Report on the Condition of the Small and Medium-Sized Enterprise Sector in Poland in 2002 2003 Ministry of the Economy and Labour Polish Agency for Enterprise Development Warsaw 2004
This publication is funded in part by the PHARE Programme of the European Union Editors: Agnieszka Tokaj-Krzewska and Aleksander )RáQLHUVNL Authors: Krzysztof Berger Wanda Burdecka Józef Chmiel, Ph.D. Izabela Czaja 5DIDá 'UR]GRZVNL 3K' Anna Forin Wojciech Dziemianowicz, Ph.D. Agnieszka Haber Krzysztof Jasiecki, Ph.D. 8UV]XOD.RSHü %R*HQD.XMDZD Piotr Matczak =RILD 3DZáRZVND 3K' $JQLHV]ND 5\ELVND 0DáJRU]DWD 6NU]HN/XEDVLVND Agnieszka Tokaj-Krzewska, Ph.D. $OHNVDQGHU )RáQLHUVNL Professor Leszek Zienkowski In cooperation with: Agnieszka Malej Katarzyna Mirska Translation: English Text Editor: 3DZHá Kotwica Gina Podhorecka &RS\ULJKW 3ROVND $JHQFMD 5R]ZRMX 3U]HGVLELRUF]RFL ISBN 83-88802-93-3 Edition 1,500 copies Printed by: Institute for Terotechnology 26-600 Radom, ul. K. 3XáDVNLHJR WHO ID[ e-mail: instytut @itee.radom.pl http://www.itee.radom.pl 2
TABLE OF CONTENTS 1. Macroeconomic situation in Poland in 2002... 9 1.1. Gross Domestic Product... 11 1.2. State budget and public finance... 12 1.3. Inflation... 12 1.4. Labour market... 13 1.5. Wages... 15 1.6. Investment... 15 1.7. Financial position of enterprises... 16 1.8. Privatization... 16 1.9. Foreign trade... 16 1.10. Financial market... 17 1.11. Poland versus Europe... 17 2. Condition of the SME sector in 2002. Development tendencies in 1994 2002... 19 2.1. Contribution of small and medium-sized enterprises to the generation of GDP and Gross Value Added 21 2.1.1. SME share in the generation of GDP... 21 2.1.2. SME share in the generation of Gross Value Added... 22 2.1.3. Gross Value Added per person working in the private sector... 24 2.2. The number of enterprises... 25 2.2.1. Registered enterprises... 25 2.2.2. Active enterprises... 27 2.2.3. Change in the number of active enterprises... 28 2.2.4. Survivability of enterprises registered in 1995 2001.... 30 2.3. People working in the SME sector... 34 2.3.1. Number of people working for SMEs at year-end 2002... 34 2.3.2. Rate of change in the number of people in work in 2002... 36 2.3.3. Average number of people in work in 2002; workers in the grey economy... 39 2.4. Financial standing of SMEs... 41 2.4.1. Income from the sale of products, goods and services in enterprises of different sizes... 41 2.4.2. Income of enterprises owned by natural persons and employing up to 9 people... 43 2.4.3. Financial position of enterprises required to keep books of accounts and employing more than 9 people... 44 2.5. Investment by SMEs... 47 2.5.1. Rate of growth in investment expenditure of enterprises of different sizes at constant prices... 47 2.5.2. Share of SME capital spending in total investment expenditure... 50 2.5.3. Investment expenditure per person in work at private SMEs... 51 2.5.4. Sources of finance for enterprise investment activities... 51 2.6. Innovation in industrial enterprises... 52 2.6.1. Enterprises spending on innovation... 52 2.6.2. Innovation expenditure... 53 2.7. The role of SMEs in foreign trade... 54 2.7.1. SME foreign trade versus total exports and imports in 2002... 54 2.7.2. Volume of foreign trade for enterprises of different sizes... 55 2.7.3. SME exports and imports in individual sectors of the economy... 56 2.7.4. SME exports and imports by group of goods... 57 2.7.5. Geographic structure of foreign trade by Polish enterprises... 58 2.7.6. Regional differentiation of foreign trade (by voivodship)... 59 2.8. Small and medium enterprises at the regional (voivodship) level... 62 2.8.1. Enterprises registered in the REGON system... 62 2.8.2. Active enterprises change in spatial location of SMEs... 62 2.8.3. People in work at SMEs rate of change in the number of employees... 64 2.8.4. Income from the sale of products, goods and materials... 65 2.8.5. Investment expenditure... 67 2.8.6. Innovation activity of industrial enterprises... 69 2.9. Summary... 70 3
3. Policy towards SMEs... 75 3.1. State policy: Programme documents... 77 3.1.1. Socio-economic strategies... 77 3.1.2. Integration strategies... 78 3.1.3. Policy towards small and medium-sized enterprises... 80 3.1.4. Sector policy... 83 3.1.5. Labour market policy... 85 3.1.6. Development policy for rural areas... 85 3.1.7. Regional policy regional-scale programmes... 86 3.1.8. Tax policy... 89 3.1.9. Policy towards women and young people... 90 3.2. Implementation of the State policy towards SMEs... 91 3.2.1. Legislative measures... 91 3.2.2. Measures related to European integration... 92 3.2.3. Policy towards SMEs... 92 3.2.4. Programmes related to sector policies... 99 3.2.5. Tax policy... 99 3.2.6. Programmes related to labour market policy... 100 3.2.7. Development schemes for rural areas... 103 3.3. Summary... 105 4. Legal environment for the functioning of SMEs in 2003... 107 4.1. Changes to Business Law... 109 4.1.1 Legal foundations for enterprise operations... 109 4.1.2. Modifications of the Civil Code... 112 4.1.3. Bankruptcy Law... 113 4.1.4. Protection of business trade... 116 4.1.5. Consumer safety... 118 4.2. Tax Law... 121 4.3. Changes to the Labour Law... 125 4.4. Intellectual property... 127 4.5. Public aid... 128 4.6. Insurance Law... 130 5. Perceptions of the Polish national brand... 133 5.1. The notion of a brand... 135 5.2. The image of Poland and Polish products in the EU... 136 5.3. Findings of research on the Polish brand with respect to export activities... 138 5.3.1. Polish entrepreneurs experience in EU countries... 138 5.3.2. Impact of the Polishness of the offering on actions in the EU and brand management strategies... 141 5.3.3. Brand strategies... 143 5.3.4. The most effective forms of promotion... 145 5.3.5. Brand building as viewed by representatives of business environment institutions... 149 5.3.6. Polish companies and exports in the eyes of foreigners... 152 5.3.7. Image of the Polish brand and Polish exports outside Poland... 155 5.3.8. Polish investments abroad in the eyes of foreigners... 156 5.3.9. Opportunities for improving the image of Poland and Polish brands... 158 5.3.10. Barriers to Polish foreign investment... 159 5.3.11. Ways of entering the EU market... 160 5.4. Conclusions and recommendations... 160 6. Competitiveness of Polish SMEs on the eve of EU accession... 167 6.1. The concept of competition and competitiveness theoretical underpinnings... 169 6.1.1. National competitiveness... 169 6.1.2. Company competitiveness... 177 6.2. Theoretical underpinnings of the study... 180 6.3. Competitiveness of Polish SMEs in light of research findings... 181 6.3.1. Investment activity... 181 4
6.3.2. Raising capital... 185 6.3.3. Quality of products and services... 190 6.3.4. Company s innovativeness... 192 6.3.5. Human capital... 198 6.3.6. Growth performance of companies... 202 6.4. Development barriers and risk factors in business activity... 204 6.5. Company development strategies in connection with Poland s entry into the EU... 209 6.6. Summary and conclusions... 215 7. Self employment in Poland in the context of accession to the European Union... 219 7.1. The legal, financial and social conditions regulating self employment in Poland... 221 7.2. Discussion of Survey Findings... 224 7.3. Self employment in Poland in the context of EU accession... 240 7.4. Self employment in the EU... 240 7.4.1. Environment for self employment in selected EU nations... 240 7.4.2. Self-employment regulations under the Single European Market and their consequences for Polish citizens... 243 7.5. Summary and conclusions... 245 8. The business environment... 251 8.1. The Polish Agency for Enterprise Development: General information... 253 8.2. Activities of the Polish Agency for Enterprise Development in 2003... 253 8.2.1. Support for Government policies, dissemination of knowledge and promotion of enterprise... 253 8.2.2. PHARE assistance programmes in support of development of enterprise and human resources... 255 8.2.3. Preparations for application of structural funds... 259 8.3. Support system for SMEs: network of services... 260 8.3.1. National System of Services for Small and Medium-Sized Enterprises (KSU)... 261 8.3.2. Other service provider groups within the network of services... 262 8.3.3. Regional Financing Institutions... 263 8.4. The role of business environment institutions in preparing Polish small and medium-sized enterprises to function within the framework of the European Union... 265 8.4.1. Main characteristics of business environment institutions... 265 8.4.2. Assessment of preparedness of business support organizations to accession to the EU and their expectations for accession... 277 8.5. Identification of forms of SME support and planned activities of business environment institutions in support of the SME sector after accession to the EU... 291 8.6. Barriers to the activity of business environment institutions... 296 8.7. Summary... 300 9. Training and advisory services for SMEs... 307 9.1. Experience of assistance programme beneficiaries... 310 9.2. Evaluation of training and advisory programmes... 317 9.3. Sources of information on support services... 322 9.4. Entrepreneurs expectations for support services... 329 9.5. Demand for support services... 333 9.6. Recommendations... 339 Annexes... 343 Annex 1. Statistical tables illustrating the condition of the SMEs sector in Poland in the period of 2002 2003... 345 Annex 2. Ordinances Enacted by the Sejm in 2003.... 377 Acts Adopted by the Sejm in 2003.... 429 Bibliography... 443 List of Acronyms Used... 447 5
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From the authors Dear Readers, It is a pleasure to present to you the latest (eighth) edition of the Report on the Condition of the Small and Medium-Sized Enterprise Sector in Poland. Prepared by the Polish Agency for Enterprise Development in cooperation with the Ministry of Economy, Labour and Social Policy, this report is the continuation of an initiative of the Polish Foundation for the Promotion and Development of Small and Medium-Size Enterprises begun eight years ago. The present edition of the Report is the first since Poland s accession to the European Union. This circumstance strongly influenced our choice of issues to be addressed in this edition. Polish enterprises place considerable expectations on the opportunities afforded by their presence on the common European market. These possibilities seem to have become more real now, especially when viewed in the context of the rapid economic growth that currently places Poland in the leading position among EU member states. Yet in order to become competitive within the European Union, Polish enterprises still need to effect major internal changes. This is particularly true of the SME sector. Necessary adjustments include not only investments in new advanced technologies to bring them up to date, but also a shift in the approach to promoting SME products on the internal EU market. New standards for product quality and safety or environmental protection pose another important challenge. Competitiveness is the key issue addressed in our report and it is examined within the context of innovation, quality of human capital, survivability of companies, and self employment. The subject of the survivability of companies, which has yet to be explored by students of the Polish economy, is of particular interest. In our view, this factor, the importance of which is insufficiently appreciated by economic literature, has a profound effect on the economy and is a major factor impacting the quality of competition. In this new edition of the report, these issues are explored primarily through the prism of Poland s membership in the structures of the European Union. It is our hope that the reader will find both the themes discussed in the report and the way they are presented here interesting. In conclusion, we would like to express our gratitude for any suggestions or comments you may wish to share with us. We always regard them as a valuable source of inspiration for our work on subsequent editions of the Report. The authors 7
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Chapter 1 Macroeconomic situation in Poland in 2002 Gross Domestic Product State budget and public finance Inflation Labour market Wages Investment Financial position of enterprises Privatization Foreign trade Financial market Poland versus Europe 9
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The data used in this chapter has been drawn from the Central Statistical Office (CSO) publication, Information on the Socio-Economic Situation of the Country: 2003, and a report by the Government Centre for Strategic Studies, Assessment of the Socio-Economic Situation in 2003 with Forecast Fundamentals for 2004. The statistical data presented in this chapter is of a preliminary nature and may be subject to further minor adjustments. 1.1. Gross Domestic Product After a period of slowdown in business activity, clear signs of an economic upswing were detected for the first time in two years in 2003. The Polish economy grew by 3.7%, versus 1.4% in 2002 and 1% in 2001. Recovery in the manufacturing and market services sectors was responsible for such strong economic performance. Growth acceleration was driven by a significant increase in both domestic and external demand. In 2003, per capita domestic consumption rose by 3.1% and, more importantly, the downward trend in gross capital investment was arrested. As in the previous year, net exports were another factor that contributed to economic growth. On the other hand, the recession in the construction industry continued. Gross Domestic Product (GDP) grew at an increasing rate in each consecutive quarter. The increase of 2.2% in the first quarter of 2003 was followed by a GDP growth rate of 3.8% in Q2, 3.9% in Q3, and 4.7% in Q4. Chart 1.1. Tempo of GDP growth in Poland in 1991 2003 (%) Source: Authors compilation of CSO data. In 2003 sold industrial production rose by as much as 8.4% (by comparison, the corresponding increase in 2002 was 1.9%), achieving its highest level since 1997. This improvement was due primarily to changes underway in manufacturing, where sales increased as a result of rising exports and improved competitiveness on the domestic market. Some very positive changes in output structures that were observed in 2003 should be highlighted. There was a significant revival in company development activity. Capital goods production was as much as 21% higher, in contrast to the decline registered in 2002. Production of goods considered to be drivers of technological change was also higher, by 22%. Their share in total production rose from 12.4% to 13.7%. 11
1.2. State budget and public finance In 2003 State budget revenues totalled PLN 152.2 billion (97.7% of the figure assumed in the Budget Act), which represented a 6% increase relative to 2002. Expenditures stood at PLN 189.2 billion (97.3% of the projected amount), growth of 3.4%. The budget deficit was nearly PLN 37 billion, which was 6.1% down year-on-year. The ratio of the deficit to GDP was 4.6%, versus 5.1% a year earlier. Just as in the previous year, expenditures were almost one-fifth higher than revenues, which compounded the problem of balancing public finances. In comparison to the situation at December 31, 2002, total tax arrears were PLN 2.3 billion (14.7%) higher (a year earlier, their year-on-year increase was almost 25%). Non-recoverable liabilities were a significant portion of tax arrears. This problem relates primarily to branches of public sector industry that are in need of fundamental restructuring. The biggest item on the expenditure side of the budget comprised subsidies to local government units (16.8% of all expenditures), grants to the Social Insurance Fund (14.9%), and the servicing of the public debt (12.8%). The composition of budget expenditures deteriorated further. The share of so-called fixed expenditures continued to increase, considerably restricting the wherewithal of the State to support economic development. The State budget deficit was financed primarily through sales of Treasury papers. The increasing indebtedness of the State budget was due to very low privatization receipts, which in 2003 reached only 40% of the amount provided for in the Budget Act. The ratio of public debt (PLN 411 billion) to GDP exceeded 51% in 2003. 1.3. Inflation Prices of consumer goods and services increased over the year to December 2003 by 1.7%, which was lower not only than inflation projected in the Budget Act, but also than the inflationary target set by the Monetary Policy Council. Inflation in Poland was also below the levels registered in other individual European Union Member States. Price growth was capped by the low level of domestic demand in the context of high unemployment and increasing competition on the domestic market. However, factors contributing to price increases, such as a strong depreciation of the zloty relative to the euro, higher fuel prices, and limited supply of some food products, were also noticed in Q4 2003. These factors may exert a significant impact on the level of inflation in 2004. Chart 1.2. Inflation in Poland in 1991 2003 (%) Source: Authors compilation of CSO data. 12
1.4. Labour market Despite the high rate of economic growth, no improvement in the labour market was noted in 2003. At year-end 2003, the national economy employed 14.8 million people, which represented a decrease of 1% over the year. Average employment in the corporate sector also declined. At the end of December 2003, this figure stood at 4.6 million 1 individuals, or 3.5% fewer than in 2002. Falling employment rates were registered in almost all sections of the economy, with the largest decline in construction (16.4%), tourism (8.1%), mining (4.2%), trade and repairs (3.5%), and industry (by more than 2%). Employment increased only in real estate and business services by 2%. At end-2003, there were 3.2 million registered unemployed, almost 413,000 persons fewer than in 2002. The unemployment rate remained at the same level as in 2002 2 and represented 20% of the total active labour force. Chart 1.3. Unemployment rate in Poland in 1990 2003 (%) Source: CSO data and authors own estimates. A considerable disparity in the unemployment rates of individual voivodships continued to be observed. The highest level was registered (as in 2002) in the :DUPLVNR0D]XUVNLH voivodship (30.6%), while the rate was the lowest in the Mazowieckie and 0DáRSROVNLH voivodships (15.1% and 16.2%, respectively). High rates of joblessness were also noted in Zachodniopomorskie (28.2%) and Lubuskie (27.6%). The gap between the voivodships with the lowest and the highest rates narrowed. That differential was 15.5 percentage points, in comparison to 15.9 points a year before. 1 In businesses employing more than 9 people. 2 The National Population Census carried out in 2002 forced a revision in the number of people working in the individual farming sector. The census showed that this figure is 1.7 million lower than previously assumed. Based on the new data, CSO revised its own estimate of the unemployment rate in Poland in 2001 2003. For this reason, the figures given in the text above are different from the statistics cited in previous reports. 13
Map 1.1. Unemployment rate by voivodship in December 2003 3RPRUVNLH =DFKRGQLR SRPRUVNLH /XEXVNLH :LHONRSROVNLH.XMDZVNR SRPRUVNLH àyg]nlh :DUPLVNR PD]XUVNLH 0D]RZLHFNLH 3RGODVNLH 'ROQROVNLH 2SROVNLH ZLWRNU]\VNLH /XEHOVNLH OVNLH! 0DáRSROVNLH 3RGNDUSDFNLH Source: Authors compilation of CSO data. The number of jobless who lost their right to receive unemployment benefits increased. At end- 2003, 2.7 million people were no longer eligible for these benefits, which was 84.9% of all those registered as unemployed (versus 83.3% in the previous year). The main reason for loss of entitlement to this benefit was the length of time they had spent unemployed. At year-end 2003 this was the case for 1.7 million persons, almost two-thirds of whom had been looking for work for more than two years. Since this group of jobless individuals has little, if any, chance of finding employment, the withdrawal of benefits implies for them a dramatic increase in the risk of falling into extreme poverty. This phenomenon, whose scale is increasing every year, constitutes a serious social problem. As in the previous year, young people and those with the least education faced the most difficult situation on the job market. For the last two years, however, there has been a growing trend of joblessness affecting people with higher education. To the year 2000, having a university diploma provided a guarantee of obtaining employment, but the best educated individuals represent at present already 4.4% of all job seekers and this percentage is slowly but steadily rising (by 0.5 of a percentage point over the previous year). Both the number of job offers and that of people participating in active measures of counteracting unemployment were higher in 2003. In 2003 labour offices received 739,400 job offers, an increase of more than 33% relative to a year before. There were 307 jobless per job offer, while in the previous year that ratio was 387. Considerably more funds were allocated for 14
active instruments of counteracting unemployment. Twice as many individuals took advantage of training programmes and intervention works, and the number of those engaged in public works almost tripled. 1.5. Wages In 2003 the average monthly gross wage in the national economy was PLN 2,201, a growth of 4.1% in real terms. The corresponding figure for the enterprise sector was PLN 2,342 or 2% higher (in real terms) than a year before. Wages rose in almost all sections of the national economy. It should be highlighted that real wages improved more slowly than labour productivity. For the industry as a whole, the rate of improvement in labour productivity was 9.7 percentage points higher than the tempo of wage increases. The year 2003 was another in which wages rose more rapidly in real terms than old-age and disability pensions. In 2003, the average old-age or disability pension under the non-farm scheme of social insurance was PLN 1,092, and the corresponding benefit paid to farmers was PLN 727. This implies a real growth of, respectively, 4.1 and 2.8 percentage points. At the same time, the average number of people collecting old-age and disability benefits fell once again (in 2003, it declined by 30,700). 1.6. Investment After two years of decline, investment activity rose in Poland in 2003 in the clearest sign of economic recovery. Contributing to increased investments were such factors as a stronger financial condition of companies and the cuts in interest rates and taxes. In 2003, investment spending slightly exceeded its previous year level. Despite its current rise, the investment rate in Poland still ranks among the lowest for the 10 countries acceding to the European Union. Nevertheless, a positive shift in the structure of investments should be pointed out. In 2003, spending in the segments considered drivers of technological advance (production of machinery and equipment; production of electrical machinery and apparatus; radio, television and communication equipment; medical, precision and optical instruments; motor vehicles, trailers and semi-trailers) increased by 40%. These results have considerable importance for the prospects of improved competitiveness of the Polish economy in the future. Business entities financed their investments primarily with their own resources (about 65%), i.e. with profits and depreciation of fixed assets, whereas the share of loan finance did not exceed 18%, as in the previous year. Direct foreign investment of roughly USD 6 billion remained at a level similar to that registered a year before. Nevertheless, experts estimate that foreign investment inflows as required by the developmental needs of the Polish economy should be in the range of USD 10 billion per annum 3. The year 2003 demonstrated clearly that Poland is losing out in the competition for foreign investment to other countries acceding to the European Union. The principal reasons for this poor performance are insufficient infrastructure, primarily roads and motorways, excessive red tape, and an unstable legal system. 3 In December 2003, Polish Information and Foreign Investment Agency (PAIiIZ) organized an expert panel on the topic How to attract $10 billion in FDI inflows into Poland?. 15
1.7. Financial position of enterprises For the first time in several years, companies reported improved financial results in 2003. Preliminary estimates show a marked increase in total sales revenue (by about 12%). Net earnings were five times higher than a year before and reached PLN 15 billion. There was an improvement in the economic performance ratios such as gross turnover profitability (from 1.5% to 3.2%) and net turnover profitability (from 0.4% to 2%), and in the liquidity position. Importantly, better performance was noted in nearly all areas of the economy, with the exception of mining. In 2003 Polish companies became more profitable and reduced their levels of indebtedness. 1.8. Privatization By year-end 2003, 7,045 state-owned enterprises had been brought into the privatization process. Compared to the previous year, fewer enterprises were privatized during 2003 via the sale of shares of single-shareholder companies of the State Treasury (6 companies), the direct method (37 companies) or the liquidation procedure for economic reasons (33). The indirect privatization receipts of the State budget totalled PLN 3,905.8 million versus PLN 2,579.2 million a year before, whereas the receipts from direct privatization were PLN 237.5 million, versus PLN 280.3 million in 2002. The total privatization revenue represented about 40% of the amount provided for under the Budget Act. Thus, 2003 was yet another year in which it proved impossible to privatise most of the state-owned enterprises earmarked for that purpose. This failure considerably reduces the restructuring capacity of the Polish economy. 1.9. Foreign trade In 2003, foreign trade remained the key driver for economic growth in Poland. Demand for imports weakened significantly while exports rose, which led to a drop in the trade and current account deficit. One of the factors behind this change was the depreciation of the zloty against the euro (over 60% of Polish foreign trade transactions are settled in the euro). Still, it should be underscored that Polish exporters behave in an increasingly flexible way under tougher competitive conditions in European markets. The evidence for this can be found in the modified structure of exports, the ever closer matching of the trade offering to buyer expectations, and the efforts by small and medium-sized exporters to identify foreign market niches. Export receipts in 2003 amounted to USD 42.8 billion and were higher by 29.9% than in the previous year, whereas expenditures on imports reached USD 52.5 billion (an increase of 21.2%). The current balance of payments account at year-end 2003 registered a deficit of USD 4.0 billion. In 2002, the negative balance was USD 6.7 billion. In terms of the geographic structure of foreign trade, the share of developed countries, and in particular that of the European Union, declined, while trade with the countries of Central and Eastern Europe became more important. 16
1.10. Financial market At year-end 2003, the WIG index of the Warsaw Stock Exchange reached a much higher level than in 2002, as did the WIRR and WIG20 indices. The WIG, or the main market index, rose by 44.9%, while the parallel market index, the WIRR, doubled in value. The biggest trading volumes were registered on the futures and stock markets. Trading in shares was up by 25.3% in comparison with 2002. The trading volume in State Treasury bonds totalled PLN 12.7 billion for all registry systems and represented 15.9% of the total turnover of shares. The trading volume on the bonds market was three times higher than in 2002. 1.11. Poland versus Europe The growth rate of the global economy in 2003 was estimated to be roughly 3.3%, versus 2.8% a year before. Significant economic recovery was noted in the United States and in Asian countries. The picture was markedly darker in the euro zone countries. Estimated economic growth in that region was 0.4%. Internal demand declined for the second consecutive year. In the face of an appreciating euro, European exports became much less competitive. Hence, exports ceased to be a growth driver for the European economy. As a result, stagnation tendencies present on the European markets were strengthened. This turn of events has considerable significance for the nations of Central and Eastern Europe, including Poland, which have particularly close ties to the German economy. Germany entered a recession registering a 0.1% decline in its Gross Domestic Product. Even worse, there are no signs to indicate that a reversal of this adverse tendency is in the offing. Poland s economic development in 2003 was comparable to the average tempo of growth in the rest of Central and Eastern European countries, which was estimated at about 4 5%. Still, it is a matter of concern that Poland registered one of the lowest rates of capital spending, which may signal poorer prospects for the development of the country in the future. Poland also has the highest unemployment rate among of all the countries in this region. Table 1.1. Economic situation of Poland against the other countries of Central and East Europe in 2003 Change in GDP relative to 2002 (%) Change in gross fixed assets investment in constant prices (%) Inflation (year average) Registered unemployment rate (%) Belarus 6.8 17.9 19.0 3.1 Bulgaria 4.2 18.0 5.6 13.5 Czech Rep. 2.5 3.4 0.1 10.4 Estonia* 4.6 9.4 1.2 9.5 Lithuania 8.9 15.7* -0.2 9.8 Latvia 7.4 3.0 2.8 8.6 POLAND 3.7-0.9 0.8 20.0 Russia 7.3 12.1 22.1 8.9 Romania 4.7 8.8* 14.0 7.2 Slovakia 3.9 0.0 9.3 15.6 Slovenia 2.5 5.5 5.6 11.0 Ukraine 8.5 20.0 8.2 3.7* Hungary 3.0 2.1 4.7 5.7 * Data for January September 2003. Source: Data from economic and commercial sections of Polish embassies. 17
Comparisons of GDP per capita (measured at purchasing power parity) show that on joining the European Union, Poland and the Baltic countries will become its poorest members, with a GDP at about 40% of the EU15 level. Almost all countries acceding to the EU have systematically narrowed the gap that separates them from the current 15 members. It is disturbing that Poland is the only country to remain at an unchanged level of 41% for a period of several years. For comparison, in 2002 Slovakia achieved the level of 51% of the average GDP in the European Union, Hungary 56%, and the Czech Republic 62% (World Bank data). 18
Chapter 2 Condition of the SME sector in 2002. Development tendencies in 1994 2002 Contribution of small and medium-sized enterprises to the generation of GDP and Gross Value Added The number of enterprises People working in the SME sector Financial standing of SMEs Investment by SMEs Innovation in industrial enterprises The role of SMEs in foreign trade Small and medium enterprises at the regional (voivodship) level Summary 19
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The condition of the small and medium-sized enterprise sector in 2002 is described in accordance with data from the Central Statistical Office (CSO). By a small enterprise we mean here a business employing 1 up to 49 people, while a medium-sized enterprise has 50 to 249 employees. For the purposes of this study, the collective term enterprise includes the following economic entities: state- and foreign-owned enterprises, businesses owned by nonprofit organizations and foundations, cooperatives, companies and partnerships (joint stock company, limited liability company, registered partnership, limited liability partnership, limited joint-stock partnership, professional partnership, civil law partnership), as well as sole proprietorships. Our analysis covers enterprises engaged in all types of business operations with the exception of agriculture, forestry, fishery, and fishing. 2.1. Contribution of small and medium-sized enterprises to the generation of GDP and Gross Value Added 2.1.1. SME share in the generation of GDP The contribution of SMEs to the generation of the Gross Domestic Product 2 in 2002 was 48.6%, of which the share of small businesses was 40.5%, and that of medium-sized companies 8.1%. These figures include the added value produced by people who work and SMEs that operate in the grey economy. The corresponding ratio 3 of the GDP share produced by SMEs for 2001 stood at 48.5% (the share of small businesses was 39.6% and that of medium-sized companies 8.9%). Thus, the SME share in GDP generation was virtually the same in both years under comparison. While the SME contribution to GDP grew steadily in the years 2001 and 2002, the share of medium-sized enterprises declined over that period. The year 2001 was the first year since the mid-1990s 4 in which the absolute Gross Value Added produced by medium-sized enterprises decreased. In addition to some enterprises in the public sector, Gross Value Added also declined in private construction firms. In 2002 the Gross Value Added also declined in absolute terms in, in addition to construction, in private medium-sized enterprises in the following three sectors: industrial processing, trade and repairs, and transport, stock management and communications. The decline in the relative share of medium-sized enterprises was most likely due to the reductions in employment in some of these companies, which led to their reclassification as small businesses. 1 The size of an enterprise is determined by the number of people it employs pursuant to an employment relationship (established via a contract of employment, appointment or election). The number of employees of a business does not include owners or co-owners (family members that work in the business). When owners and co-owners are also taken into account in addition to the employed individuals, we obtain the number of people working (in work) at the enterprise. 2 In very general terms, GDP is the sum of Gross Value Added and taxes (including VAT) plus customs duties that are paid into the State budget in a given year, net of subsidies. The amount of taxes and customs duties, whose share in GDP in the years 2001-2002 amounted to about 12.5%, cannot be broken down either by sectors of the economy or by company size classes (it is technically impossible to make such estimates). This is why the share of SMEs in GDP is assumed to be the ratio of Gross Value Added generated by the SME to the total GDP. In 2002 small, medium and large enterprises jointly produced 68.7% of GDP. Once the 12.6% share of taxes and customs duties is added, we arrive at 81.3% of GDP. The remaining 18.7% of GDP was generated by enterprises operating in the agriculture, forestry, fishery and fishing sectors, individual farms, and budget-funded agencies and units, their auxiliary units, special and earmarked funds, and non-profit, political, and religious organizations. 3 Current data on the GDP and added value structure in 2001 varies from that published in the previous Report owing to the corrections made by CSO to the data on GDP volume for that year. 4 No calculations of the Gross Value Added by company size were previously made. 21
Table 2.1. GDP volume and structure in 2001 2002 Value added generated PLN million Total GDP = 100% Description by enterprises = 100% 2001 2002 2001 2002 2001 2002 Total GDP 750,785.9 771,112.8 100.0 100.0 x x including: Gross Value Added generated by 512,193.4 528,417.1 68.3 68.7 100.0 100.0 enterprises (exclusive of sections A and B) of which: small enterprises 297,453.0 311,651.9 39.6 40.5 58.0 59.0 medium enterprises 66,530.3 62,353.1 8.9 8.1 13.0 11.8 large enterprises 148,210.1 154,412.1 19.8 20.1 29.0 29.2 Source: Authors compilation of CSO data. The share of large companies in the generation of GDP increased slightly between 2001 and 2002, from 19.8% to 20.1%. The overall contribution of public sector enterprises to the generation of GDP remained virtually unchanged in both years (9.5% in 2001 and 9.6% in 2002), as a result of a marked slowdown in the process of privatization of state enterprises, among other factors. Chart 2.1. GDP structure in 2002 Gross Value Added generated by other entities 18% Small enterprises 40% Taxes and customs duties 12% Gross Value Added generated by enterprises 68% Medium enterprises 8% Large enterprises 20% Source: Authors compilation of CSO data. 2.1.2. SME share in the generation of Gross Value Added In 2001 enterprises, with the exception of those operating in agriculture, forestry, fishery and fishing, generated 77.8% of the total amount of Gross Value Added realized by the whole economy, whereas in 2002 that ratio was slightly higher at 78.5%. The SME contribution to the creation of Gross Value Added increased between 2001 and 2002, from 55.3% to 55.6%, with the share of small businesses rising from 45.2% to 46.3%, and that of medium-sized companies declining from 10.1% to 9.3%. In contrast to small enterprises, the share of large enterprises in the creation of Gross Value Added grew, albeit slightly (from 22.5% to 22.9%). Taking the Gross Value Added generated by enterprises operating outside agriculture, forestry, fishery and fishing as 100%, the share of SMEs in 2002 was 70.8%, or lower by 0.2 percentage 22
points than in the previous year. The contribution of small business to the total Gross Value Added was 58% in 2001 and 59% in 2002. On the other hand, the share of medium-sized companies declined from 13% to 11.8%, which was most likely due to the reclassification of some medium-sized companies as small businesses as a result of the decline in employment to fewer than 50 people. Table 2.2. Share of SMEs in the Gross Value Added generated by enterprises in 2001 2002, by sector of the economy (%) Sectors of the economy 2001 2002 Total (excluding sections A and B) 71.0 70.8 Industry 42.2 40.7 Mining and quarrying 6.0 7.8 Industrial processing 52.1 50.9 Electricity, gas and water production and supply 16.6 13.8 Construction 86.2 87.5 Trade and repairs 92.8 93.0 Hotels and restaurants 83.8 85.6 Transport, stock management and communications 43.7 42.6 Financial intermediation 72.6 71.5 Real estate and business services, science 91.8 92.5 Education 98.5 99.6 Health care 91.3 91.6 Other services 82.3 80.4 Source: Authors compilation of CSO data. Up to and including 1998, the share of SMEs in the Gross Value Added generated by enterprises grew steadily in most economic sectors under examination. Beginning with 1999, these contribution rates began to decline in certain sectors. In a number of years, a decline in the SME share was observed in as many as half of the sectors of the economy. At the same time, the SME share in consecutive years was frequently noted to move upward and downward in completely different economic sectors. As a result, it is difficult to identify any clear trends underlying such changes in a majority of the economic sectors 5. In 2002 the SME share in the value added generated by enterprises increased in seven sectors, while it fell in five sectors. The largest increase, by 2.8 percentage points, was noted in the hotels and restaurants sector (from 83.8% to 85.6%), followed by a 1.8% rise in the share of mining and quarrying (from 6% to 7.8%), and 1.3% in construction (from 86.2% to 87.5%). In the latter sector, an increase in the share of SMEs had already been observed in a number of previous years as a result of the slump in construction and the employment reductions made by large construction companies, which were consequently reclassified as medium-sized companies. The steepest decline in the share of SMEs in the value added generated by enterprises, by 2.8 percentage points, occurred in the electricity, gas and water production and supply sector (from 16.6% to 13.8%), followed by a 1.9% decline in other services (from 82.3% to 80.4%) and a 1.2% decline in industrial processing (from 52.1% to 50.9%). The decline in the share of SMEs in industrial processing could have been attributable to the positive results recorded by large enterprises, which were the largest contributor to the growth in Polish exports in 2002. 5 An examination of these downward (upward) trends is not facilitated by the adjustments made annually by CSO to value added figures with respect to the data from the previous year (see footnote 3). However, the correction of certain statistics for earlier years is standard procedure for the statistical offices of numerous countries. 23
2.1.3. Gross Value Added per person working in the private sector In 2002 Gross Value Added per person working in the private sector (including the grey economy 6 ) amounted to PLN 60,100. That figure for small businesses was PLN 62,600, for medium-sized companies PLN 43,000, and for large enterprises PLN 66,500. Calculated in constant prices, the Gross Value Added per person working in the private sector as a whole rose in 2002 by 3.2% (in small businesses it increased by 3.1%, in middle-sized businesses it declined by 4.2%, with large companies registering the largest increase of 7.7%). Large enterprises are the only category of private companies in which value added per person in work has grown in every year since 1998. Table 2.3. Gross Value Added per person in work at private enterprises in 2002 and its rate of change (constant prices; previous year = 100%) by enterprise size class and sector of the economy Sectors of the economy Gross Value Added per person in Year 2001 = 100% (constant prices) work in PLN thousands Enterprises Enterprises Total Small Medium Large Total Small Medium Large Total (excluding section A and B) 60.1 62.6 43.0 66.5 103.2 103.1 95.8 107.7 Industry 48.3 37.8 37.2 71.1 101.7 99.2 98.4 105.4 Mining and quarrying 85.1 51.4 69.2 99.5 117.8 132.4 112.6 117.7 Industrial processing 46.9 37.2 36.3 68.8 103.6 101.8 100.2 106.8 Electricity, gas and water production and supply 114.4 107.0 66.4 155.2 108.7 74.7 117.6 112.7 Construction 52.8 54.0 37.5 73.1 101.5 103.6 83.9 114.7 Trade and repairs 61.9 65.5 41.0 51.3 106.4 107.2 94.9 105.1 Hotels and restaurants 37.3 36.3 37.6 44.5 98.6 101.2 103.0 81.1 Transport, stock management and communications 85.8 60.6 77.3 165.9 109.6 101.6 105.0 127.9 Financial intermediation 47.0 51.6 99.7 29.6 86.8 89.1 68.5 104.8 Real estate and business services, science 103.8 132.4 68.9 29.4 101.1 99.6 104.7 104.1 Education 49.2 62.8 14.3 2.2 100.2 102.3 105.1 21.1 Health care 22.4 22.1 21.0 42.4 94.8 95.6 93.9 62.5 Other services 56.8 62.8 20.1 47.9 97.0 94.6 97.5 131.6 Source: Authors compilation of CSO data. Leaving aside such sectors of the economy as mining and quarrying; electricity, gas and water production and supply; education; and health care in which the private sector is relatively weakly developed, in 2002, the indicator of Gross Value Added per worker rose substantially primarily in large enterprises. One exception to this rule was the sector of hotels and restaurants, in which case large firms recorded a decline in the value added per worker probably as a result of a recent decline in the number of hotel guests 7. Record-breaking improvements in the value added per person in work were recorded by large private enterprises in other services (by 31.6%) and in the transport, stock management and communications sector (by 27.9%), as well as in construction (by 14.7%). In the latter two cases, the key factor behind the rise in value added per worker in large companies was in all likelihood the reclassification as medium-sized 6 The average number of persons working in the private sector and in the principal sectors of the economy, including workers in the grey economy, as estimated by the Research Centre for Economic and Statistical Studies of the Central Statistical Office and the Polish Academy of Sciences. The results of these calculations are shown in section 3.3. 7 According to CSO data, in 2002 the number of border crossings by foreigners into Poland ( border clearances ) was lower by as much as 17.4% compared to a year before. 24
companies of some transport and construction companies that employed more than 249 people in 2001 but whose financial condition has since deteriorated (in 2002 the average number of workers in large construction companies fell by 28.2%, and in transport firms by 9.6%). The dynamics of value added per worker (at constant prices) was substantially less dependant in small businesses on changes in the numbers of people working than it is in large enterprises. Thus, for example, in the trade and repairs sectors, which shows the highest rate of change and in which the value added per worker at a small business increased in 2002 by as much as 7.2%, the average number of people employed, including those working in the grey economy, remained virtually unchanged compared to the level of a year before. As regards medium-sized companies, an increase (decrease) in the number of workers was usually accompanied by a rise (decline) in Gross Value Added per working person, with the exception of the above-mentioned four atypical sectors of the economy. Thus, for example, in construction, the average number of workers at medium-sized businesses fell in 2002 by 14.8%, while value added per person in work declined at the same time by 16.1%. A 5.7% decline in the value added per worker in the trade and repairs sector occurred concurrently with the reduction in employment by 4.8%. In the case of other services, the number of workers and the value added per person in work shrank by, respectively, 2.3% and 2.5%, whereas in the financial intermediation sector, a decline in the number of workers by 2.8% was accompanied by a decline in the value added per working person by as much as 31.5% (however, this was probably a result, to some degree at least, of the reorganization or changes to the methodology of national accounts made by CSO). In turn, at medium-sized companies from the hotels and restaurants sector, the number of workers grew by 1.6% and value added increased by 3%, while at the same time enterprises from the transport, stock management and communications sector registered increases in both of these indicators by, respectively, 15.2% and 5%. In searching for explanations for the patterns described above, it should be kept in mind that the values of indicators characterizing the position of medium-sized enterprises are strongly affected by reclassifications of businesses in different enterprise size categories. The impact of this factor is stronger than in the case of small and large companies, for the medium-sized category is open both from above and from below. The shifting of some large enterprises to the group of medium-sized companies in 2002 could by itself account for the increase in the number of workers and in the value added per working person in the medium-sized entities given that Gross Value Added per worker at companies being reclassified from higher to a lower category is, as a rule, higher than the average ratio for the smaller size group. That situation most likely occurred in the cases of the transport, stock management and communications sector. On the other hand, a decline in Gross Value Added per working person accompanied by a simultaneous reduction in the number of employed, as was the case in the construction sector, for example, can probably be attributed to the declining demand for products and services of the respective sectors. 2.2. The number of enterprises 2.2.1. Registered enterprises At end-2002 there were 3,495,314 entities registered with the REGON register (excluding agriculture and forestry, fishery and fishing, and public administration). This figure comprised 117,217 business entities operating in the public sector and 3,378,097 in the private sector. At 25
31 December 2002, the number of companies registered was 4.4% higher than at end-2001, including an 11.6% increase in the public sector and a 4.2% rise in the private sector. In 2002, 285,270 new entities were registered, of which 13,864 belonged to the public sector and 271,406 to the private sector. The number of new entity registrations in 2002 was lower by as much as 20.6% than a year before (by 24.2% in the public sector and by 20.4% in the private sector). Table 2.4. Entities registered with the REGON register at year-end and new entities registered in 2000 2002 Description In absolute numbers Previous year = 100% 2000 2001 2002 2001 2002 Entities registered at year-end 3,162,546 3,348,124 3,495,314 105.9 104.4 Public sector 92,596 105,077 117,217 113.5 111.6 Private sector 3,069,950 3,243,047 3,378,097 105.6 104.2 New entities 351,546 359,057 285,270 102.1 79.4 Public sector 15,290 18,280 13,864 119.6 75.8 Private sector 336,256 340,777 271,406 101.3 79.6 Source: Authors compilation of CSO data. The number of entities registered with the REGON register at end-year has grown steadily since 1996. The rate of growth in the total number of business registrations was particularly high in 1996 (13.8%) when the number of newly registered companies reached a record level 8 of more than 620,000 (nearly two-thirds higher than in 1995). In the years 1997 1998 the number of new entity registrations fell to about 480,000 (by 23%), causing the rate of growth in the total number of registered companies to decline at the end of 1997 and 1998 versus 1996 (by 7.4% and 9.2%, respectively). In 1999 the number of new entity registrations slipped year-on-year relative to 1998 by as much as 18.6%, to about 391,000. Another decline in the number of newly registered entities, by about 10%, was observed in 2000, whereas in 2001 the number of new business registrations remained at a similar level as a year before (about 359,000 versus about 351,000 in 2000). As a result of this downward trend, the growth rate for the number of newly registered entities at year-end was reduced from 9.2% in 1998 to 7.6% one year later, and then to 5.5% and 5.9%, respectively, in 2000 and 2001. In 2002 the number of newly registered business entities fell again to an unprecedented low figure of about 285,000, which was as much as 20.6% lower than the corresponding number for the previous year. Consequently, the number of entities registered with the REGON register at end-2002 increased only slightly, by as little as 4.4% versus the end of the previous year. The change of dynamics in the number of newly registered entities over consecutive years is often regarded as a barometer reflecting the current business outlook. Within this context, the systematic decline in the number of newly registered companies since the beginning of 1999 must be noted with some concern (an insignificant improvement in 2001 versus the previous year did not signify a reversal of this adverse trend). The number of new entity registrations in 2002 corresponded to only about 60% of the figure recorded in 1997-1998, the two years that were positive in this respect. 8 In connection with the entry into force of the Act on public statistics towards the end of 1995, a number of business entities that had somehow been in operation for a long time finally discharged their duty to register with the REGON register. This is why the above figure of new entities registered in 1996 is artificially inflated in so far as it includes entities other than those that actually commenced their business activities in the referenced year. 26