infrastructure, a stable internet connection and mobile equipment, none of which are a problem in Poland. It is also worth pointing out that in the near future the situation will improve even further thanks to Microsoft and Google. Both companies intend to revolutionise the digital market in Poland by investing billions of dollars to develop cloud computing and digitise Polish business.
The development of e-mobility in Poland
In 2020, the European Investment Bank (EIB) signed a €480 million loan agreement with a Polish subsidiary of LG Chem Group called LG Chem Wrocław Energy which was established to expand its battery production facility in Europe. The funding will be used for the construction and operation of highly automated and innovative production facilities for advanced lithium-ion cells and batteries for BEVs (battery electric vehicles). The production facilities will be located in south-west Poland within LG Chem Wrocław Energy’s industrial estate.
It is worth highlighting that the LG Chem Wrocław Energy project implements the development of e-mobility in Poland is one of the key objectives of the government’s Strategy for Responsible Development by 2020 (with a further outlook to 2030), which aims at boosting the market share of electric vehicles.
It is thought that LG Chem’s growing involvement in Europe and Poland will have a positive impact on the development of the electric vehicle battery market in Europe. This will include the potential expansion of the relevant supply chain and collating knowhow, particularly in the field of battery technology, creating an ecosystem that will help develop innovative solutions for this growing industry in Europe.
It is worth emphasising that Poland is currently the leading market among those of Central and Eastern Europe for companies dealing with commercial and passenger vehicles. Consequently, the e-mobility market will be a fast-growing industry over the next few years and it will create significant opportunities for investors as a result of active government policy on e-mobility.
Poland as a start-up leader and leading exporter of video games in Europe
Poland has become a vital European technological ecosystem after reaching record levels of investment and growth in recent years. In 2019, investments in Polish start-ups increased eightfold year-on-year and reached 294 million Euros. That’s more than the total amount achieved for the nine years prior. Despite investment slowing down as a result of the pandemic it did not stop altogether, that’s because COVID-19 has only accelerated the pace of digital transformation in Poland.
A July 2020 report by Dealroom identified more than 2,400 Polish start-ups at early and advanced stages of development and 97 venture capital funds.
It is fair to say that the extensive Polish start-up system is unique to this region of Europe in its scale. Owning a company is one of several increasingly popular career paths for young people who are able to take advantage of a multitude of investment, technology or development funds, as well as offers from numerous business incubators, science and technology parks or R&D units.
Poland has also become a leading exporter of video games. The game The Witcher developed by CD Projekt became a big international hit, it was created on the basis of a series of bestselling Polish books, which were also the inspiration for the Netflix series by the same title.
According to PwC Poland, the video and e-gaming market was worth $664 million in 2019 – up from $400 million. It is expected to be worth near $850 million within the next 4 years.
Forward-looking biotechnology and medical industries
The Polish biotechnology market is still relatively young. Only when the statistics for 2020 become available will we know if the jolt caused by the pandemic has translated into hard data. Currently on the main market Poland has almost 30 companies operating in the health sector (16 of which produce medicines and engage strictly in biotechnology). Their total capitalisation exceeds PLN 31 billion. Notably, Polish biotechnology companies are only just gaining speed and are well worth paying attention to. Their research gets to the latter stages of approval processes and in many cases concerns forward-looking areas such as oncology.
The Medical Research Agency in cooperation with the Anglo-Swedish pharmaceutical giant AstraZeneca is building a Polish biotechnology hub in Warsaw. The Warsaw Health Innovation Hub will be an IT solution platform aiming to improve the provision of healthcare in Poland. It is expected to be created in the first quarter of 2021. A plasma factory allowing Poland to make its own blood products instead of importing them is also being built. Both investments will help Poland in the fight for a share in a market which in the coming years is expected to almost double in value.
Projects in renewable energy are still in fashion
Renewable Energy Sources are also attracting an increasing number of foreign investors and the banking sector to Poland. The numbers behind this boom look promising. According to the Polish Investment and Trade Agency, in the first four months of 2020, Poland was one of only five countries that did not see a fall in the amounts invested in this sector with 16 new RES projects registered here between January and April. This constitutes a vast improvement compared to the same period in 2019, when there was only one. At the end of Q2 2020, according to data from the Energy Regulatory Office, the capacity of installed RES in the Polish system exceeded 9,474 MW. By comparison it was only 6,970 MW five years earlier.
The main investment area is photovoltaics (PV) and it is growing in popularity. At the beginning of August 2020, the capacity of PV installations in the National Electricity System amounted to 2,261.347 MW. According to Polish Power Grids’ (PSE) data, this represents a year-on-year increase of over 156%. That said, wind power still sits ahead of it in the rankings. In the second quarter of 2020, according to the Energy Regulatory Office (URE), 6,039 MW was generated through wind energy in Poland. Currently farms are being built on land, but in 2021 the so-called offshore law – long awaited by the industry and investors – is due to come into force. It will streamline and accelerate a project worth PLN 30 billion to build offshore wind farms in the Baltic Sea. Power is expected to flow from them as early as about 2025. Ultimately, it is expected that over 10 GW of installed capacity will be delivered from Polish water areas. This means that over the next five years we are anticipating an investment boom in the Baltic Sea.
Well then. Is it worth investing in Poland in 2021?
Forecasts by the International Monetary Fund show that Poland’s GDP growth rate will gradually slow down to 2.8% between 2021 and 2023. Other experts are more optimistic when forecasting Poland’s GDP growth and expect it to be at 4.0%. Poland has performed well against the Eurozone, where the GDP for 2019 and 2020 is expected to be 1.6% and 1.7% respectively. It is therefore very likely that in the coming years the Polish economy will be characterised by stable growth and increasing competitiveness on the global market.
The answer to our question is therefore quite simple: Yes, it is worth it! Poland, due to its increasing levels of innovation, is an excellent place to invest, especially in high-tech sectors. In summary. You now know what to invest in. But how to do it and where to find the right targets can be more difficult. It is in this area that it is useful to build relationships with local experts – advisors specialising in investments in CEE markets and in handling international transaction. There is no shortage of those, do come talk to us.
Invest in Poland, see more 😉 https://youtu.be/CjotuT4hpYk
Blog edited by dr Anna Maria Panasiuk
Founder and Managing Partner of Panasiuk & Partners, with many years of expertise in wealth management.
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