Ex-Communist Poland Holds Up Well Next to Russia's Staggering Economy
By JOHN TAGLIABUE -- October 6, 1998
WARSAW, Poland -- Scott Mackie doesn't envy his
old boss.
Before he took over recently as head of General Motors
Poland, Mackie worked at GM's big German unit, Opel,
under David Herman. In June, GM dispatched Herman to
Moscow, where he is now puzzling out a strategy in the
wake of Russia's troubled collision with capitalism.
Mackie, 37, has no such headaches. In August, right on
schedule, a new $535 million GM factory in southern
Poland came on line, and work is proceeding on a $300
million upgrading of a plant in Warsaw. To supply
parts, GM's Delphi subsidiary has built or acquired six
plants in Poland. A finance company set up last year
feverishly plies Poles with credit to pay for the cars
the plants churn out.
Poland, in short, is not Russia. For some time now,
Eastern European nations have been uncoupling
themselves from their giant neighbor to the east and
refocusing westward. And the breathtaking collapse of
the Russian economy, which left Eastern Europe
standing, served to banish all doubts that this trend
is genuine.
"Today, Central and Eastern Europe's trade ties to
Western Europe are far stronger than those to Russia,"
said Albrecht Schmidt, chairman of Bayerishce Hypo und
Vereinsbank, one of Germany's largest banks. "They have
completely reoriented their economies to the West."
True, stock markets in Warsaw, Prague and Budapest have
taken a whipping because of the Russian debacle. Credit
is harder to come by. But by and large the region
sidestepped Russian-style woes, with Poland providing
perhaps the most vivid example of the power to survive
-- and even thrive.
Not that all the pieces are in place. Mackie's Polish
headquarters, in a corporate park erected hastily south
of Warsaw after the fall of Communism nearly a decade
ago, exudes impermanence. But he stresses that GM is in
Poland for the long haul. "Our ambition is to get not
just a toe in the door, but a significant stake in the
market," he said recently. "We don't build plants with
a 5-year horizon, but with a 30- to 40-year horizon."
And that horizon clearly is to the West. The formation
of a new government in Germany is now scrutinized more
closely here than the assembling of a Cabinet in
Moscow.
"They are all battered a little, and obviously they
will face difficult access to international capital
markets for some time," said Hans Peter Lankes,
director of transition strategy at the European Bank
for Reconstruction and Development in London. "Yet you
can see markets discriminating already."
Polish companies have deftly exploited the
opportunities that came with the collapse in 1989 of
the old trading regime, Comecon, quickly establishing
ties with Western Europe. The government took steps, at
times haltingly and with mixed results, to overhaul
creaking financial and industrial systems. And since
Poland, unlike Russia, did not have vast sums lavished
on it by the International Monetary Fund, it had to
scramble for private cash, but the foreign money came.
Partly, Poland made a virtue of necessity. Without
Russia's natural resources like gold, oil and gas,
Polish executives were largely unable to create the
types of leveraged fortunes that have collapsed in
Russia, accelerating the failure of that economy,
experts say. In addition, government regulatory
scrutiny of a kind unknown in Russia helped avoid
excesses.
"Poland got off to a very good start" by not succumbing
to the fatal combination of bloated finances and real
economic desolation that toppled Russia, said Jadwiga
Staniszkis, a leading Polish sociologist, "The
temptations were similar, and the connections were
there," she said, "but the degree to which it happened
was far less."
As the largest Eastern European market, with 38 million
people, and the region's principal motor of economic
growth, Poland has many eyes on it, and it is not home
free yet. With roughly 70 percent of its trade now
conducted with Western Europe, a slowdown there would
have ripple effects farther east. Fragile Polish
industries now compete with hardened industrial
old-timers from Europe, Japan and the United States,
and the Poles must often use weapons still blunt from
decades of mismanagement.
Still, Poland, though besieged, continues to command
international attention. The government is preparing
big chunks of the nationalized economy, like the
national telephone company and several large banks, to
go public. The results will provide a gauge of global
interest in investing here. Hugely unprofitable
industries like coal and steel, with immense debts that
are a drag on growth, are set for reorganization. Next
year, the pension system will get an overhaul to avoid
bankruptcy.
While hedge funds and short-term speculators liquidated
holdings in this summer's crisis, many investors, like
GM, are committed for the duration.
After years of managing funds in New York and Tokyo,
Alicja Malecka returned to her native Poland in 1991 to
build a fund business for the Pioneer Group, asset
managers based on Boston. In 1994, Pioneer, which has
$400 million of assets under management in Poland, less
in Hungary and the Czech Republic, plunged farther
east, establishing asset management and brokerage
businesses in Russia as well.
But Ms. Malecka's business epitomizes the region's
contrasts. While she is bullish on Poland, she traveled
recently to Moscow to sort out Pioneer's activities
there. That operation, as she put it, was "extremely
successful until six months ago," but is now "in a kind
of survival mode."
Not that Poland is all wine and roses. When Warsaw's
stock exchange took a hit in 1994, she said, two-thirds
of Pioneer's business melted away; this summer, when
the market plummeted again, Pioneer's business shrank
20 percent as investors turned skittish. "It's a very
volatile market," Ms. Malecka said, seated in her
office in a Communist-era tower that like Poland itself
is undergoing a renewal. "About 85 percent of our
customers are individual investors."
But change is coming. To rescue Poland's pay-as-you-go
pension system, established under the communist regime,
a new law takes effect in April that will require about
3.5 million Poles under the age of 30 to begin paying
part of their earnings into private pension funds, and
Pioneer expects to be among the dozen or so fund groups
licensed for this business. Ms. Malecka is talking to
about 400 companies, including big nationalized
industries, about forming corporate pension plans to
supplement the government's social security payments.
"Five years down the road, most of our assets will come
from pension funds," she said.
Mackie has seen similar changes help his business.
Three years ago, he said, GM's forecasters were
predicting a market in Poland of about 400,000
automobiles by 2004. Yet they had not reckoned with
changes in Polish laws enabling car makers to open
consumer finance companies. Now, the market leader,
Fiat, does 60 percent of its Polish sales through
credit. By last year, total car sales had reached
477,000, and promise to be even higher this year. In
fact, 280,000 cars were sold in the first six months,
making Poland Europe's sixth-largest automobile market,
after Germany, France, Britain, Italy and Spain.
Doing business in Poland may not be easy, Mackie said,
but it gets done.
As do many Western executives, Mackie laments the
Byzantine twists of Polish bureaucracy. In Gliwice, in
southern Poland, site of GM's new plant, workers can
use only one of several factory cafeterias, he said,
since local officials have yet to issue sanitation
permits for the others; the general contractor, a
Polish construction group called Mostostal, performed
technical miracles, he said, but was poor at
efficiently organizing hundreds of subcontractors.
Still, construction was fully on schedule, and on Aug.
31, the first cars rolled off Gliwice's assembly lines.
Exactly when Poles' appetite for consumer goods like
cars will be sated is hotly disputed. Consumer debt,
despite offers like those by the auto companies,
remains at less than 10 percent of disposable income,
minuscule compared with levels in the United States and
Western Europe. Yet growth in real wages is declining,
to about 4 percent this year from 6 percent in 1997,
and figures suggest that growth of the crucial
automobile market will slow to 7 percent this year,
from more than 25 percent in 1997.
Thus, as attractive as Poland's domestic market may be,
car makers like Mackie will use factories here to ship
abroad, further cementing links with Western Europe.
Though GM expects to sell about 45,000 cars a year in
Poland, the assembly lines in Gliwice will churn out
more than 150,000. All of Fiat's two smallest models
sold in Western Europe come from factories in Poland.
Polish auto workers earn 20 percent of the salaries of
their Western European counterparts, and cars made in
Poland enter Western Europe duty free, thanks to
agreements to ease Poland into the European Union by
early in the next century.
To be sure, Poland is not isolating itself economically
from the east, where millions of consumers in the
former Soviet Union offer a potentially huge and hungry
market. Deputy Foreign Minister Radoslaw Sikorski
pointed out how Poland had in recent months abolished
visa requirements for Ukrainians and reduced visa fees
for Russians, to $15 from $60, in part to stimulate
barter-based cross-border trade that aids businesses in
eastern Poland that supply consumer goods, like food,
to Ukraine and Russia. As Russia heads toward a
catastrophic harvest this year, he said, "we think most
of that will remain."
But Poland's trade with Russia accounts for only about
7 percent of the total, he said, adding, "We are closer
to Brussels than to Moscow, and not only
geographically."
As economic reorganization produces increasingly close
ties to Western Europe, it is there, economists say,
that Poland's economic fortunes will eventually be
decided.
"As long as there are clear signals that accession to
the European Union is on track," said Lankes of the
Reconstruction Bank, "then Central European countries
are going to be decoupled from emerging-market risks."
Now, he said, the biggest question facing countries
like Poland is "what will happen to Western European
economies, and there is increasing uncertainty about
that."
Copyright 1998 The New York Times Company |
