Poland Ready to Blast Off
McCrary, Ernest S., Global Finance
A decade of methodical preparation has led Poland through through a comprehensive privatization program that is restructuring the financial sector, attracting piles of foreign investment, and preparing the economy for a broad, new growth cycle.
Poland, after a full decade of methodical reforms, is entering a new stage of development that will place it squarely among the major European economies over the next few years. Membership in European Monetary Union is in the offing-probably sometime between 2002 and 2005 -and key reforms in the Polish economy are coming through as promised by the government of Prime Minister Jerzy Buzek.
"We've had some zigzags," says Piotr Mroczkowski, vice chairman and COO of Elektrim, a former state trading company and wire cable maker that has emerged as a player in Poland's telecommunications sector-- and has seen its market cap soar from $20 million eight years ago to $900 million today. "On the whole the system is working, regardless of who has been in power;' Mroczkowski says."The reforms are going forward and inflation is coming down. Growth this year is in doubt, but from 2000 onward the outlook is very good."
Yet the economy is growing twice as fast as the European average, and the telecom sector is particularly hot, since the partial privatization of former telephone monopoly Telekomunikacja Polska (TPSA) last year. The company is spending around $1.2 billion a year to modernize its systems and $1 billion a year is being raised abroad through bond issues for expansion and debt restructuring. The company is to get a strategic partner this year as the Polish Treasury sells another 25-30% of TPSA's shares. "A strategic partner will help us lower our cost of capital. We need this expansion because TPSA itself plans to install more than half the eight million new lines that Poland needs," says Donald Chodak,TPSA's CFO.
Netia, another new entrant into the Polish telecom market, listed on NASDAQ in New York at the end of July, raising $121 million for 21% of the company. Donaldson Lufkin & Jenrette Securities was global coordinator and lead manager of the transaction. "Poland is starting to look more like Western Europe for telecom activity," says DLJ managing director Tony Belinkoff, who worked on the Netia deal. "The economy and companies are maturing. Western capital will find Poland very attractive."
According to Adam Pawlowicz, president of investment promotion agency PAIZ, Poland received $6 billion in new FDI in 1997 and $10 billion last year. The total stood at $33 billion in June 1999, he says. Much of this is going into fields such as banking and insurance, preparing the way for an explosion in new financial services.
"You have to remember that the `central planning' period in Poland was fairly short, lasting only from 1949 until the early 1970's," says Marek Roman, CEO of consulting and investment management firm EVIP International in Warsaw. "Even then, small private businesses were allowed to exist and entrepreneurship never completely died out. The Communist Party actually looked for ways to reform. They failed, but at least people were allowed to study and travel abroad. That gave us an advantage, and made it easier to transform the system here."
Henryka Bochniarz, another consultant and economist who studied abroad-at the University of Minnesota-is also an outspoken defender of private-sector development. She served as minister for trade and industry in the second Solidarity government in 1991. Today she heads NICOM Consulting and is president of the new Polish Confederation of Private Employers, which has attracted more than 1,000 companies as members since it was set up in January.
"We're really in a transition period," Bochniarz says. "As a baby of the reforms myself, I can say that we're on the right track. But a lot of things could still destroy that. Some people still want to think in the old way, when the state was supposed to take care of everything. …