A slump in investment was registered in Poland for several years and it was with quite a difficulty that the situation was reversed. Despite the 6% rate of GDP growth in the years 2004-2005, no major increase in investment was yet observed at the time. Why then a high increase in investment of respectively 20% and more than 30% was recorded in 2006 and 2007? This is accounted for by several factors:
· never before have companies achieved such a high profitability (of net 5% in the economy); this allowed them to accumulate and allocate resources for investment;
· Polish companies customarily finance investment using basically their own resources; hence they take decisions with very great prudence and wait until the economic situation is stabilised;
· credits during the recession were very expensive and companies could not afford to take any; crediting conditions have now become more favourable;
· investment outlays have been reinforced by EU funds; an increase was also noted in the inflow of foreign direct investment to Poland.
These factors indicate that the current increase in investment may have a durable character.
I am pointing this out because investment is the main factor generating demand in the construction industry. For many years this sector was in deep recession. And that more than any other field of the economy. For three years now, the building industry has registered the highest rate of growth among all sectors. It has scored a 27% growth rate after eight months of 2007, and it is estimated that a 25%-30% rate will be registered for the whole year. That high rate of growth is attributed first of all to housing construction and finishing building works. Housing construction will continue to grow, but it will not determine the growth rate of the whole sector since it makes up only 15% of its overall output. The building industry’s expansion will be driven over the next few years by road construction and other infrastructure development projects. A fast increase in these fields should be maintained for several years and generate growth of the whole sector.
The good prospects for the coming years should not overshadow the looming threats that may weaken – but not stop – the growth rate. One, which more than half of entrepreneurs in the country point out, is the shortage of labour and rising employment costs. That could become a major growth barrier. During the recession, employment in the building industry declined sharply; employees took up work in other sectors and are rather unwilling to come back; many emigrated. It is estimated that the building industry is short of 150,000 employees. It is unlikely that the situation would improve due mainly to low wages. Admittedly, companies now have the money to increase wages, and indeed the fastest pay rises in the country have been registered in the building industry. The average gross wage in the sector has now reached about EUR800; this is high but not competitive against much higher wages offered to Polish workers on EU labour markets.
Another growth barrier which many people have not been aware of until recently is that of materials’ shortage. For many years, Poland had an extensively developed and modern building materials industry, the more so as since the mid-1990s most of the companies in the construction sector have been modernized and that to a great extent with foreign capital input. Due to the present boom in construction, the material base has proved to be insufficient to meet demand. Prices of building materials have soared the fasted in the whole economy and will most probably stay high for some time.
The phenomenon of “grey area” will also be a growing problem. That will not be important for big companies but these days half of all building materials comes from local companies and it is there that the “grey area” is prospering quite well.
So, barriers will be rising and so will be quality and technical demands on the building industry. However, the predominance of factors stimulating growth indicates that the boom in the building industry will continue. There will be large investment projects, EU funds will be taken fuller advantage of, and there will be the stimulus of preparations for Euro 2012. The economy will ride the wave of growth; high rates of profitability will stay on and keep up the investment trend. Nevertheless, I warn against excessive optimism and euphoria – it is always better to be on the safe side.
Zofia Bolkowska
Professor at the University of Management and Law in Warsaw
Expert for Chambers of Commerce