As Poland’s economy matures, the country’s manufacturers and investors are looking next door to Ukraine and its 46 million potential consumers as a new source for high-growth rates
Ukraine’s largest European Union neighbor, Poland is using its advantages – a common border, history and experience in transition from communism to a market economy – to make significant inroads into the country’s developing economy.
Poland’s direct investment in Ukraine of $730 million is dwarfed by a combined $12 billion pouring in from Cyprus, the offshore haven, and Germany. But Poland still ranks a respectable 12th place in inflow. Poland has also made an impact, ranking third in the number of direct investment projects in Ukraine, trailing only Russia and Cyprus, according to the Polish Entrepreneur Association in Ukraine.
Mirroring overall trends of EU investment in Ukraine, the lion’s share of Polish investment in Ukraine – 35 percent – is in the financial sector. The top four private sector Polish investors in Ukraine are financial institutions.
Where Poland is unique, however, is in the level of investment in manufacturing, particularly in the building materials sector. Polish-owned companies have captured a significant share of Ukraine’s flooring, window and bathroom fixture market. The success of Barlinek, the market share leader in Ukraine’s wood flooring market, is an example.
“Ukraine was the first foreign market that Barlinek invested in, it was a natural decision for us and we brought experience in transitioning Soviet-era plants into modern production facilities,” says Bartlomiej Krupa, Barlinek Ukraine’s general director.
Polish-Ukrainian bilateral trade is flourishing as well.
Poland is ranked as Ukraine’s fifth largest trading partner with some $3.3 billion in annual exports of goods and services. Last year, Polish exports to Ukraine surged by 40 percent. Ukraine, in turn, exported $1.2 billion in goods and services last year to Poland, representing an annual increase of nearly 40 percent, according to Polish embassy representatives.
A post-Eastern bloc economic success story, Poland’s economy has reached a level of maturity and market saturation that is driving businesses abroad in search of expansion and fresh growth opportunities. For Polish business, neighboring Ukraine is the natural place to look first.
“In our view, Ukraine is the land of opportunity, it is the biggest post-Soviet market, other than Russia, with huge potential and it is relatively underdeveloped,” says Janusz Janiec, general manager of Agora Ukraine, LLC, a subsidiary of Poland’s second largest media company of the same name.
Zelmer, the market leader in small domestic appliances in Poland, has a similar outlook. With a domestic market share hovering between 60 and 80 percent in some segments, Zelmer needed to look across the border to boost growth. Zelmer evaluated Belarus, Kazakhstan and Ukraine for future expansion opportunities.
“When the board reviewed the potential countries to expand into, Ukraine topped the list in terms of the business environment. The country has a large population with rising incomes and its consumers are focused on high-quality products,” said Arkadiusz Teclaw, general director of Zelmer Ukraine.
“And so far we’ve been proven right. Admittedly we’ve only been in the market for about six months, but we are averaging a weekly growth rate of 20 percent,” he added.
Polish capital and goods are not the only exports flocking to the Ukrainian market.
Poland’s successful transition from a planned economy to a thriving free market economy has spawned a generation of highly-qualified business professionals who are aggressively recruited by Ukrainian companies and multi-national corporations operating in the nation.
“Poland has produced a high number of successful managers that have learned how to apply best business practices to the unique challenges of a developing market economy,” said Jaroslaw Sarwa, vice president for the Allcass Direct recruitment agency.
On the whole, the economic environment is favorable for Polish businesses and investors, but there are hurdles to doing business, Polish market experts said. Polish firms operating in the market share familiar laments with other investors. Ukraine’s arbitrary laws, complicated customs and border crossing procedures, scant VAT tax refunds and corruption are common complaints. Having experienced challenges in their country’s westward transition towards a free market economy, some Polish investors view Ukraine’s paralyzing politics as the ultimate problem. They say chronic political turmoil has stalled reforms and kept investments at bay.
“The political instability is at the root of all the problems relating to doing business in Ukraine. Without stability, reforms are not adopted, and Ukraine’s full economic potential cannot be reached,” said Agora’s Janiec.
