The Report on the Conditions of the Small and Medium-Size Enterprise Sector in Poland for the Years

Transcription

1 The Report on the Conditions of the Small and Medium-Size Enterprise Sector in Poland for the Years The Polish Agency for Enterprise Development Warsaw

2 Editors: Agnieszka 5\ELVNDand Agnieszka Tokaj Krzewska Authors: Krzysztof Berger Tomasz Brodzicki Wanda Burdecka Józef Chmiel, Ph.D. Izabela Czaja Wojciech Dziemianowicz, Ph.D. Leszek Kucharski, Ph.D. Tomasz Kierzkowski Arkadiusz àdqnrzvnl 6WDQLVáDZàREHMNRPh.D. Mariola Misztak-Kowalska Cezary 0L*HMHZVNL Sylwia Morawska, Ph.D. Zofia 3DZáRZVNDPh.D. Bogdan Pogoda, Ph.D. Agnieszka 5\ELVND 0DáJRU]DWD6NU]HN/XEDVLVND Professor Alicja Sosnowska 6WDQLVáDZSzultka Piotr Tamowicz, Ph.D. Agnieszka Tokaj-Krzewska, Ph.D. Tomasz Tokarski, Ph.D. Anna Tucholska Bogna 8UEDVND (O*ELHWDWojnicka Professor Leszek Zienkowski $OHNVDQGHU)RáQLHUVNL $JQLHV]ND)XU In cooperation with: Katarzyna Biernat Translation: English Text Editor: Marzena Osadzin Dana Szypcio &RS\ULJKWE\3ROVND$JHQFMD5R]ZRMX3U]HGVLELRUF]RFL ISBN Cover design by: :árg]lplhu]walus I edition 1500 copies Printed by: Institute for Terotechnology ul. K. 3XáDVNLHJRRadom itee@radom.pl 2

3 TABLE OF CONTENTS From the authors The macroeconomic situation in Poland in Gross Domestic Product (GDP) State budget and public finance Inflation Labour market Wages Investment Privatisation Foreign trade Financial market Poland vs. Europe The conditions of the SME sector in 2001: Development trends in the years Share of small and medium-sized enterprises in GDP and Gross Value Added generation SME share in GDP generation SME share in the generation of the Gross Value Added Gross Value Added per person working in the private sector The number of enterprises Registered enterprises Active enterprises The dynamics of change in the number of active enterprises People working in the SME sector Number of persons working in the SME sector as of the end of The dynamics of change in the number of people in work in The average number of people in work in Those working in the grey economy The financial standing of SMEs Revenues from the sale of products, goods, and services of enterprises of differing sizes Proceeds of enterprises owned by natural persons that employ up to 9 persons The financial condition of enterprises managing accounts and employing more than 9 people SME Investment The rate of growth in investment expenditure of enterprises of differing sizes in fixed prices The share of SME investment expenditure in total expenditure Investment expenditure per person working in private SMEs Innovation of industrial enterprises Enterprises spending on innovation Innovation outlays The role of SMEs in foreign trade The dynamics of SME foreign trade in The dynamics of exports and imports in particular economic sections SME exports and imports according to the type of goods produced The direction of SME imports and exports SME foreign trade at a regional level Small and medium-sized enterprises on a regional (voivodship) level Entities registered in the REGON system Active enterprises People working in SMEs according to the figures at the end of the year Income from the sale of products, goods, and materials Investment outlays Summary

4 3. The policy towards SMEs State policy: Programme documents Socio-economic strategies Integration strategies Policy towards small and medium-sized enterprises Sector policy Labour market policy Rural area development policy Regional policy The implementation of state policy towards SMEs Parliamentary activities Activities related to European integration Industrial and SME policy Summary of the implementation of Government Policy Guidelines for Small and Medium-sized Enterprises for the Years 2003 to Monetary policy Programmes related to sector policies Programmes related to labour market policy Programmes for the development of rural areas Programmes related to regional policy Summary The legal environment of SME functioning in Changes in Tax Law Changes in Labour Law and the Social Security System Intellectual Property Law Changes in Civil Law Public Procurement Enterprise support and public aid in the European Union and Poland General rules for providing enterprise support and public aid in the European Union Forms of enterprise support in the European Union Public aid in the Polish legal system The act of 27 July 2002 on the conditions for the admissibility and supervision of public aid for entrepreneurs Journal of Laws, No The act of 20 March 2002 on the financial support for investment Journal of Laws, No The act of 30 August 2002 on the restructuring of certain public law liabilities due from entrepreneurs Journal of Laws, No Draft amendments to legal regulations concerning public aid for entrepreneurs in Draft act on public aid for entrepreneurs of special importance for the labour market Draft act of 29 October 2002 amending the act on Special Economic Zones General rules governing the functioning of Community aid for Poland after its accession to the European Union Aid from the Structural Funds for small and medium-sized enterprises Programme documents Sectoral Operational Programme Increased competitiveness of the economy Sectoral Operational Programme Human Resource Development Sectoral Operational Programme Restructuring and Modernisation of the Food Sector and the Development of Rural Areas Sectoral Operational Programme Fisheries and Fish Processing Sectoral Operational Programme Transport Water management The integrated Regional Development Operational Programme Summary Local policy and SME development The legal basis of local authority support for the SME sector in Poland Local government bodies Instruments of SME sector support The place of the SME sector in local development strategies The investment climate as an instrument of local policy towards SME Training as an instrument of SME support Institutional efficiency and the SME sector Local government support for enterprise competitiveness Summary

5 7. The business environment General information The Polish Agency for Enterprise Development and its actions in Implementation of Government Policy Guidelines for Small and Medium-sized Enterprises to 2002 and European Union programmes The results of actions and programmes supported by the Polish Agency for Enterprise Development The support system for SMEs within the network of services The National Services Network (KSU) Other service networks Regional Financing Institutions (RFI) Support for SMEs enforced by organisations of entrepreneurs Confederation of Polish Employers Business Centre Club National Association of Trade and Services Polish Chamber of Commerce The Polish Craft Association Polish Confederation of Private Employers Bridge and regional organisations supporting an innovative approach Technology and information transfer centres The labour market and unemployment Flexibility of labour markets in Poland in the regional breakdown Self-employment as a tendency to support entrepreneurship and reduce unemployment Structural changes in the labour market in view of a knowledge-based economy Creation of foundations for a knowledge-based economy Changes in the labour market on the part of demand Influence of industrial clusters on job creation Clusters versus the number of the employed Clusters and the level of wages Clusters versus the kinds of created jobs Clusters The concept of clusters versus enterprise competitiveness Typology of clusters Cluster-based development policy Clusters in Poland Summary and conclusions Innovative capacities of Polish SMEs Science and technology in Innovative activities of industrial enterprises in Technology transfer in SME strategy Technology transfer from research and development units to enterprises A balance of Poland s accession negotiations in the European Union Free movement of goods, persons, services, and capital Free movement of goods Free movement of persons Freedom to provide services Free movement of capital Company law Competition policy Fisheries Transport policy Taxation Economic and Monetary Union Social policy and employment Industrial policy Small and medium-sized enterprises Science and research Telecommunications and information technology

6 Energy Regional policy and coordination of structural instruments Environment Consumer and health protection Assessment of the results of accession negotiations for the SME sector Ethics in the economy The role of ethics in economic activities in the world Business ethics in Poland after Short description Unethical behaviour of enterprises Unethical behaviour of employees The grey economy Corruption Definition of corruption Corruption in the Polish legal system Reasons for corruption in Poland Corruption by public procurement Corruption in Poland perception of the corruption phenomenon in view of social research The Catholic Church on corruption Summary Barriers in enterprise development Institutional and legal barriers The economic and financial environment of enterprises Internal (business) barriers Annexes Annex 1. Statistical tables illustrating the condition of the SMEs sector in Poland in the period of Annex 2. A list of legal acts affecting the functioning of SMEs adopted and published in Annex 3. Annex to Chapter 7 The Business Environment List of acronyms Bibliography

7 From the authors, Dear Readers, The Polish Agency for Enterprise Development, continuing its initiative of the Polish Foundation for Small and Medium Enterprise Promotion and Development taken seven years ago, has prepared another edition of the Report on the Conditions of the Small and Medium-Size Enterprise Sector in Poland. Due to the completion of the negotiations on Poland s accession to the European Union lasting several years, in the report, the issues related to the integration, and mainly its impact on Polish enterprises are broadly discussed. The report presents selected issues concerning the outcome of Poland s negotiations with the EU from the point of view of entrepreneurs described in the Report on the Results of Negotiations for the Membership of the Republic of Poland in the European Union. Great emphasis has also been placed on the issues of public aid and programmes for small and medium-size enterprise support, including these implemented at the state and regional levels. The programme, entitled Government Policy Guidelines for Small and Medium-sized Enterprises to 2002, designed to stimulate economic activity of the SME sector, was completed last year. Another area of the report focused on authorities share in the creation of conditions for the growth of competitiveness and capacity of Polish enterprises to operate on the Single European Market. Moreover, the report aims at presenting general guidelines and ideas of the programmes for SME sector support and the opportunities resulting from the latest technology and cluster concept. With much gratitude and appreciation, I would like to sincerely thank Professor Jan Targalski and his associates (Department of Entrepreneurship at Kraków University of Economics, Professor Tomasz Tokarski, Ph.D. (Department of Applied Economics at Jagiellonian University), Dr. Leszek Kucharski (Department of Economics at àyg( University), Dr. Krzysztof 5\ELVNL %DQN %3+ 3%. 6$, and Tadeusz &KURFLFNL (State Centre for Strategic Studies) for their commitment and dedication in working together in the collaboration of the report. 0LURVáDZMarek Chief Executive Officer The Polish Agency for Enterprise Development 7

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9 Chapter 1 The macroeconomic situation in Poland in 2002 Gross Domestic Product (GDP) State budget and public finance Inflation Labour market Wages Investment Privatisation Foreign trade Financial market Poland vs. Europe

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11 Data used in this chapter comes from the Central Statistical Office s publication: Information on the Socio-economic Situation of Poland in 2002, as well as from the report prepared by the Government Centre for Strategic Studies (RCSS): Evaluation of the Socio-economic Situation in 2002 with Elements of Forecast for The statistical data presented below is of preliminary nature and can be subject to minor alternations in the future Gross Domestic Product (GDP) The rate of economic growth in 2002 amounted to 1.3%, as compared to 1% in It was the recession in the industry and construction sectors that accounted for these very low growth dynamics. This was counterbalanced with a faster growth of the market services sector. The slowdown of the Polish economy was mainly due to external factors. Internal demand increased by only 0.8%, whereas gross investment on fixed assets did not even reach the previous year s level (a decrease by 7.2%) and consumption grew by 2.9%. Net exports were other factors facilitating economic growth. As a result, despite the unfavourable conditions in world markets, external demand was of great importance in fostering Poland s economic growth. Gross Domestic Product (GDP) increased in the first quarter of 2002 by 0.4%, whereas in subsequent quarters the dynamics of its growth were even higher (0.8% in the second quarter, 1.6% in the third one, and 2.2% in the fourth one). The total GDP growth in 2002 was by 1.3%. Limited sales possibilities worsened the situation of enterprises and reduced their interest in external financing sources. Demand for credit decreased. In December 2002, debts of economic entities decreased in real terms by 0.6%, as against 4.1% growth in the previous year. Chart 1.1. GDP dynamics in Poland in the years (%) Source: CSO data In 2002, the total industrial production sold increased by 1.4%, as compared to 0.6% in In enterprises employing more than 9 people, it was higher by 1.5%. It was the situation in the processing industry that accounted for the changes in the level of industrial production sold. The processing industry production increased by 2.1%, mainly due to growth in consumer goods production. Production of supply goods increased by as little as 0.5% in the period in question, whereas production of investment goods decreased by approximately 1%. 11

12 1.2. State budget and public finance In 2002, revenues of the state budget amounted to PLN billion (99.1% of the projected level) and increased by 4.9% in comparison to the year Expenditure amounted to PLN 183 billion (98.8% of the projected level) and increased by 5.8%. The budget deficit amounted to PLN 39.1 billion and was 21% higher in comparison to the previous year. Its ratio to Gross Domestic Product (GDP) was 5.1%, whereas in 2001, it was 4.3%. This means that almost one fifth of the expenditure was not covered by revenues. Proceeds from indirect taxes constituted the most significant component of the revenues (PLN 90 billion, which was 9.3% more in comparison to the year 2001), also from personal income tax (24.1%; growth by only 2.9% in spite of tax brackets frozen at the level of 2001) and corporate income tax (PLN 15 billion; growth by 13.4%). Total fiscal arrears increased by PLN 3.1 billion (24.9% in comparison to the level of 31 December 2001). Irrecoverable arrears constituted a significant part of this amount. In most cases, they were produced by those sectors of state-owned industry that requires deep restructuring. Among the main state budget expenditures, there were subsidies for local and regional government units (16.2% of total expenditures), subsidies for the Social Security Fund (14.9%), and expenditures related to servicing public debt (13.1%). The structure of budgetary expenditures deteriorated. The share of fixed expenditures increased, which considerably restricts the possibility to finance economic growth by the state. The state budget deficit was mainly financed with revenues from selling state bonds and securities. Growing budget deficit was the result of very low proceeds from privatisation: PLN 2.8 billion in 2002 as compared to PLN 6.5 billion in 2001 and PLN 6.6 billion projected in the Budget act. The ratio of State Treasury and local government deficit to GDP amounted to 47.5% in 2002, which equals 5.6% growth during a one-year period Inflation Increase in prices of consumer goods and services in the period from December 2001 to December 2002 amounted to 0.8%, and was much lower than the figure projected for in the Budget act, as well as the rate targeted by the Monetary Policy Council (RPP). Inflation was also lower than in other European Union countries. The price dynamics were positively influenced by supply factors (a decrease of annual food prices by 0.6% and of liquid fuels by 0.8%), as well as by demand factors (a moderate growth rate of wages in context of high unemployment and low consumer loan dynamics). Also, the dynamics of money supply had a disinflationary effect. Its 12-month index in real terms was systematically decreasing throughout the year, and from August, its level was below zero to reach 96.9% in December. 12

13 Chart 1.2. Inflation in Poland in the years (%) Source: CSO data 1.4. Labour market In 2002, an increase in unemployment was noted, however, its dynamics were lower than in previous years. The restraining of high unemployment dynamics was observed in spite of a further high population growth in productive age and a considerable reduction in employment. In 2002, the number of individuals working in the national economy decreased by 133 thousand, to the level of 14.9 million. Average employment in the sector of enterprises was reduced by 226 thousand, i.e. by ca. 4.4%. In the construction sector, a decrease by 59 thousand was noted and in the transport, storing, and telecommunications sectors by 36 thousand in total. An increase of employment was observed in the sector of services for real estate and companies, as well as in science, hotels, and restaurants. In trade and repairs, employment remained at the same level as in The restructuring-caused employment reductions in the coal and peat mining industries were slowed down. At the end of 2002, the number of registered unemployed persons was 3.2 million and was higher by almost 102 thousand than in The unemployment rate was 18.1%, as compared to 17.5% in Chart 1.3. Unemployment rate in Poland in the years (%) Source: CSO data 13

14 When taking into account the unemployed excluded from registers because of collecting preretirement benefits (more than 4.97 million persons at the end of 2002), the number of the unemployed amounted to 3.7 million and the unemployment rate to 20.3% (ca. 19.5% at the end of 2001). The unemployment rates differed considerably according to voivodships 1. The highest level was noted in :DUPLVNRPD]XUVNLHVLPLODUO\WRWKHOHYHORIDQGWKHORZHVWUDWHLQ Mazowieckie and 0DáRSROVNLHLQHDFKvoivodship). High unemployment rates were also observed in Zachodniopomorskie (26.4%) and Lubuskie (25.9%). The gap between the voivodships with the lowest and the highest rates narrowed. It amounted to 14.9%, as compared to 15.8% in Table 1.1. The number of the unemployed and the unemployment rate by voivodships. Data for the end of December 2002 Number of registered unemployed persons Ratio of the number of the unemployed Voivodships In total Entitled to collect unemployment benefits Total Women Men Total Women Men To the number of those active in the labour market To the number of employed outside the agriculture sector POLAND 3.216, , , 'ROQROVNLH Kujawsko- -Pomorskie Lubelskie Lubuskie àyg]nlh DáRSROVNLH Mazowieckie Opolskie Podkarpackie Podlaskie Pomorskie OVNLH ZLWRNU]\VNLH :DUPLVNR- -Mazurskie 176,629 92,105 84,524 32,968 12,660 20, Wielkopolskie Zachodniopomorskie Labour market problems are discussed in more detail in Chapter 8 of the Report, Labour Market and Unemployment. 14

15 In 2002, an increase in the number of the unemployed was noted in 11 voiodships, with the highest rates in Pomorskie (by 9.1%) and Zachodniopomorskie (by 8.2%). In 5 voviodships, a GHFUHDVHZDVREVHUYHGZLWKWKHKLJKHVWUDWHVLQ3RGNDUSDFNLHE\DQG0DáRSROVNLHE\ 2.3%). Among the unemployed, the process of migration to urban areas in search for jobs was more intensive. For instance, in Warsaw at the end of 2002, the number of registered unemployed persons amounted to 65 thousand, which was more by ca. 20% in comparison to the previous year. At the end of 2002, 2.68 million persons did not qualify for unemployment benefits, which constitutes 83.3% of all registered. Loss of the right to obtain benefits resulted mainly from long-term searching for jobs. At the end of 2002, this was the case for 1.65 million people, 60% of whom were searching for jobs for more than two years. Chances for finding employment for this group are minimal which entails much bigger threats of poverty for their families. Still the situation of the youth up to 24 years of age is considered to be the worst. At the end of 2002, they constituted 27.8% of all unemployed was the first year since 1997 that the increase in the number of job offers was noted, as well as in the number of those making use of active forms of counteracting unemployment. During the whole year in labour offices, there were almost 556 thousand job offers, which was more by 15% than in the previous year. At the end of 2002, there were 387 unemployed persons per one valid job offer, whereas the number a year before was Wages In 2002, for the first time in many years, the nominal wages fund did not change in comparison to the previous year. The average monthly gross wage in the national economy amounted to PLN 2,133, growth in real terms by 2.4%. In the enterprise sector, this figure amounted to PLN 2,277 and was higher by 1.5% than in the previous year. The level of old-age pensions and disability pensions increased faster in real terms than wages. In 2002, the average old-age pension and disability pension (excluding those from the separate social security system for farmers) amounted to PLN 1,039, whereas pensions in the farmers system amounted to PLN 700. This entails growth in real terms by 4.6% and 3.1% respectively. At the same time, 2002 was another year in which the average number of individuals collecting pensions decreased (by 74 thousand) Investment The worsening of the economic situation caused radical reduction in investment activities. After years of the high growth rate of investment spending 18.5% per year in the period from 1995 to 1998 and a slowdown in two subsequent years - a significant reduction was noted (by 9.5% in 2001 and by 8% in 2002). Investment made by economic entities was mostly financed with their own resources (ca. 65%), i.e. profits and depreciation of fixed assets. The share of loans did not exceed 18%. 15

16 The main reason behind the slowdown in investment processes was the worsening of economic conditions both home and abroad, and its consequences opinions of entrepreneurs that there are no possibilities to extend sales markets, the financial situation of enterprises, and the lack of external sources of finance. Additionally, the situation was worsened by the fact that direct foreign investment was reduced substantially. Within two years, investment decreased from the level of USD 10.6 billion in 2000 to USD 7.4 billion in 2001 and USD 6.6 billion in This was not exclusively the result of global stagnation. According to the Polish Agency for Foreign Investment (PAIZ), foreign investors also mention excessive bureaucracy, an unstable legal system, corruption, and the lack of sufficient infrastructure. It is these factors that resulted in the fact that in Poland in 2002, foreign direct investment decreased in comparison to the previous year by almost 15%, whereas Central and Eastern Europe as a whole noted a reduction by only 1% Privatisation By the end of 2002, 6,993 state-owned enterprises were included in the process of ownership transformation. In 2002, the number of enterprises privatised by means of both the indirect method (21 companies), through the sale of shares in single-shareholder companies of the State Treasury, and the direct method (46 enterprises), was lower than in the previous year. Still, more cases of enterprise liquidation for economic reasons were executed (10 enterprises were closed down and 83 went into liquidation). The privatisation revenues received by the budget amounted to PLN 2,579.2 million, as compared to PLN 6,451 million in the previous year. Revenues from direct privatisation amounted respectively to PLN million, as compared to PLN million in In 2002, privatisation revenues constituted only one third of the amount projected in the Budget act Foreign trade In 2002, the environment for foreign trade worsened the economic situation in global markets. In spite of this unfavourable environment, a significant improvement of the turnover rates with partners abroad was noted, especially with regard to exports. This was a consequence of the zloty s depreciation against the euro, as well as of the fact that the enterprises (mostly with foreign capital) that made significant investments in previous years, were now launching their production. Currently, these investments result in a production increase (especially export production). It may seem disturbing that the increase of exports was only observed in foreign companies. Between 2001 and 2002, the value of exports in private foreign companies increased by 64.4%, whereas Polish private companies suffered a decrease by 17.2%. In 2002, revenues from exports amounted to USD 33 billion and were higher by 9% than in the previous year, whereas expenditures on imports reached a level of USD 43.3% (a growth by 3.2%). 16

17 The current account at the end of 2002 reached a negative balance of USD 6.7 billion. In 2001, the negative balance amounted to USD 7.2 billion. It was the improvement of a commodity turnover balance by USD 1.4 billion that resulted in the reduction of a negative balance. The ratio of the current account deficit to the GDP in 2002 amounted to 3.6%, whereas in it was at the level of 6.1%, and in %. A deficit at this level does not threaten the financial stability of the country Financial market At the end of 2002, the WIG index of the Warsaw Stock Exchange was at the level of the year 2001, similarly to WIRR and WIG20 indices. In 2002, the highest turnover was noted in the futures contracts and stock markets. In 2002, the total State Treasury bonds turnover amounted to PLN billion in all registry systems and constituted 6.5% of the total shares turnover. The bonds turnover was lower by 19.5% than in The value of package transactions increased by more than 259%, whereas in a continuous quotation system, a turnover decrease was noted by ca. 21.7% Poland vs. Europe Poland vs. the European Union Member States In 2002, the rate of economic growth in the world was estimated at the level of 1.7%. The situation in the countries of the euro zone was much worse, since the rate there amounted to only 0.8%. In addition, there are no prospects to reverse these stagnation trends on the markets. This is of key significance for the countries of Central and Eastern Europe, especially those whose economies are strictly connected to the German economy. When comparing the macroeconomic situation of Poland and the European Union (EU) countries in 2002, it should be noted that the growth rate of the Polish national income was only 0.4% higher than in the EU countries. The level of GDP per head in Poland in 2002 amounted to USD 11 thousand (as against 10.8 thousand in the previous year). By analogy, in 2000 the GDP per head in the European Union was at the level of USD 22.5 thousand. In line with official Eurostat 2 data, Poland has not yet reached the level of 40% of the EU15 average in this respect. In the second half of the year 2000, Poland ceased to reduce the gap in the level of produced goods value per head, in comparison to EU countries. The tendency was sustained throughout the year In 2002, the Polish unemployment rate was almost 10% higher than the average for EU countries. 2 Eurostat Yearbook

18 Table 1.2. The economic situation in Poland versus the situation of selected European Union countries in 2002 GDP dynamics growth/ decrease in % in comparison to 2002 Registered unemployment rate in % at the end of Inflation (average for a year) in 2002 State budget deficit (in % of the GDP) in 2002 European Union Euro zone Denmark Finland France Germany Great Britain Greece Ireland Italy Netherlands Portugal Spain Sweden POLAND Source: European Commission, Directorate-General for Economic and Financial Affairs. Spring Economic Forecasts Poland vs. Central and Eastern European Countries In 2002, the Polish growth rate was the slowest of all Central and Eastern European countries. The GDP growth at the level of 1.3% was twice lower than in the Czech Republic and Slovenia, 2.5 times lower than in Hungary and more than three times lower than in Slovakia, Ukraine, Russia, Bulgaria, Estonia, and Belarus. Poland also recorded the highest unemployment rate of all the countries mentioned above. 3 The number of the population active in the labour market was taken as the basis to calculate the unemployment rate. 18

19 Table 1.3. The economic situation in Poland versus the situation in Central and Eastern European countries in 2002 Central and Eastern European countries GDP dynamics growth/decrease in % in comparison to 2002 Inflation (average for a year) in 2002 Registered unemployment rate in % at the end of Belarus Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania POLAND Romania Russia Slovakia Slovenia Ukraine Source: Government Centre for Strategic Studies: Evaluation of the socio-economic situation in 2002 Poland s Accession to the European Union Analysing long-term consequences of Poland s accession to the European Union, experts have no doubts that they will be of a positive character. The rate of economic growth will be faster, the development, and modernisation of the economy will take place mainly because of longer investments, inflow of new technology, easier access to EU markets, a bigger scale and specialisation of production, as well as the improvement of management quality and effectiveness. However, in the short-term, some unfavourable tendencies may be observed. The financial situation of enterprises may be worsened, since they will bear additional costs connected with the adjustment of their activities to EU standards. Unemployment may also increase as a result of the restructuring of Polish industry. Costs of accession will significantly influence the condition of Polish public finance, especially in the first two years, when it will be necessary to pay the country s membership contribution to the EU budget, to co-finance investment within the structural funds, and to make direct payments to farmers. At the same time, the budget will lose some of its revenues, like income from duties and partly from VAT. 4 The number of the population active on the labour market was taken as the basis for calculating the unemployment rate. 19

20 Another challenge will be to fulfill convergence criteria that define conditions that are obligatory to join the Economic and Monetary Union. They are as follows: 1. state budget deficit cannot exceed 3% of GDP 2. public debt must be lower than 60% of the annual GDP 3. the inflation level cannot be more than 1.5% higher than the average annual inflation calculated for three countries with the lowest inflation 4. long-term interest rates (measured on the basis of 10-year State Treasury bonds with a fixed interest rate) cannot be more than 2% higher than the average interest rate for the three countries with the lowest level of the inflation rate 5. the exchange rate against the euro must be stable enough (fluctuations not higher than 15%) 6. the Central bank must be independent In 2002, Poland fulfilled most of these criteria. Its annual inflation was at the level of 1.9%, long-term interest rates were at the level similar to those in the euro zone, and public debt did not exceed 60%. State budget deficit remained the only problem, increasing in 2002 to 5.6% of GDP, as compared to 2.7% in This increase was a result of the growth of budgetary expenditures. 20