ZPP appeals for Russian and Belarussian products to be withdrawn from sale

 

Renata Juszkiewicz
President of the Management Board 
Polish Organization of Commerce and Distribution (POHID)

 

Dear Renata,

Please distribute this Appeal among the members of POHID.

 

APPEAL

Dear Sir/Madam,

I heartily appeal upon you to withdraw Russian and Belarussian products from sale.

Both these countries – alas, supported by substantial citizens populations – murder people. They are ruled by war criminals.

Not a single zloty spent by the Polish consumer should go to such criminal regimes.

Please consider my appeal. I strongly believe in your business and wish you every success.

 

Cezary Kaźmierczak
President of the ZPP

Warsaw, 15 February 2022 

 

Marcin Nowacki, vice president of the ZPP, holder of the Economic Freedom Award of the Heritage Foundation

 

Heritage Foundation, one of the most influential conservative think tanks in the world, has announced Marcin Nowacki, vice president of the ZPP, as the recipient of its annual Economic Freedom Award. The Foundation thus recognised his lifelong work advancing the principles of free market, economic freedom and fair competition in Poland and the European Union.

The Heritage Foundation, established in Washington in 1973, is involved in promoting conservative political thought, economic freedom and educating leaders. For 25 years now the Foundation has been publishing a high profile annual Index of Economic Freedom which presents the status of bureaucracy in the economies of individual countries.

Find out more

#BusinessForUkraine – we call to join the action

 

Following the Russian invasion of Ukraine, we launched a fundraising campaign to provide Ukrainian NGOs with funds to defend Ukraine and its citizens.

The ZPP Foundation, operated by the Union of Entrepreneurs and Employers, decided to allocate PLN 100,000 from its budget for this purpose. The money has already been transferred to Kyiv.

We encourage representatives of our member companies to show solidarity with the Ukrainian people and join our fundraising campaign.

Donations can be made to the following account:

IBAN: PL 34 1020 4900 0000 8202 3405 8713

SWIFT: BPKOPLPW (PKO Bank Polski)

Please write “Darowizna na cele statutowe / Donation for statutory purposes” in the transfer title field. Our Foundation supports, amongst others, economic education and social programmes. However, the funds deposited to the above-mentioned account will be entirely transferred to Ukraine. The Foundation will fully cover any administrative costs.

Warsaw, 24 February 2022

 

Appeal of the Union of Entrepreneurs and Employers to impose hard and deep sanctions on Russia 

 

The Union of Entrepreneurs and Employers (ZPP) condemn the unauthorized and outrageous act of Russian aggression against Ukraine. Military interference in the territorial integrity of another state and the pursuit of a policy of conquest are behaviors that go beyond the framework of the modern international order and deserve strong condemnation. The Russian state has excluded itself from the international community, and the Putin regime’s actions require a strong and bold response from the Western world.

Bearing in mind the above, we call for all necessary steps to be taken to ensure that Russia’s aggression is met with a proper and adequate response, and above all – with the most severe and deep economic sanctions.

ZPP believes that all options that are on the table and at the disposal of international institutions should be used – including the exclusion of Russia from the international financial system and the maximum possible restriction on trade, as well as the extensive use of personal sanctions, such as freezing assets or entry bans. Investments made in cooperation with the Russian energy industry, including Nord Stream 2 in particular, should also be absolutely halted.

We cannot be afraid of applying the most severe sanctions at our disposal. The Russian economy is one-third smaller than that of Italy itself – a country more than twice less populous. The GDP of the European Union is fifteen times the GDP of Russia. Russia’s GDP per capita, taking into account the purchasing power parity, is lower than that of Poland, Romania or the Czech Republic. Russia is economically much weaker and poorer than we are. European companies and consumers will therefore do without Russian money.

We count on decisive and bold actions from Poland and international institutions. Putin’s banditry must be stopped by all means possible. At the same time, we express our deep solidarity with the Ukrainian people.

 

See more: Appeal of the Union of Entrepreneurs and Employers to impose hard and deep sanctions on Russia

February 18 2022

 

ZPP’s contribution to consultations on Artificial Intelligence Act launched by MEP Axel Voss

 

The Union of Entrepreneurs and Employers welcomes the consultations on the Artificial Intelligence Act (AIA) organized by MEP Axel Voss. Below we present the most pertinent issues which, in our opinion, are key to unlocking the potential of the European digital economy in the years to come.

1. What is the best definition of AI?

In our view, the definition currently proposed under the AIA is too broad. If enacted, AIA would cover a range of solutions that from the perspective of industrial and commercial practice do not constitute Artificial Intelligence (AI). For instance, the Annex I point (a) lists machine learning methods, while Annex I point (c) includes statistical approaches, Bayesian estimation, as well as search and optimization methods. If enacted in this wording, AIA would classify virtually any algorithm, optimization method or statistical calculation as AI. Therefore, in the view of ZPP, it is of paramount importance to omit Annex I point (c) from the final version of the regulation.

2. What encompasses high-risk?

ZPP has participated in the consultation process of AIA since the begging and has consequently advocated for the adoption of risk-based approach. We welcome the Commission’s proposal to the imposition of mandatory requirements. In our view by adopting a proportional, risk-based approach the Commission found a good balance between maintaining scope for innovation and protecting citizens.

At the same time, we believe that the provisions of AIA need more clarification. Areas that need more fine-tuning include the differentiation of responsibilities between AI actors in the value chain and specific requirements for high-risk uses of AI.

3. How to combine it with ethical standards?

In our opinion, the Charter of Fundamental Rights of the EU, as well as aquis communaitaire, constitute primary sources of ethical standards in the EU and are as such recognized as binding. Therefore, any limitation to the use of AI should be based on a potential infringement of rules, which form community law already today. Widening this group of sources would create risks to the coherence of the EU legal framework, and risk decreasing legal certainty.

4. How can we make sure the AI governance approach works?

We have formulated a number of specific recommendations with a view to implementation and enforcement of AIA.

First, AIA should clarify the balance of responsibilities between AI providers, deployers and users. Particular attention should be paid to the question of responsibilities of AI users as deployers, and the responsibilities of providers to their customers. Currently, AIA does not provide a definition of a deployer. In our view, inclusion of a definition as an entity making the AI available to users in a specific situation would increase coherence and clarity of the overall regulatory framework.

Second, the success of AIA depends on whether the requirements are reasonable and feasible. In order to achieve that, language around certain provisions needs to be revised in order not to set an impossible standard. For instance, the requirements imposed for high-risk AI are in principle proportionate. Nevertheless, the language of the provisions should be revised to make sure that the provisions can be applied in practice. An example of an obligation, which is impossible to implement in practice, is Art. 10(3) stating that “Training, validation and testing data sets shall be relevant, representative, free of errors and complete.” While the goal is right, it is impossible to guarantee this in practice. Moreover, certain techniques aiming at improving users’ privacy deliberately introduce error (noise) to datasets.

In a similar vein, AIA should avoid introducing disproportionate requirements. One such example include Art. 64(a), which states that “…upon a reasoned request, the market surveillance authorities shall be granted access to the source code of the AI system.” On the one hand, this provision is contrary the EU Trade Secrets Directive. On the other hand, there are less intrusive yet effective means to verify performance of an AI system. Therefore, in our opinion it would be beneficial to change this provision in order to obligate AI providers and deployers to effectively support market surveillance authorities to carry our robust testing (input/output audition).

 

See more: ZPP’s contribution to consultations on Artificial Intelligence Act

Brussels, 9 February 2022 

 

“The Future of Europe doesn’t only mean the EU“, said MEP Ivan Stefanec during his opening of a debate on The Associated Trio: Enhancing Cooperation for Peace, Democracy and Prosperity that he hosted.

On the 9th of February, the Union of Entrepreneurs and Employers, together with the European Enterprise Alliance, the SME Connect and SME Europe, co-organised a debate bringing together the perspectives from Ukraine, Moldova and Georgia to discuss how Brussels could build practically on the success of the Association Agreements signed in 2016 and 2017. 

While this step undoubtedly encouraged the Trio nations to draw closer to the bloc, the European Union cannot rest on this accomplishment alone. Rather, speakers emphasised that both sides have to take concrete steps to advance this relationship and ultimately conclude the accession of the trio countries to the European Union. They focused on formally recognising the Associated Trio as a distinct grouping within the Eastern Partnership (EaP) and reconsidering proposals to pursue integration on a sector by sector basis with enhanced economic integration. In their views, it would demonstrate the commitment of the European Union and lead to a watershed moment to push for a more visionary policy on the European continent.

In December 2019, Georgia, Ukraine and Moldova – the three EaP countries with an Association Agreement with the EU – signed a joint statement submitted to EU High Representative. In the statement, they advocated a new EU+3 format enabling sectoral integration in transport, energy and other fields, as well as full access to the four freedoms of the EU – free movement of goods, services, capital and persons to help them progress faster on their path to European integration. 

During his intervention, Deputy Economic Minister of Ukraine, Mr Taras Kachka, outlined that his country ambitions are focused on daily economic integration. More business to business dialogue is needed to overcome the prejudice about the competitive advantage and picture Ukraine as a strategic partner and not a competitor.

Mr Vladimir Cuc, a State Secretary of Foreign Affairs Ministry of Moldova, followed this statement and added that he welcomed the Associated Trio’s shared ambitions while advocating for its expansion through informal ministerial meetings. 

Ms Mariam Gabunia, Head of Foreign Trade Policy from Georgia, highlighted that “despite challenges, we continue to implement complex reforms to transform our legal and institutional system”. She said that Georgia has achieved 40% of its commitments and strive to reach 65% before applying for the European Union membership in 2024. 

Member of the European Parliament, Luliu Winkler, said that “we need to go beyond economic cooperation and have a social impact, changing people and communities’ lives for the better” through dialogue and diplomacy. 

Whereas, a Member of the European Parliament and a Vice-Chair of the European Parliament’s Defense Committee, Lukas Mandl, stressed that we should focus on the areas of cooperation when we can deepen our engagement: Permanent Structured Cooperation (PESCO) projects, and peace and capability building. 

Damir Filipovic, Secretary-General of the European Enterprise Alliance, reminded that the EU has a good recipe for relations with Georgia, Moldova and Ukraine. But it also needs to adapt for the future and focus on a deeper inclusion of political, societal and security dimensions. Moreover, it has to look in more pragmatic ways and consider the sectoral approach or present a more flexible approach depending on the particular needs of the partner. 

Agata Boutanos outlined that from business perspective it is crucial to strengthen the already developed association by further support for EU standards implementation.

See more: Online Debate – The Associated Trio: Enhancing Cooperation for Peace, Democracy and Prosperity

Warsaw, 15^th December 2021

 

Memorandum of the Union of Entrepreneurs and Employers on inflation

 

Inflation crisis

The economies of Poland and the European Union are going through hard times. Since the beginning of March 2020, the world has been struggling with a pandemic, and in spite of a pronounced recovery in 2021, the new COVID-19 variants keep the global economy from healing completely. To boot, the pandemic is one of the sources of yet another problem that we have fallen victims to in recent months: soaring inflation. According to Eurostat data, inflation in the European Union amounted in October 2021 to 4.4% year-on-year, and to 4.1% (HICP) in the euro area. It was lowest in Malta (1.4%), Portugal (1.8%) and Greece (2.8%), and highest in Lithuania (8.2%), Estonia (6.8%) and Hungary (6.6%). Poland too recorded one of the highest inflation rates (6.4%), thus taking 5^th place in the entire EU[1]. Eurostat also analysed inflation in the euro area in November 2021, and as it turns out, it increased to 4.9% year-on-year[2]. Data Statistics Poland are not optimistic either. From the beginning of 2021, inflation has been growing steadily, reaching the level of 2.6% year-on-year in January, 4.3% in April, 5% in July, 5.9% in September, and 6.8% in October[3]. To make matters worse, according to their data, in November inflation might have amounted to 7.7% [4][4]!

[chart]

Source: Statistics Poland, https://stat.gov.pl/wykres/1.html

Reasons behind growing inflation in Poland and in Europe

A number of factors contribute to such a significant increase in inflation in Europe. One of them is the economic recovery of 2021 following a year of restrictions and lockdowns back in 2020. The fact that in the Q3 2021, according to a preliminary estimate of the Statistics Poland, the Polish GDP went up by 5.1%[5] proves this assumption, and so does the fact that the average wage in the enterprise sector in October 2021 increased by nearly PLN 500 since October 2020[6]. Consumption is largely responsible for the increase in GDP, which in Q2 2021 increased by as much as 13.3% year-on-year[7]. These data are certainly good news for the economy, but in terms of inflation, they are hardly neutral. Especially in the case of the Polish economy, which based its model of recovery from the pandemic crisis on generating consumer demand instead of stimulating investments, the impact of the above-mentioned factors on the increase in inflation, one of the highest in Europe, is the more visible.

One of the key reasons for inflation in the European Union is without any doubt the increase in energy prices related to rising gas prices. Demand for gas has been steadily increasing in recent months as a result of the economic rebound. Consequently, the prices of this raw material on global markets have gone up. Political uncertainty in the context of European-Russian relations (the latter being one of the largest natural gas suppliers to the European Union and its member states, including Poland) further aggravates the situation. Moreover, the CO₂ emission allowance within the EU ETS trading system comes to minds as well, as it has become the object of interest of speculators who purchase allowances with the intent to resell. For example, on the ICE and EEX exchanges, the prices of allowances increased by approximately 200% from the level of EUR 25 per tonne of CO₂ in November 2020 to almost EUR 75 a year later.

Another key factor influencing inflation is the increase in fuel prices – not only because fuels are part of the so-called inflation basket, but also (as is the case of energy prices) the increase in fuel prices translates into higher prices of virtually all goods and services in the economy. One ought to look for reasons for the increase in fuel prices (same goes for natural gas) in growing demand for this raw material, which in turn means higher prices on markets around the world. At the end of 2020, the price of a barrel of brent crude oil amounted approximately USD 50, whereas in November 2021 to USD 85. In recent days, we can observe a drop in oil prices to USD 69-73 per barrel due to uncertainty sparked by the emergence of a new variant of the coronavirus: “Omikron”. Besides, the weakening Polish zloty has an impact on the growing fuel prices too. On this very day, the US dollar costs PLN 4.10[8], while a year ago it cost PLN 3.69[9], which means that today one must pay over 10% more for the same amount of oil on international markets.

Of course, the policy pursued by Polish authorities is not without significance for inflation. Numerous social programmes, costs related to aid programmes aimed at mitigating the effects of the COVID-19 pandemic, or the re-purchase of Treasury bonds have all led to a surplus money supply on the market. Poland also decided relatively late (compared to other countries)to tighten its monetary policy and raise interest rates. According to the National Bank of Poland, inflation was supposed to be temporary. This approach has rather changed over the last three months. At the moment, the President of the Polish central bank is of the opinion that inflation may stay with us for a longer time, and the Monetary Policy Council is systematically raising rates. One can expect this trend to continue next year.

And finally, one must speak up that a further increase in inflation in Poland will be driven by the “Polish New Deal”. As part of this package, the real public burden on entrepreneurs will increase considerably. Ergo, the increase in the costs of economic activity will inevitably lead to an increase in the prices of goods and services, which will do nothing but increase inflation in 2022.

The risk of stagflation

Increasingly often, the media warn about the possibility of stagflation. Under normal market conditions, GDP growth is usually followed by an increase in inflation, and when GDP falls or its growth decelerates, inflation decreases. However, in the case of stagflation, economic stagnation is accompanies by high inflation. As we have indicated above, in Q3 of 2021, in line with the preliminary estimates of Statistics Poland, GDP increased by 5.1%. Still, one must not forget that this was primarily fuelled by consumption, not by investing in the economy. What this means is that our economy is not becoming more effective or competitive and may therefore lag behind other European countries and the world in general in the long run. High energy prices, problems related to supply chains, rising prices of raw materials and a number of other factors mentioned above translate not only into soaring inflation, but also into an industrial slowdown, already elaborated on in the Markit PMI Purchasing Managers’ Index. In recent months, the index, albeit still favourable for Poland, was disappointing (53.4 points in September, 53.8 points in October and 54.4 points in November, respectively)[10]. Economists also predict a decline in GDP, and the latest estimates say that the GDP will increase in 2022 in the range of 4-5%[11].

While the risk of stagflation is still moderate, the very risk of its occurrence makes the need to combat rising inflation all the more urgent.

Europe in the face of inflation

In November 2021, inflation in Germany increased by 5.2% year-on-year – the highest surge in 29 years, since 1992. One of the main reasons for this was the significant rise in energy prices, which increased by over 22%. In this case, fuel is also included in the energy price growth index. Prices of food (4.5%) and services (2.8%) were also higher[12]. Nevertheless, these are not the only factors related to skyrocketing inflation. Just as in Poland, a number of measures were undertaken in Germany to counteract the COVID-19 pandemic, among them a temporary reduction in VAT. When it returned to its original value, increases in the prices of goods and services became an additional factor leading to higher inflation.

France boasts a relatively low inflation. In November 2021, it amounted to 2.8% year-on-year. Notwithstanding its relatively low level, authorities decided, amongst other, that a large part of the society be awarded vouchers EUR 100 worth to compensate for the effects of fuel price increases. One should keep in mind, however, that both France and Germany are part of the so-called Eurozone, and therefore their fiscal policy depends on the actions of the European Central Bank.

A similar level of inflation to that of Poland was observed in Hungary (6.6% in October). Budapest made up its mind to slightly increase the country’s base rate, to 1.8% in October and 2.1% in November. The last one was the sixth increase in interest rates in recent months, and their value is 0.35% higher than in Poland.

The problem of inflation affects the entire European Union to a greater or lesser extent. For instance, in France, where inflation is not too high, measures undertaken are rather insignificant, in the form of one-off social transfers. In the case of Germany, inflation is above the EU average and has reached levels unseen in years. And yet it is still much lower than in Poland. The situation most similar to our country can be observed in Hungary. However, lest we forget, the fiscal policy of this country is a bit more determined than in Poland.

Anti-inflation shield

The fiscal policy pursued by the National Bank of Poland and the Monetary Policy Council is not the only measure to combat inflation. On 25^th November 2021, the government decided to introduce an “Anti-Inflation Shield”. This programme assumes a number of changes aimed at curbing inflation. Draft projects have already been submitted to the Sejm (the lower house of the Polish parliament).

The first step to be implemented as part of this “Shield” is a reduction in excise duty on fuels to the minimum level permitted in the European Union, which is to apply from 20^th December 2021 to the end of May 2022. Then the “tax on emissions” is to be abolished. According to the government’s assumptions, this reduction will result in a drop in fuel prices by approximately PLN 0.2-0.3 per litre. Also noteworthy is the fact that there have been declines in oil prices in recent days worldwide in the light of the emergence of “Omicron”. Should this trend continue, lowering wholesale oil prices may contribute to a dip in fuel prices. Reductions in taxes and wholesale prices of raw materials may translate into a noticeable drop in prices at petrol stations.

The “Shield” also postulates a reduction of VAT on natural gas from 23% to 8% from January until the end of March 2022 and 0% excise tax for households. In this period, VAT will also be reduced from 23% to 5% on electricity and households will be exempt from excise duty on electricity. January to March 2022, VAT on heat energy for households is also to change from 23% to 8%. However, let us not forget that next year we will face further, already approved increases in electricity and gas prices, which will fully “absorb” the above-mentioned tax cuts. Furthermore, these reductions are only temporary, while the increases to come will stay with us for good.

Another element of the “Shield” to be introduced are further social transfers in the form of “shield allowances”, which, depending on the number of people in the family and the income earned, is to range from PLN 400 to PLN 1,150. According to estimates, up to 7 million households will be eligible for these allowances.

In the opinion of the Union of Entrepreneurs and Employers, the “Anti-Inflation Shield” may in the short term slow down inflation, but will fail to stop it. Tax cuts are only of a temporary nature, therefore, when they are gone, we may deal with yet another sharp increase in inflation. The VAT cut in Germany had a similar effect. Another thing is the further development of the system of social transfers in the form of a “shield allowance”, which will further boost consumption and thus fuel inflation. While our Union supports tax cuts, we believe that such measures should be more systemic, long-term, and in line with national fiscal policy. The government announced that it would allow some solutions of the “Anti-Inflation Shield” to be extended, and for other solutions to be introduced as well. Should this come to fruition, these measures may help us mitigate the effects of the inflation crisis. At the same time, we must point out that additional social transfers are not the answer to our problems. They will only contribute to exacerbating the situation in Poland. Above all else, it is necessary to change the approach to the economy itself and create conditions for entrepreneurs to develop, to be more effective, innovative and, consequently, more competitive.

***

[1] Flash estimate – October 2021, Euro area annual inflation up to 4.1%, https://ec.europa.eu/eurostat/documents/2995521/11563351/2-29102021-AP-EN.pdf/70e9c60b-8bca-12cc-859e-41af561b5a08 (date of access 15^th December 2021)

[2] https://ec.europa.eu/eurostat/documents/2995521/11563387/2-30112021-AP-EN.pdf/8072b1c7-4379-7fbe-af36-ec2300c42265 (date of access 15^th December 2021)

[3] Statistics Poland (Główny Urząd Statystyczny), https://stat.gov.pl/wykres/1.html (date of access 15^th December 2021)

[4] Statistics Poland (Główny Urząd Statystyczny), https://stat.gov.pl/obszary-tematyczne/ceny-handel/wskazniki-cen/szybki-szacunek-wskaznika-cen-towarow-i-uslug-konsumpcyjnych-w-listopadzie-2021-roku,8,67.html (date of access 15^th December 2021)

[5] https://stat.gov.pl/obszary-tematyczne/rachunki-narodowe/kwartalne-rachunki-narodowe/szybki-szacunek-produktu-krajowego-brutto-za-iii-kwartal-2021-roku,1,35.html (date of access 15^th December 2021)

[6] https://stat.gov.pl/sygnalne/komunikaty-i-obwieszczenia/18,2021,kategoria.html (date of access 15^th December 2021)

[7] https://www.money.pl/gospodarka/polskiej-gospodarce-mogla-wyrosnac-nowa-kula-u-nogi-do-tej-pory-byl-to-nasz-atut-6702642264578912a.html (date of access 15^th December 2021)

[8] https://www.nbp.pl/Kursy/KursyA.html (date of access 15^th December 2021)

[9] https://www.nbp.pl/home.aspx?navid=archa&c=/ascx/tabarch.ascx&n=a239z201208 (date of access 15^th December 2021)

[10] https://businessinsider.com.pl/stagflacja-w-polsce-jest-mozliwa-boja-sie-ekonomisci-wszystko-przez-kryzys/7869s03; https://300gospodarka.pl/news/pmi-indeks-markit-przemysl-sierpien-2021; https://www.money.pl/gospodarka/pmi-nowy-raport-o-polskim-przemysle-coraz-mocniej-ciaza-opoznienia-w-dostawach-6678454486424384a.html (date of access 15^th December 2021)

[11] https://businessinsider.com.pl/gospodarka/makroekonomia/pkb-w-2022-r-ekonomisci-obnizaja-prognozy/654mxb2 (date of access 15^th December 2021)

[12] https://businessinsider.com.pl/gospodarka/inflacja-w-niemczech-padl-29-letni-rekord-do-polski-im-jednak-jeszcze-daleko/neszq2y (date of access 15^th December 2021)

 

See more: 15.12.2021 Memorandum of the Union of Entrepreneurs and Employers on inflation

Warsaw, 7^th December 2021

 

Updated 2022 Economic Forecast of the Union of Entrepreneurs and Employers

 

2021 was a year of economic rebound after the crisis caused by the COVID-19 epidemic a year before. Economy’s return to a state of ‘relative normal’ after a period of lockdowns and restrictions does not mean, however, that the risk related to the pandemic have disappeared from the landscape entirely.

The emergence of new variants of the coronavirus raises concern both on the part of governments and companies, while a specific “decline” after the period of expansionary fiscal and monetary policy in 2020 manifested itself in the inflation that has been skyrocketing in most developed economies.

It was this economic index that made most forecasts published in the H1 of 2021 (including our own) obsolete. Research centres failed to take into account the possibility of such a rapid increase in prices almost all over the entire developed world.

Keeping these circumstances in mind, we present an updated 2022 Economic Forecast. The current projection is as follows:

Unemployment

Formerly: 5.9%
Now: 5.3%

Inflation

Formerly: 3.1%
Now: 6.5%

GDP growth

Formerly: 5.1%
Now: 5.2%

Investments (% GDP)

Formerly: 17.2%
Now: 16.9%

 

Find out more: 07.12.2021 Updated 2022 Economic Forecast of the Union of Entrepreneurs and Employers

Warsaw, 29^th November 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers
on rising prices of raw materials for energy

 

Prices of raw materials used for energy production have increased drastically over the last year. It was all the more dramatic as the recession that took place due to the COVID-19 pandemic lowered those prices “temporarily” to their lowest levels in more than a decade. Over a dozen or so months, prices rose from exceptionally low to extremely high. The global law of one price does not apply to natural gas and prices are still regionally shaped. In this case, price increases in Europe proved to be particularly steep. In Poland, the severity of high prices of some of these raw materials is further exacerbated by the unfavourable situation on the foreign exchange market.

The price increase in energy raw materials significantly impacted the inflation dynamics through rising costs of electricity, transport, and heating. In Poland, this is partially neutralised by the national coal policy. State-owned mining companies concluded some time ago long-term contracts for the supply of hard coal to Polish energy producers. Back then, it was supposed to protect, at least on a basic level, the interests of the hard coal sector. Last year, it meant the cost of coal was several dozen percent higher than market costs. This year, however, coal prices at least twice as low as in Europe.

Should prices of energy raw materials stabilise at an elevated level, this would result in a relatively short-term inflation spike. However, should the growth trend in this sector turn out to stay with us in the medium-term (which is hard to imagine today at the current prices), it will result in constant inflationary pressure. Already today, in the context of inflation caused by both internal factors and the external pressure on prices of energy raw materials (and consequently on prices of energy in various forms), there is talk of a social inequality becoming more severe. We are approaching the point where an increase in nominal wages will be tantamount to a decline, not an increase in real wages. This will be a mighty blow to the lowest-income groups who spend a major part of their salaries and wages on goods and services whose prices are particularly sensitive to energy prices and transport costs, such as food.

The sources of this increase are diverse. The increase in demand compared to the previous year due to economic growth (recovery after the deep slump the year before) played a critical role. Supply chains becoming longer or broken as well as the cold winter in the northern hemisphere contributed to this too. It seems, however, that one of the most principal factors in this case turned out to be the green policies for preventing climate change and limiting greenhouse gas emissions.

One must stress the fact that the challenge of rising prices of energy raw materials in Europe is not a short-term one. Apart from global factors, the increase in prices is influenced by regional conditions, including a high degree of monopolisation of supplies and climate policies. These policies, based on ambitious plans for a rapid reduction of emissions (as provided for in EU’s strategic agendas: European Green Deal and Fit for 55), are to bring about swift results in the most emission-intensive sectors of the economy, e.g. transport, energy and heavy industry. Natural gas, until recently considered a transitional fuel, plays a key role in European energy transformation (and in achieving the EU’s goal of climate neutrality). As Europe is dependent on natural gas imports, and the energy transformation is driving demand for gas, its suppliers gain strong political leverage. This applies particularly to Russia’s policy, although the uncertainty (expected and unassumed) of supplies from North Africa also raises concerns. Moreover, growing demand for gas in Asia has made Europe (and especially the EU) compete directly with Asian buyers. Since demand in Asia in recent years has started to exceed that of Europe, we are slowly becoming, to a certain degree, the price taker. This is also due to the development of maritime transport of LNG, as well as investments in a network of gas pipelines connecting Russian deposits with recipients in Asia.

Europe has been hit awfully hard this year by the crisis on the market of energy raw materials. Technological conditions and political choices mean that we can expect long-term problems due to soaring prices of fossil fuels and the ability of safely meeting the demand. These problems can significantly affect the quality of life of Europeans. First of all, directly through the price mechanism: increases in energy prices in various forms (electricity, heating, or fuel) may become gut-wrenching and indirect, because they will further boost inflation. Then, there is the risk of temporary shortages of fuel (which we have seen take place recently in the UK, already outside the EU) or gas or electricity (in the form of blackouts). An additional consequence may be such a high increase in production costs in the manufacturing sector that it will affect the development potential of European industry. We would then have to give up our dreams of a European re-industrialisation.

Such a negative impact on the quality of life (and possibly the dynamics of development), should this process prove to be permanent, may in turn spark a redefinition of the European political scene. It is therefore worth paying attention to the situation, because the mixture of (excessively?) ambitious climate policy goals, dependence on external gas suppliers, and unexpected turbulences in global markets may affect not only the fate of climate policy in Europe, but also the internal cohesion of the entire community.

 

Piotr Koryś, Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 29.11.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers on rising prices of raw materials for energy

Warsaw, 14^th December 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers
on the economic benefits of transformation and accession to the EU

 

Systemic transformation of our region began in a formal sense over three decades ago. Apart from the Polish general elections on 4^th June or the wave of protests in the countries of the so-called people’s democracy, one of its most momentous events, was the fall of the Berlin Wall. It marked the beginning of the process of German reunification (following the German unification of the 19^th century), which ended in October 1990. Thirty years ago, in 1991, the Soviet Union collapsed, although this did not mean the collapse of the Soviet, and later Russian sphere of influence.

From the Polish perspective, systemic transformation opened a window of opportunity. For the first time in two centuries, all Polish lands and the Polish nation were outside the Russian / Soviet sphere of influence. While the incorporation of East Germany into the West in 1989 was self-explanatory, or the historical and cultural closeness of Czechoslovakia, Slovenia and Hungary to Germany and Austria opened the door to the West for them relatively wide, the fate of Poland (along with Romania, Bulgaria, Latvia and several other countries) was not sure back in 1989. In the case of Poland, the efforts of the Americans were critical, as they translated in economic terms into direct involvement of experts, led by Jeffrey Sachs, in the process of economic transformation. However, this does not in any way diminish the role of domestic authorities. They led Poland onto a path of integration with the West and dynamic and thorough socio-economic changes, which resulted in the emergence of a modern market economy on the ruins of an inefficient planned economy. And they achieved it in a way that allowed for preservation of many of our resources, human capital more than anything else, developed in the times of real socialism.

In the years and decades to follow, Poland’s ties with Western Europe (first with the European Economic Community and later the European Union) became increasingly essential. These countries (including Germany, the Netherlands and Austria) played a progressively vital role in Poland’s trade. Independently and as a European Community alike, they became the main donors of development aid, which accelerated the Polish reforms. From today’s perspective, the scale of this aid in the 1990s (the equivalent of EUR 3-4 billion) was minor, one must, however, keep in mind that back then Poland’s GDP was several times lower than it is today.

The accession of Poland and several other countries in CEE constituted in 2004 a symbolic end to the first phase of transformation. It encouraged further integration and rapid development. One can look at it from a number of angles. Becoming part of EU institutions brought about stabilisation and order to the regulatory and institutional framework. It was then that the post-communist era began to end in Poland. The inflow of EU funds, the spending of which was subject to increasingly stringent requirements, the transposition of European law, and finally political and clerical contacts at various levels radically changed the model of the functioning of the public sphere in Poland. Some of these changes were taking place under the influence of external pressure and could be objected to, but they undoubtedly civilised Polish politics, especially the meeting point of politics, the state and the private sector. Subsequent reports from Transparency International proved this to be right: the level of corruption in Poland and other countries in the region began to decline, among others, in the eyes of foreign investors and politicians. This impression was true for the entire region; therefore, it is difficult to name specific internal factor that would impact this process.

Furthermore, over the first years after Poland’s accession to the EU, the last such great migration in Polish history took place (at least in a foreseeable time perspective). Although it was inevitable on an open labour market and it solved several internal problems in the short term (it improved budget stability thanks to a decrease in social benefits, lowered unemployment and eased political tensions), it contributed in the long term to the considerable demographic challenges that Poland is facing nowadays. It also shed light on the short-sightedness of the political elites of that time (regardless of political affiliation). Politicians did not even try to put any tools to use in order to mitigate this enormous outflow of human capital from Poland – neither during accession negotiations, nor after 2004. Perhaps it was simply impossible? Nonetheless, we must not forget that the inflow of funds sent by migrants back to their families in Poland did in a way offset the costs of the human capital outflow. According to some estimates, this stream of money amounted to more than 2% GDP by 2010, and in the next decade remained at the level of over 1% GDP (after the accession, it remained in the range of EUR 3-5 billion annually).

The accession also resulted in unprecedented infrastructural aid that Poland and countries of the region benefited from. New investments reached a scale unseen in decades, and one could compare EU-funded development programmes to the Marshall Plan. The inflow of funds incomparably greater than in the pre-accession period made it possible to expand infrastructure, in particular in the easternmost regions. One might question some of the investments, or complain about execution or disappointing effects of other, but there can be no doubt that EU funds were behind the great shift that took place in Poland over the last dozen or so years. Moreover, this change at least in part supported the development of Poland, as domestic companies were employed as contractors and subcontractors, pro-development infrastructure grew, and there were funds for research and development projects.

However, it is probably Poland’s participation in the European open market that brought the greatest profits. Investment capital from abroad flooded the market, followed by technologies and organisational changes that went far beyond what happened in the last decade of the 20^th century. It gave Polish companies easy access to the European market, which brought many benefits, especially in the field of services (such as Polish road transport services – a highly interesting case indeed). A process of spectacular re-industrialisation of Poland was put into motion although, unfortunately, to this day most Polish companies tend to be mid-level subcontractors in production chains. Of course, one could argue there are costs associated with participation in the European market: the collapse of uncompetitive companies or changes in the ownership structure. A more serious challenge are the efforts of some Western countries to restrict the freedom of exchange, in particular in services, thus limiting Polish entrepreneurs’ competitive advantages – the foundation of their success in European services.

There can be no doubt that the accession to the EU accelerated the economic development of Poland and the entire region in a significant way. It extended the period of rapid convergence to the economies of the West that had lasted since 1989. As a result, the level of GDP per capita (in purchasing power parity) in Poland reached the level of GDP in Portugal (and the level of GDP per capita in the Czech Republic reached last year the level of Italy). For the first time since the end of World War II, the development of the Polish state has come close to that of the countries of the European South and never have we been so close before.

The above comments primarily concern economic issues. Political ties with the West, stronger than have been in centuries (even despite recent turbulences), are testament to the success of transformation. Nevertheless, it remains to be seen whether we wasted the period of peace, rejoicing at economic success, part of which was pure luck. The contributions of the architects of economic transformation are undoubtedly enormous. Later, however, we capitalised on economic integration with the West, competitive advantages, and the influx of huge post-accession funds. The open question we ought to ask ourselves is: what will drive further development in the nearest future?

 

Piotr Koryś, Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 14.12.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers on the economic benefits of transformation and accession to the EU