20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

Transcription

1 20 years of American investment in Poland Report of the American Chamber of Commerce in Poland and KPMG

2 American Chamber of Commerce in Poland ul. E. Plater Warszawa Tel. +48 (22) Fax +48 (22) Roman Rewald Chairman of the Board of Directors American Chamber of Commerce in Poland Warszawa ul. Chłodna Warszawa Tel. +48 (22) Fax +48 (22) Kraków al. Armii Krajowej Kraków Tel. +48 (12) Fax +48 (12) Poznań ul. Roosevelta Poznań Tel. +48 (61) Fax +48 (61) Wrocław ul. Bema Wrocław Tel. +48 (71) Fax +48 (71) wroclaw@kpmg.pl Gdańsk ul. Piwna Gdańsk Tel. +48 (58) Fax +48 (58) gdansk@kpmg.pl Katowice ul. Powstańców Katowice Tel. +48 (32) Fax +48 (32) katowice@kpmg.pl Tomasz Grunwald Partner Head of Markets tgrunwald@kpmg.pl Stacy Ligas Partner Financial Services Audit stacyligas@kpmg.pl Mariusz Strojny Manager Knowledge Management & Research mstrojny@kpmg.pl Magdalena Maruszczak Manager Marketing & Communications mmaruszczak@kpmg.pl Authors of the report Piotr Kuskowski, Jacek Sadowski, Mariusz Strojny The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ( KPMG International ), a Swiss entity American Chamber of Commerce in Poland and KPMG Sp. z o.o. KPMG Sp. z o.o. is a Polish limited liability company and a member firm of the KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in Poland.

3 Introduction American companies have contributed to creating a modern free market economy in Poland not only with capital inflow, but also with the most advanced technologies, know-how and business culture. Today, in the 21st century, innovative investments made by American companies in Research and Development facilities and service centers have their share in developing a modern, knowledge-based economy in Poland. Twenty years have passed since American companies started investing in Poland on a large scale. At the same time it is the twentieth anniversary of the American Chamber of Commerce in Poland (AmCham), an organization associating American companies operating in Poland. On this occasion, AmCham and KPMG have prepared a report summarizing the last twenty years of American investments in Poland. On the one hand, the aim of the report is to show the importance of American investments to the Polish economy. On the other hand, the goal is to gather and list experiences of U.S. companies operating in Poland. This is the first report of this kind, describing the details of American investments in Poland. We hope that our report will illustrate the importance of American investments to the Polish economy and demonstrate actions that can be taken to make Poland an even more attractive destination for American investors. Roman Rewald Chairman of the Board of Directors American Chamber of Commerce in Poland Andrzej Ścisłowski Senior Partner KPMG 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 3

4 Contents Introduction Key findings P A R T 1 American investment in Poland American direct investment worldwide USA among global investors Investment value Industries Investment destinations American direct investment in Poland Foreign direct investment in Poland Value of American investment in Poland American investment in Poland and the region Income on investment American enterprises in Poland Employment Compensation Profits Location of companies The 50 largest American companies in Poland The largest American investments in the recent years years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

5 P A R T 2 Experiences of American companies investing in Poland Respondent s profile Sector Employment Revenue Entry into the Polish market Factors influencing the choice of investment destination and assessment of Poland s investment attractiveness Public institutions Economy Workforce, labor law and labor costs Tax system Infrastructure Business environment Summary Effects of investments Forecasts for the future Employment Revenue New investments Summary years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 5

6 Key findings U.S. companies are the largest foreign investor in the world. The cumulative value of foreign direct investment of U.S companies reached USD 3,162 billion at the end of 2008 and was over two times higher than the value of investment of companies from the UK, Germany or France. The value of U.S. investment abroad reached USD 312 billion in 2008 alone and was higher than the investment of any other country in the world. U.S. companies have invested over USD 20 billion in Poland. After 20 years of almost continuous growth, the cumulative value of American direct investment in Poland reached USD 15,597 million at the end of However, a considerable part of American investments are being made in Poland by subsidiaries and holdings registered in Western Europe, most notably in the Netherlands. According to our estimates, together with investments made through companies registered outside the USA, the total value of U.S. investment in Poland may exceed USD 20 billion. U.S. investment played a crucial role in the early stage of the economic transformation in Poland. U.S. capital played a crucial role in the early stage of the economic transformation, when some of the best-known American corporations were entering Poland. In mid-1990s, the share of U.S. capital in the total foreign direct investment reached almost 14%. Nowadays, despite the consistent increase in the value of U.S. investment, their share in total foreign direct investment in Poland is 6.1%. American investors are more keen to invest in Poland than in the other countries of Central and Eastern Europe. As much as 57% of the USD 27,439 million invested by U.S. companies in Central and Eastern Europe ended up in Poland. Moreover, Poland s advantage over other countries of the region in attracting U.S. direct investments is considerably higher than it is the case with the total value of foreign direct investment. American companies employ over 180 thousand people in Poland. Employment in enterprises with a direct majority ownership of U.S. companies in Poland has more than doubled since 1999 and at the end of 2007 reached thousand people. This number does not include banks and investments implemented through U.S. holdings and subsidiaries registered outside the USA. According to our estimates, the number of jobs in all of the American companies in Poland, owned either directly or indirectly by American capital, exceeds 180 thousand. At least twice as many jobs were created in companies which are their business partners. In total, this makes over 360 thousand people employed as a result of U.S. investments years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

7 American automotive companies are employment leaders. Three out of four employees of American companies in Poland (about 90 thousand in 2007) work in the manufacturing sector. Out of that total over 30 thousand jobs were created in transportation equipment manufacturing, mostly automotive, companies. Other major employers include U.S. companies operating in the food processing sector, which employs over 17 thousand people. Compensation levels in U.S. companies in Poland are higher than average in the enterprise sector. The average annual compensation paid to employees of U.S. companies in Poland in 2007 reached USD 19.6 thousand, and as much as USD 31.8 thousand among highly skilled workforce (managers, professionals, technical staff). At the same time, the average pay in the enterprise sector in Poland was USD 12.5 thousand. The majority of U.S. companies were established in Poland in the first years of economic transition. Over half (52%) of U.S. companies operating in Poland began their investments in the country as early as in , i.e. during the first stage of the country s economic transition. Over 60% of the surveyed American companies implemented greenfield investments, setting up their business from scratch. One in five companies entered the Polish market through an acquisition of an existing enterprise. One in five U.S. companies in Poland is owned by a holding or subsidiary registered outside the USA. Over half of the surveyed companies (58%) were subsidiaries of U.S. corporations, i.e. wholly or majority owned by U.S. entities. A fifth of the surveyed population are enterprises where U.S. corporations hold shares through subsidiaries and holdings registered outside the USA. This mainly concerns the largest enterprises: among the 50 largest U.S. companies in Poland 24 belong to this group, of which 12 are directly owned by a Dutch entity. Skilled workforce and growth potential of the economy were the most important factors influencing investment destination choice. Workforce-related factors turned out to be crucial as investment drivers for U.S. entrepreneurs. The top three factors included professional skills of employees (1st most important), quality of their education (2nd place) and availability of skilled workforce (3rd place). Each of these factors was described by over 60% of the surveyed companies as very important for their choice of an investment destination. Labor costs were somewhat less significant and came 7th in the ranking. Considerable importance was also assigned to factors such as the growth potential of the economy (4th), economic stability (5th) and the size of the local market (6th). 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 7

8 Poland s strongest advantages, as seen by U.S. companies, include its geographical location, skilled workforce and the size of the local market. Poland s geographical location in the heart of Europe is its greatest advantage in the eyes of U.S. investors. Nearly 90% of the surveyed companies considered the location attractive, of which 48% described it as very attractive. Other advantages of Poland include the quality of workforce education (2nd most important factor) and its professional skills (4th place). Availability of skilled workforce came 5th in the ranking. The size of the local market was also highly appreciated (3rd place) and so was the growth potential of the Polish economy (6th). Low labor costs, traditionally considered as one of the major advantages of Poland, are no longer perceived as a source of investment attractiveness of the country. The lowest ratings were given to Poland with regard to its transportation infrastructure, bureaucracy and transparency of the tax system while corruption is not seen as a major problem. Among the elements of Poland s investment attractiveness, the quality of transport infrastructure was rated lowest of all. As many as 85% of respondents assessed the quality of the Polish road system as low or very low, and the respective score for the railway system was 49% (second to last). Moreover, American entrepreneurs criticized the high level of red tape and bureaucracy (3rd lowest score). A mere 9% of American investors believe that Poland is an attractive investment destination in this respect. The non-transparent tax system in Poland is the fourth most important barrier to investment. Interestingly, corruption in public institutions is not regarded as a serious problem: only 21% of the surveyed U.S. enterprises assessed Poland negatively in this regard. American companies are highly satisfied with the outcome of their investments in Poland and intend to continue investing in the country. Nearly all of the surveyed American investors (98%) assessed the outcomes of their investments in Poland positively, and over half (51%) of them say those outcomes are very positive. All of those surveyed claimed they would choose Poland again as their investment destination. Over two thirds (67%) of companies are planning to increase their engagement in Poland. U.S. enterprises expect increased revenues and plan to increase employment Over half of the surveyed U.S. companies in Poland expect to employ new staff within the coming year. The largest group, as many as 42%, expect to increase employment up to 10%. Another 12% of the enterprises claim that this figure will exceed 10%. Moreover, almost six out of ten American companies in Poland expect to earn higher revenues in the coming year years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

9 P A R T 1 American investment in Poland In the first part of the report, an attempt is made to estimate the scale of American investment in Poland in the course of the last twenty years as well as their significance for the Polish economy. To a considerable extent, the analysis was based on the foreign direct investment data published by UNCTAD, U.S. Bureau of Economic Analysis and the National Bank of Poland. Due to the frequent practice of American companies to invest in Poland through holdings and subsidiaries registered in Western European countries, the statistics regarding foreign direct investment do not reflect the scale of the actual U.S. investment in Poland. Therefore, at many points the available data were supplemented with estimates regarding the total population of U.S. companies in Poland, with both indirect and direct U.S. ownership. 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 9

10 American direct investment worldwide USA among global investors Irrespective of the market turmoil, the United States remains the largest world economy. This is reflected in the leading position of U.S. companies in the area of direct investment located abroad. World's largest foreign investors (FDI stock), 2008, USD million 0 1,000,000 2,000,000 3,000,000 United States United Kingdom Germany France Netherlands Hong Kong Switzerland Japan Spain Belgium Canada Italy Sweden Russian Federation Australia Denmark The cumulative value of foreign direct investment of U.S. companies worldwide reached USD 3,162 billion at the end of 2008 and is over two times higher than the value of foreign direct investment of companies from Great Britain, Germany or France. Outward stock Inward stock Source: KPMG on the basis of the data provided by UNCTAD years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

11 The cumulative value of foreign direct investment of U.S. companies worldwide reached USD 3,162 billion at the end of 2008 and was over two times higher than the value of foreign direct investment of companies from Great Britain, Germany or France, which are placed on subsequent positions among the biggest foreign investors. The United States is also the largest capital recipient in the world. At the end of 2008 the cumulative value of foreign investment in the United States reached USD 2,279 billion. The surplus of foreign investments over the investment inflow to the United States was USD 883 billion and was the biggest among the leading international investors. World's largest foreign investors (annual FDI outflows), USD million 0 100, , , ,000 United States France Germany Japan United Kingdom Switzerland Canada Spain Belgium Hong Kong Netherlands Russian Federation China Italy In recent years U.S. companies have made more foreign investments than companies from any other country in the world. Also in 2008, the year of the crisis, the leading position of the United States remained firm. U.S. companies have invested USD 312 billion, which is 18% less than in Source: KPMG on the basis of the data provided by UNCTAD 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 11

12 A recession in highly developed countries and hindered access to credits and other forms of financing resulted in a lower outflow of capital in 2008 compared to 2007 in the case of almost all largest investors, including the United States. The total amount of investment located abroad by the U.S. companies in 2008 was USD 312 billion and was 18% lower in comparison with the previous year. Still, the level of U.S. investment was higher than that of any other country in the world. Great Britain, which in 2007 achieved nearly identical results as the United States with regard to exported capital, in 2008 invested only USD 111 billion, which is 60% less than in the previous year and USD 200 billion less than the USA. In 2008, France, fairly resistant to the crisis as a global investor, approached the results of the United States, however, its investment was still USD 92 billion lower than the U.S. investments. In 2008, several countries experienced considerable growth in the value of investment located abroad. Among the largest capital exporters such a situation was reported in Japan, Switzerland, the Netherlands and China. It should be noted how dynamic was the capital outflow from China, which has good perspectives for foreign expansion due to the strength and growth of its domestic economy. For the time being, however, China does not pose a threat to the United States as the leading global investor. Investment value U.S. direct investment stock 3,000, % 22.1% 17.7% 20% 2,000,000 1,000,000 10% 12.8% 8.7% 14.1% 13.8% 12.4% 9.6% 8.6% 7.3% 14.8% 10.9% 10.7% 8.2% 9.5% 10.5% 8.4% 15% 10% 5% 3.7% % FDI stock (USD million) Growth rate y/y (%) Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis The cumulative value of foreign direct investment of U.S. companies worldwide has been constantly increasing over the last 20 years, reaching the average annual rate of increase amounting to 10.9% years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

13 The cumulative value of foreign direct investment of U.S. companies worldwide has been constantly increasing over the last 20 years, reaching the average annual rate of increase amounting to 10.9%. The period of particularly fast increase in American foreign investment was the second half of the 1990s between 1995 and 1999 it reached 74%. In 1999 alone, the increase reached 21.5%! A similar leap (22.1%) took place in 2004, yet in 2005 the increase of the cumulative value of U.S. foreign direct investment was 3.7% the lowest result during the analyzed period. Also in 2008 the rate of increase was reported to be 10 percentage points lower than in 2007 and reached 8%. This was due to the appreciation of the American dollar against such currencies as the euro, British pound and Canadian dollar, and to the related valuation adjustments. Another reason were lower capital flows in comparison with the previous year, a lower number of mergers and acquisitions conducted abroad and less frequent greenfield investments. These were due to a limited possibility of acquiring capital and the condition of the U.S. economy at the end of In the light of the decrease in capital flows, nearly all (90%) the increase in the cumulative value of American foreign direct investment which occurred in 2008 was due to reinvested profits, whose value increased by 6% in the period in question. Industries U.S. direct investment stock by industry of affiliate, % 4.8% Mining 35.7% 16.2% 5.6% 3.9% Manufacturing Wholesale trade Information Finance and insurance Professional, scientific and technical services Holding companies (nonbank) 2.6% 24.5% Other Industries Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis Apart from holding companies the majority of foreign direct investment of U.S. companies reach the financial and manufacturing sectors. 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 13

14 American investors direct capital mainly to holding companies. Unfortunately, due to their singularities, it is not possible to indicate the industry where their subsidiaries operate. Apart from holding companies, the highest percentage of U.S. investment (nearly 25%) has ended up in financial institutions, where the increase of investment value has also been the fastest. The subsequent place is taken by manufacturing companies, with a 16% share. Investment destinations U.S. direct investment stock abroad by region at the end of 2008, USD million 491,910 32,488 36, , ,298 Africa Asia and Pacific Canada Europe Latin America Middle East 1,809,876 Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis The majority of American foreign investment reach European countries, where 57.2% of American capital has been directed. The majority of American foreign investment is located in European countries by the end of % of investment was placed here, which amounts to USD 1,810 billion. Considerable amount was also invested in Latin America (USD 564 billion, which constitutes 17.8% of total U.S. foreign direct investment) and in the Asia and Pacific region (USD 492 billion, which constitutes 15.6% of total U.S. foreign direct investment) years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

15 U.S. direct investment stock abroad by region, USD million 2,000,000 1,500,000 In Europe the increase in American investment is the fastest and the most stable. 1,000, , Europe Latin America Asia and Pacific Canada Africa Middle East Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis The average growth of cumulative value of U.S. foreign direct investment is similar in all regions and for the last 20 years it has been estimated at the level of 12% each year. In Europe the increase is faster (12.61%) and more stable than in other regions. A stable increase in the value of investment in Europe and its considerable advantage with regard to cumulative value of American investment allows one to assume that Europe will remain the leader among the recipients of American capital. Europe's ten largest recipients of U.S. FDI stock, end of 2008, USD million 0 100, , , , ,000 Netherlands United Kingdom Luxembourg Ireland Switzerland Germany France Spain Belgium Sweden The Netherlands hold a special position on the map of American direct investment. As much as 14% of American investment worldwide was placed in that country by the end of 2008, of which 69% in holding companies. A portion of this capital has been reinvested in other countries. Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 15

16 In Europe, American investors have been selecting two destinations of foreign investments. On the one hand, they have been investing in countries demonstrating economic strength, with a large local market. This group includes Great Britain, Germany, France and Spain. On the other hand, American investments have also reached smaller countries which offered particular incentives for investors in the form of beneficial tax regulations, good geographical location, developed infrastructure, etc. This group of countries includes the Netherlands, Luxemburg, Ireland, Switzerland and Belgium. The majority of companies established there are holding companies which often invest in subsidiaries operating in other countries. The largest part of American capital has been invested in the Netherlands and Great Britain. Half of the investment located in Europe is assigned to these countries. The Netherlands hold a special position on the map of American foreign investment. By the end of 2008 as much as 14% of American investment worldwide was placed there, more than in any other country in the world. As much as 69% of the U.S. capital located in the Netherlands so far was directed to holding companies. This means that a part of it was then invested in subsidiaries registered in other countries, most probably European. In Great Britain, which received a comparable amount of U.S. capital as the Netherlands, namely 13.3% of American investment worldwide, the percentage of capital invested in holding companies is lower and amounts to 24%. The largest part of the U.S. capital in this country is directed to companies from the financial sector. Among the European recipients of American capital, Poland has achieved thirteenth place, with the share in the total U.S. foreign direct investment in Europe reaching 1% years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

17 Józef Wancer President of the Management Board, Bank BPH SA Member of the Board of Directors, American Chamber of Commerce in Poland Poland is coping with the global crisis relatively well and is expected to be the only country in the European Union to post positive growth in The resilience of the Polish economy comes from the country s limited dependence on international trade, depreciation of the zloty, improving price competitiveness of Polish exports and limiting imports, as well as the inflow of EU-funds fuelling infrastructure investments that cushioned the sharp decline in private investments. The Polish economy is now clearly different from what it was during the previous slowdown in 2001 as companies drew conclusions from that time and are now able to quickly adjust to the changing environment. The Polish banking system remains sound thanks to predominance of universal banks and relatively conservative regulatory policy. Still, rising risk aversion and a deterioration of the loan portfolio led to tightening of bank lending conditions. The year 2010 should bring further rebound in economic activity in Poland. As slow growth in wages and limited lending will continue to weigh on private consumption, the main driver of growth will still be infrastructural investments fuelled by EU transfers. Currently the lack of proper road infrastructure is one of the key, apart from bureaucracy, obstacles for foreign investors, therefore quickly growing investments driven by EU funds should help create a positive feedback loop, fuelling economic growth by making Poland an even more attractive FDI destination. Next year foreign investments might also be stimulated by the ambitious government privatization plans assuming selling of state assets worth a record-high PLN 25 billion. If recovery in the euro zone proves sustainable, exports might be an additional engine of economic growth in In such a case, Poland s GDP growth might even reach 3% next year. The main risk factor for Poland remains the situation of public finance. If not properly managed, the public debt might hamper the country s credibility, with negative consequences for inflow of foreign capital, stability of the zloty, costs of borrowing and the strength of GDP growth. The likely in the year 2010 crossing of 55% debt to GDP limit set by the public finance rules would require taking in subsequent years significant fiscal consolidation measures, with risk of negative impact on growth. 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 17

18 American direct investment in Poland Foreign direct investment in Poland During the period of a global economic slow down Poland turned out to have the strongest economy in the region, and as the only country maintained a positive GDP in the first half of Despite this fact, due to the recession in mother countries of companies investing in Poland, the foreign direct investment inflow also slowed down and its value decreased. Foreign direct investment stock in Central and Eastern European countries, USD million 45,933 46,011 Bulgaria 71, , ,369 15,962 63,671 11,447 12,847 Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia Source: KPMG on the basis of the data provided by UNCTAD, for Poland, the National Bank of Poland The cumulative value of foreign direct investment in Poland in 2008 reached the level of USD 163,004 million, which is fourteen times higher than 12 years before. Poland accounts for almost one third of total foreign direct investment located in Central and Eastern Europe! At the end of 2008 the cumulative value of foreign direct investment in Poland reached the level of USD 163,003 million, and was fourteen times higher than 12 years before. The value of foreign direct investment in Poland is considerably higher than in other countries in Central and Eastern Europe. Almost one third (29.9%) of total foreign investment in the region ended up in Poland. The Czech Republic, the second country as to the value of foreign direct investment in Central and Eastern Europe, attracted investments of the value of USD 114,369 million, which is 30% less than Poland years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

19 Inflow of foreign direct investment in Central and Eastern European countries, USD million Poland Romania Czech Republic Bulgaria Hungary Slovakia Estonia Lithuania Latvia Within the last three years the inflow of foreign investment in Poland has been greater than in any other country in Central and Eastern Europe. The year 2007, when the inflow of foreign direct investment in Poland reached USD 22,612 million, was a record year in this respect. 0 10,000 20,000 30, Source: KPMG on the basis of the data provided by UNCTAD, for Poland, the National Bank of Poland In recent years Poland has been the largest recipient of foreign direct investment among all countries in Central Europe. The inflow reached in consecutive years USD 19,591 million (2006), USD 25,296 million (2007) and USD 14,047 million (2008). The year 2007 was a record year for Poland with respect to the inflow of foreign direct investment. This was related to the economic growth in mother countries of the main foreign investors in Poland. A significant decrease in investments in 2008 was the result of a worsening economic situation in most countries, related to the economic crisis, and other negative phenomena, such as difficulties experienced by enterprises in obtaining capital and considerable variability of foreign exchange rates. 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 19

20 Inflow of foreign direct investment in Poland, USD million 25,000 20,000 15,000 10,000 5, , Equity capital Reinvested profits Other capital Source: KPMG on the basis of the data provided by the National Bank of Poland During the recent period of prosperity foreign investors reinvested more and more of their profits in Poland. The importance of loans granted by investors to subsidiaries in Poland had also increased. During the years a great majority of capital came to Poland in the form of equity capital. The situation started to change in 2004, when almost half of the foreign direct investment inflow to Poland came from reinvested profits. At the same time, the annual value of equity capital did not significantly change in comparison with the previous years. This means that foreign companies reached a significant position on the market and were able to reinvest the profits generated in Poland. In the difficult year of 2008 equity capital invested in Poland amounted to USD 9,551 million this was the highest value within the last few years. At the same time, the tendency to reinvest a major part of profits had ended. Due to financial difficulties of many foreign parent companies a major part of profits generated by direct investment enterprises in Poland ended up abroad. Reinvestment of profits on a large scale which occurred in 2007 (USD 9,137 million), in 2008 was replaced by a negative value of reinvested profits amounting to USD -645 million years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

21 Value of American investment in Poland FDI stock of major foreign inwestors in Poland, % of total FDI stock 0% 5% 10% 15% 20% Netherlands Germany France Luxembourg United States Sweden United Kingdom Italy Austria Belgium Spain The value of U.S. companies direct investment is the fifth largest in Poland and constitutes 6.1% of the total foreign direct investment located in the country Source: KPMG on the basis of the data provided by the National Bank of Poland The value of U.S. companies direct investment is the fifth largest in Poland and constitutes 6.1% of the total foreign direct investment located in the country by the end of Currently the largest foreign investor in Poland is the Netherlands. Its investments in 2008 constituted almost 20% of the capital invested in Poland. It should be kept in mind, however, that part of the capital flowing into Poland from the Netherlands comes from holding companies from other countries, which the statistics concerning the capital flows between countries do not account for. A similar phenomenon occurs in the case of Luxembourg (share in foreign direct investment in Poland at 8.7%). 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 21

22 U.S. direct investment stock in Poland, USD million 20,000 15,000 10,000 5, Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis The value of direct American investment in Poland has been almost constantly increasing since 1989 and at the end of 2008 reached the level of USD 15,597 million. According to our estimates, taking into account investments implemented through companies registered outside the USA, the value of American investment in Poland may exceed USD 20 billion. Since the economic transformation which began in 1989, there has been an almost continuous increase in the scope of American investment in Poland. In 2008 the cumulative value of direct American investment in Poland reached the level of USD 15,597 million (In accordance with the methodology of the U.S. Bureau of Economic Analysis; according to the National Bank of Poland the investments amounted to USD 10,002 million), which is USD 11,215 million higher than in It is important to remember, however, that the numbers cover only those American investments which are made directly by companies registered in the USA. For the time being, a large part of U.S. investments in Poland are made through holdings and subsidiaries registered in other countries. For American companies it has often been easier to carry out investments in Poland through subsidiaries which have operated in Western Europe for many years. On the other hand, the use of holdings in coordinating businesses in Central and Eastern Europe is very often beneficial for large American companies with respect to organization and costs. Among the 50 largest U.S. companies in Poland, as many as 24 have a direct parent registered in the USA. Half of them are owned by American subsidiaries and holdings in the Netherlands. However, the data regarding foreign direct investment does not reflect the full scope of American investment in Poland. According to our estimates, taking into account investments implemented through companies registered in Western Europe, the value of American investment in Poland may exceed USD 20 billion years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

23 Shares of U.S. direct investment in total FDI stock in Poland 15% 10% 5% 0% Source: KPMG on the basis of the data provided by the National Bank of Poland American capital played a significant role in the early stage of the economic transformation. In mid-1990s, the share of American capital in the total foreign direct investment in Poland reached almost 14%. Despite the consistent increase in the value of American investment, its share in the total stock of foreign direct investment in Poland has decreased. Within the last ten years it decreased from 12.8% in 1998 to 6.1% in It should be emphasized, however, that American capital played a crucial role in the early stage of the economic transformation when some of the best-known American corporations started to establish their presence on the Polish market. In mid-1990 s, the share of American capital in the total foreign direct investment in Poland reached almost 14%. 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 23

24 American investment in Poland and the region U.S. direct investment stock in Central European countries, USD million 20,000 15,000 10,000 5, Poland Hungary Czech Republic Romania Slovakia Bulgaria Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis U.S. direct investment stock in Central Europe, % 4% 2% Bulgaria 17% Czech Republic Hungary 19% Poland Romania 57% Slovakia Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis Among the countries of Central Europe, Poland is an unquestionable leader with respect to the engagement of American capital years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

25 Among the countries of Central Europe, Poland is an unquestionable leader in attracting American investments. As much as 57% of the total amount of USD 27,439 million invested by the U.S. companies in the region ended up in Poland. The two runners-up are Hungary and the Czech Republic, which attracted far fewer investments: 19% (USD 5,103 million) and 17% (USD 4,654 million) respectively, of the total of American investment in the region. The advantage of Poland over other countries in the region with respect to U.S. investment is considerably bigger than in the case of total foreign direct investment. This means that Poland is particularly favored by American investors among the countries of Central and Eastern Europe. U.S. direct investment stock in Central European countries average rate of growth, % 10% 20% 30% Romania Bulgaria Poland Slovakia Czech Republic Hungary Europe World The cumulative value of American foreign investment in Poland is growing far more dynamically than elsewhere in Europe or worldwide. Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis The average growth rate of U.S. direct investment stock in Poland has reached 24% over the last 12 years. This result was much higher than the average increase rate for Europe or the entire world, which reached 14% and 12% respectively. Also when compared to other countries of Central and Eastern Europe the average growth rate of American investment in Poland is competitive. Among Poland s major competitors, only Bulgaria and Romania record a greater growth. However, taking into consideration that the cumulative value of American investment in those countries is many times lower than in Poland, the position of Poland as the regional leader is not at risk. Other countries of the region, where the value of American capital engagement is relatively high, i.e. Czech Republic and Hungary, are characterized by a much slower growth of cumulative direct American investment (for the Czech Republic by 6.5 percentage points and for Hungary by 12 percentage points). 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 25

26 Income on investment Structure of income on equity of major foreign investors in Poland, USD million -2,000-1, ,000 2,000 3,000 4,000 Netherlands Germany Italy United States France United Kingdom Sweden Austria Belgium Incomes of American investors on capital invested in Poland in 2008 reached the level of USD 1,015 million. 27% of the amount was reinvested in Poland. Spain Luxembourg 2008 Dividends Reinvested profits 2007 Dividends Reinvested profits Source: KPMG on the basis of the data provided by the National Bank of Poland years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

27 American investors in 2007 reached the income on equity of USD 1,330 million, of which 64% was reinvested in Poland. In 2008 the income was lower (USD 1,015 million), and only 27% thereof was reinvested in Poland. The tendency is typical for most of the major foreign investors in Poland. In 2008 the income on capital generated by direct investment companies located in Poland decreased with respect to almost all foreign investors, and collected dividends increased. This was the result of using the profits of subsidiaries to strengthen the financial standing of parent companies in parent countries, which became significantly weaker in ROE (return on equity) for the largest foreign investors in Poland -5% 0% 5% 10% 15% 20% Italy Netherlands Germany United States United Kingdom Sweden France Belgia Austria Spain Luxembourg Europe World American companies in Poland are characterized by a high return on invested equity, amounting to 10.15% Source: KPMG on the basis of the data provided by the National Bank of Poland 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 27

28 In 2008 the return on invested equity capital for major direct investors in Poland varied between -5.7% and 20.86%. The highest return was obtained by Italian investors. American investors found themselves at the fourth place with a return on invested equity amounting to 10.15%. This means that the efficiency of American capital invested in Poland is much higher than the average for direct investors as a whole. Józef Wancer President of the Management Board, Bank BPH SA Member of the Board of Directors, American Chamber of Commerce in Poland The United States of America has been supporting the Polish economy since the very beginning of the transformation, both through direct investment of American companies and with the so-called soft factors. I mean here leadership models, business standards, corporate governance, corporate social responsibility, know-how i.e. all the concepts that create solid corporate culture and made American companies successful. American capital has been present in the Polish economy since the beginning of 1990 s. Just to give some examples, I would like to mention the launching of the Polish-American Enterprise Fund with the support from the American Congress. This Fund invested in over 50 joint ventures and helped to create and develop many companies playing a significant role in today s local economy. At that time, this was a major project for the Polish financial sector and for development of small business. Polish bankers were injected with knowledge about risk assessment and profitability of new investment projects, while business people could develop their operations with loans disbursed from the Fund. American investors continue to support key industries of the Polish economy. American capital is the fourth largest foreign capital in the Polish banking sector, controlling 5 commercial banks with share of total banking assets of nearly 7% at the end of June We can not omit American legal firms present in Poland, not only bringing international knowledge and experience to the local community but also promoting new concepts and best international standards. Research and development centers launched by American corporations contribute to innovativeness of the Polish economy. Thanks to them, the knowledge of Polish engineers can be used in important strategic projects of global reach. Let me mention here the General Electric innovation centre employing Polish engineers. Twenty years of presence of American investors in Poland can not be underestimated. Still, however, there exist ample opportunities for further developments, benefiting both parties. We have a large potential to offer, stemming from a well trained and creative generation of young people, while the American investors can diversify their risk in a country with substantial growth prospects years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG

29 American enterprises in Poland In accordance with the data from the Polish Central Statistical Office (GUS), at the end of enterprises with American capital were registered in Poland. 307 of them are companies employing more than 9 persons. Among the companies with U.S. shares, 493 are majority-owned by foreign capital. In accordance with the statistics of the U.S. Bureau of Economic Analysis at the end of 2007 there were 203 U.S. majority-owned companies operating in Poland, with incomes or assets exceeding USD 10 million. One should remember that the data concerning the number of companies with U.S. equity capital do not include companies located in Poland, directly owned by American holdings or other American subsidiaries located outside the USA. At the end of 2007, 644 enterprises with American shares were registered in Poland, including 493 companies majority-owned by foreign capital. Employment Employment in U.S. foreign majority-owned affiliates in Poland, thousands Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis 20 years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG 29

30 Employment levels in U.S. directly, majority-owned enterprises in Poland increased more than twice since 1999 and at the end of 2007 reached thousand employees. According to our estimates, the number of employees in all American companies in Poland, with both direct and indirect American capital ownership, exceeds 180 thousand. Between 2000 and 2003 the employment levels in the U.S. directly, majority-owned companies in Poland were relatively constant, totaling around 70 thousand employees. Since 2004, when the employment in American companies increased by 28%, the number of employees has successively grown. As a result, at the end of 2007 employment in the U.S. majority-owned companies increased up to thousand employees and was over twice as high as 10 years before. Official data for are not yet available. According to our estimates, in 2008 employment reached the level of about 130 thousand people. The data does not include banks and consider only enterprises with direct U.S. ownership. Therefore, the total number of employees in all American enterprises, both those being the direct property of American companies and those which are owned by holdings and American subsidiaries registered outside the USA, is probably much higher. Based on the BEA data and information from corporate databases (i.a. Amadeus), it most likely exceeds 180,000 people. In collaborating enterprises at least just as many jobs were created. This indicates new employment of over 360 thousand. Employment in U.S. majority-owned affiliates in Poland, 2007, thousands Manufacturing Wholesale trade Information Finance (except depository institutions) and insurance Professional; scientific; and technical services Other Industries 90.2 Source: KPMG on the basis of the data provided by the U.S. Bureau of Economic Analysis. The data does not include banks. The largest number of jobs were created in American automotive companies years of American investment in Poland. Report of the American Chamber of Commerce in Poland and KPMG