Germany eyes Polish growth miracle
February 23, 2021
Since the Law and Justice Party (PiS) came to power in 2015, the EU's sixth-largest economy has drawn attention primarily over its alleged democratic backsliding. At the same time, however, the resilience of the Polish economy has been astonishing.
The European Bank for Reconstruction and Development (EBRD) expects 3% growth in 2021, which would make Poland the only EU member to reach its pre-crisis level by the end of 2021. The country has grown from 49% to 70% of the EU's average economic wages since joining the EU in 2004 and in November Poland was again number three in the EU in terms of industrial production growth.
Economy Minister Jaroslaw Gowin has told the German business daily Handelsblatt recently: "Many Polish companies have used the pandemic to reorganize themselves, digitize more and step in where other supply chains have been torn down."
And EBRD Chief Economist Beata Javorcik told the same newspaper that two aspects would distinguish the Polish recovery from others in Europe: diversity and flexibility. "Both have served the country well during the coronavirus pandemic," she said, adding that during the coronavirus crisis "a generous support package" had helped.
Close links
Since the collapse of Communism in Eastern Europe, the Polish and German economies have become increasingly interlinked. In the town of Lodz, German household equipment maker Bosch-Siemens Hausgeräte, for example, not only sees washing machines roll off production lines, but also researches new household technology.
In the Walbrzych special economic zone near Wroclaw, Daimler has expanded its newly built engine production site with a second battery plant, which is state-of-the-art Industry 4.0 standard and CO2-neutral, fed with electricity from a wind farm 10 kilometers (6.21 miles) away. Volkswagen meanwhile not only produces Caddy, Crafter and Transporter models, but aluminum castings also come from Poznan distributed across the worldwide VW network.
German trade with Eastern Europe suffered in the 2020 pandemic, down 8.4% to €423 billion ($512 billion), according to the Eastern Committee of the German Economy. However, trade with Poland remained almost constant at €123 billion despite the crisis, while imports from Poland to Germany even increased by 1%. Poland moved up to fifth place among the most important German trading partners, behind China, the Netherlands, the US and France, still ahead of Italy, Switzerland, the UK and Austria. Trade with Russia fell 22% to €45 billion.
"Putting it simply, there is little that might not prove beneficial when it comes to economic success in Poland from the German perspective and vice-versa," says Marek Wasinski, head of the foreign trade team at the Polish Economic Institute.
"Diversity and size of the Polish economy is the key for its resilience during the crisis," he told DW. "Strong ties with German economy are also another factor shaping this success."
Wasinski points to environmental technology as potentially the most interesting for future growth in Poland. "From the transformational point of view — the change in energy mix, improving energy efficiency of the buildings or electrification of the economy, but also regarding tradel — Poland is the biggest EU exporter of electric buses — it positions very well in European supply chains of batteries, it is the fifth biggest exporter of 'green' goods in the EU," he says.
Energy is key
Above all, the planned restructuring of the energy industry, away from coal and towards renewable energies, could be a major field of activity for German companies. Climate and Environment Minister Michal Kurtyka has announced recently that Poland wants to invest "a total of €240 billion by 2030."
The Polish energy transition appears to be decisive for the country's medium-term economic success. Three quarters of the electricity generated there still comes from coal power plants. During the COVID-19 pandemic, the Silesian districts, where miners cut close to tight black chunks in the seams, was the largest corona hotspot in the Vistula province last summer.
Some 61 Polish cities are on the list of the most polluted places in the EU. The largest lignite power station in Europe and number two in the world in Belchatow is the largest single CO2 emitter in the EU — larger than all of Ireland or Slovakia.
Kurtyka wants to reduce the share of coal to between 28% and 11% within 20 years, depending on how quickly the investments required for the energy sector flow by 2030. By 2040, wind farms alone should produce 8,000 to 11,000 megawatts of electricity. In addition to state funds, mainly coming from the EU, large private investments would also have to be made and billions would have to be earned on electricity through environmental taxes.
Poland’s energy transition to 2040 is estimated to cost 1.6 trillion zlotys (€355 billion, $430 billion). Of this, changes in the fuel and energy sector will amount to roughly 890 billion zlotys, including up to 342 billion zlotys on investments in electricity generation, according to Polityka Insight, a leading think tank for political and economic analyses.
In total, approximately 745 billion zlotys will be spent on transition in the industrial sectors, by households, services, transport and agriculture, Warsaw-based Polityka Insight notes.
"Poland needs huge investments in heating networks and energy infrastructure," Robert Tomaszewski, an energy analyst at Polityka Insight, says. Many coal-fired heating plants are owned by small local governments and cannot afford investments in renewable energy or less emitting gas, Tomaszewski told DW.
Private capital is needed to decarbonize the district heating sector with about 100 billion zlotys to be invested over the next 10 years. "This opens a window of opportunity for foreign companies," Tomaszewski adds, noting for example that German power utility e.on, which has heating assets in Szczecin and Opole, wants to expand in Poland. France's Veolia, which has district heating network in Warsaw, has similar plans.
The offshore industry also has a very large investment potential, says Tomaszewski as Poland wants to expand its offshore wind farms to 5.9 gigawatts of capacity by 2030. As far as the gas is concerned, this form of energy is to gradually take the place of coal in the Polish energy mix.
In both sectors, wind and gas, German engineering firm Siemens is seeking to play a role through a cooperation with Polenergia, one of the biggest Polish private energy firm, and in delivering gas turbines for energy projects in the Plock and Rybnik power plants.
"In the nuclear space, there could be a backlash from Germany Greens [party] after September [general elections in Germany], while the Baltic pipeline Nord Stream 2 will likely push Poland to accelerate gas diversification plans," Tomaszewski notes.
Other key sectors
Other sectors that one should keep an eye on are business and IT services, where Germany is only the fifth-biggest investor, in the chemical industry, with investments needed in reducing emissions, as well as in the pahrmaceutical industry, Wasinski says.
"There is also a growing potential for cooperation in automation and digitization of the Polish economy and especially the manufacturing sector," he adds.
Germany and Poland, Wasinski believes are becoming the industrial center of Eastern Europe, capable of developing value chains that are "beneficial for both partners."