Poland

The Attractive Place for Investment and Trade

PAIiIZ

9 September 2006, China

POLAND – DESTINATION OF CHINESE INVESTMENTS

There has never been a better time...

(i) Investment Potential

• Poland is currently ranked 1st in terms of planned investments in Europe• Expected return on investment estimates are 4 times that of Germany• Economic indicators

(ii) Human Capital

• Poland’s most valuable asset – its 20 million young talented people• Poland ranks 3rd in terms of planned R&D investment after China and India

(iii) Strategic Location\ Services&Manufacturing Hub

• In the heart of continental Europe – 250m people within a 1000 km radius• Part of the Trans European Road Network

AGENDA:

Rank 4 - top 10 most attractive investment destinations

E&Y, „European Attractiveness Survey” 2005

Rank 4 - top 10 most attractive investment destinations

”Within Europe, Poland stands out among other countries in terms of labour costs and availability of industrial sites, but it also has the second best result in terms of prospects of improving labour productivity”

E&Y, „European Attractiveness Survey” 2005

Intended location of investment projects in Europe

E&Y, „European Attractiveness Survey” 2005

FDI Confidence Index, Poland ranks 5th globally

FDI Confidence Index, Poland ranks 5th globally

”In 2004 (...) nearly one in ten greenfield investments in the EU went to Poland”

„Europeans rank Poland their 4th most attractive R&D investment destinations globally”

AT Kearney 2006, FDI Confidence Index Report

POLAND – FDI leader in CEE region

24.6%

13%10.9% 10.4%

9.4% 8.8%

5.2%3.6%

2.4%

Ru

ssia

Po

lan

d

Ro

man

ia

Slo

ven

ia

Cze

chR

epu

blic

Hu

ng

ary

Bu

lgar

ia

Ukr

ain

e

Slo

vaki

a

Source: KPMG

Investment potential of Poland

Source: FDI Confidence Index Report, AT Kearney 2006

• GDP growth twice that of Western Europe

• Expected return on investment is estimated at 2 times that of Spain and 4 times that of Germany

3,2

5

-7,0

2,0

3,85,2

7,0 6,0 6,8

4,84,1 4,0

1,0 1,4

3,8

5,3

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

F

GDP growth in Poland in %

Source: EIU 2005

0

100

200

300

400

500

600

700

Poland

Czech Republic

Hungary

Slovakia

Nominal GDP USD bn at PPP in 1992-2003, forecast for 2004-2009

Polish GDP develops most dynamically among four newEU members

Poland has the highest unemployment rate among EU countries

16,0

17,0

18,0

19,0

20,0

21,0

Jun-0

2

Aug-0

2

Oct-

02

Dec-02

Feb-0

3

Apr-0

3

Jun-0

3

Aug-0

3

Oct-

03

Dec-03

Feb-0

4

Apr-0

4

Jun-0

4

Aug-0

4

Oct-

04

Dec-04

Feb-0

5

Apr-0

5

Source: Central Statistical Office, International Statistics Quarterly, 2005

02468

10

1214161820

• High level of unemployment means there are many employees available• The pressure on raising wages is also low

Unemployment rate in April 2006

16,0

17,0

18,0

19,0

20,0

21,0Unemployment rate in Poland, 2003-2006

Economic indicators

14wholesale sales (year-on-year, %)

11retail sales (year-on-year, %)

14.3industrial output (year-on-year, %)

1.3net inflation (year-on-year, %)

1.1CPI (year-on-year, %)

July 2006indicator

Source: August 2006, Reuters

Trade

Polish exports to China:

Value: 590,6 mln

Annual Growth: 6.3 %

Products: - metals (32,4%),

- chemicals (26,5%),

- equipment (17,3%),

- packing paper (2,8%),

- plastics and rubber goods (4,1%),

- food (2,1%) and non-metallic mineral products (1,4%).

Trade

Polish imports from China:

Value: 5 496,6 mln USD

Annual Growth: 35.2%

Products: - machines, precision instruments (52,8%)

- textiles (11,7%)

- various products, mainly furniture and toys (7,9%).

- footwear (4,5%).

Rating profile

• A robust export economy, declining government deficit and good medium-term growth prospects underpin Poland’s rating profile

• Clarity in the current political set-up, commitment to economic policies, lower levels of unemployment and further restructuring could potentially result in an upgrade in ratings from the two agencies which maintain positive outlooks

FC: Foreign Currency, LC: Local Currency

Strengths• Fundamental decline in core inflation and

entrenched reduction in inflationary expectations

• Consistently strong export performance based upon microeconomic restructuring

• Strong public debt indicators and proactive debt management policies

Challenges• Need to tighten fiscal policies• Need to restructure some heavy industrial

sectors• Need to reduce high level of

unemployment

Last Update:22 November 2005

FC: A2 / Stable LC: A2 / Stable

Strengths• Competitive and increasingly diversified

export sector• Good external liquidity position• Benign inflation outlook

Challenges• High fiscal deficit and debt burden• Structural reform challenges• Comparatively low GDP and high

unemployment levels

Last Update:17 Feb 2005

Strengths• Good medium-term growth prospects• Moderate current account deficits, mainly

non-debt financed• Flexible and transparent monetary and

exchange rate policy• Essentially sound, largely foreign-owned

banking system

Challenges• Large budget deficit and rising public debt-

to-GDP ratio trend• Political uncertainty poses risk to fiscal

consolidation and euro adoption timetable• High unemployment, large agricultural

sector

FC: BBB+ / Positive LC: A- / Positive FC: BBB+ / Positive LC: A / Stable

Last Update:31 March 2005

Last Update:29 March 2005

Recent Change – UPGRADE (22/11/05)The unification of the foreign and domestic currency ratings reflects the advanced economic and financial integration of the country with the EU, as evidenced in the recent accession to EU

Recent Change – OUTLOOK (31/03/05)Reflects expectations of a gradual improvement in fiscal trends from 2005 onward, Poland’s good economic prospects - with annual GDP growth forecast at 4-4.5% of GDP in 2005-08, and a comfortable external position

Recent Change – OUTLOOK (29/03/05)Fitch placed Poland’s Foreign Currency Issuer Default Rating (FCDIR) on a positive outlook signalling a belief that it is more likely than not to upgrade the rating within the next two years

0

2,000

4,000

6,000

8,000

10,000

2000 2001 2002 2003 2004 2005F 2006F

0%

2%

4%

6%

8%

10%

12%

GDP per capita, US$ (LHS)

Nominal GDP % change, LC (RHS) Inflation, CPI % change Dec/Dec (RHS)

Key indicators: improving in the lead-up to EMU accession

0%

1%

2%

3%

4%

5%

6%

7%

2000 2001 2002 2003 2004 2005F 2006F

0%

10%

20%

30%

40%

50%

60%

Gen. Gov. Deficit / GDP* (LHS) Gen. Gov. Debt / GDP* (RHS)

0%

1%

2%

3%

4%

5%

6%

7%

2000 2001 2002 2003 2004 2005F 2006F

0%

10%

20%

30%

40%

50%

60%

Current Account Deficit / GDP (LHS) External Debt / GDP (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

2000 2001 2002 2003 2004 2005F 2006F

0%

5%

10%

15%

20%

25%

30%

Official Forex Reserves, US$bn (LHS) Debt Service Ratio** (RHS)

Increasing GDP per capita, low and stable inflation Declining govt. deficit, stable (but high) govt. debt

Improving external liquidity, declining debt service burden

Declining current account deficit, stable (but high) external debt

* Official definition of govt. finances; ** Debt Service Ratio defined as (Interest + Principal Repayment) / Current Account Receipts

Source: Moody’s country stats, 15 Nov ‘05

• Poland’s economy has exhibited considerable growth recently, albeit largely in the form of exchange-driven growth

• Continuing structural reform and fiscal consolidation will be key for sustaining the current positive trend

Positive outlook: upgrade if policy and trends can be maintained

• Poland’s robust performance positions it well for accession into the EMU (over 2008-10)• However, the recently-formed coalition government is believed to have resulted in uncertainties regarding the

country’s fiscal policies and performance, and the impact of the 2006 budget remains to be seen

“Debt maturity structure is favourable, debt servicing requirements are not onerous. Foreign currency reserves are high. The current account deficit is small.” - 22nd Nov 2005

“In the medium-term, Poland’s ratings could be upgraded if the government emerging from the 2005 election engineers a fiscal reform program which results in a sustainable reduction of the deficit and debt levels beyond S&P’s current projections, and which improves prospects for an earlier EMU accession” – 31st Mar 05“If fiscal trends can be maintained in the medium-term, supported by credible economic and fiscal policy, the rating on Poland could be upgraded within the coming year” – 27th Oct 05

“If, as Fitch expects in its central scenario, Poland sets out credible fiscal reforms after the elections, then it would be likely to upgrade the ratings ” – 29th Mar 05

“However, nearly four months on from parliamentary elections and despite the publication of a draft budget for 2006 and a new Euro Convergence Plan, the outlook for public finances remains uncertain” – 20th Jan 06

Clarity in fiscal policies and improved fiscal performance

• Clarity in the current government’s commitment fiscal and structural reforms would be the key determinant for a rating upgrade

• Along with clarity in fiscal policies, improvement in fiscal performance will be key for a rating upgrade, in particular, in the areas of:

- rural pensions

- health & education

- social welfare transfers

• Conclusion of restructuring of select heavy industrial sectors and faster privatisation would have a positive impact on ratings

Human capital

(i) Demographic structure

• Young society• Approx. 38 million people

(ii) Talent pool

• 427 higher education institutes• 2 million students• Availability of engineers• Flexibility, Hard-working

Human capital - demography

• 50% under 34 years, 35% is under 25 years of age

• 13m young, well-educated people will enter job market in next few years

Poland – Young Society

Polish society is relatively young considering the European average.

56% of Poles are below their 40s

High poll of labour force is guaranteed in following 10 years

0

500

1 000

1 500

2 000

2 500

3 000

3 500

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69

age sections

ths

of

pe

rso

ns

OurFuture

Our Employees

Talent pool - Main Academic Centres

Gdańsk

Warszawa

Kraków

Poznań

Wrocław

Katowice

Łódź

Szczecin

Białystok

Olsztyn

Lublin

Rzeszów

ToruńBydgoszcz

Kielce

Education in Poland:

Students - 2 mn

Graduates - 384 thous

Higher education schools - 427

International Schools in Poland

Preschool

Primary school

Lower secondary (Gymnasium)Higher secondary school

*There are no international schools, however some of national schools are able to run classes in various languages if there are such requests

DOLNOŚLĄSKIE

MAŁOPOLSKIE

MAZOWIECKIE

ŚWIĘTOKRZYSKIE*

WIELKOPOLSKIE

ZACHODNIOPOMORSKIE

ŁÓDZKIE

WARMIŃSKO – MAZURSKIE*

POMORSKIE PRESCHOOL PRIMARY

SCHOOLLOWER SCHOOL

HIGHER SECONDARY SCHOOL

Dolnoslaskie ENG-1

DE-1

ENG-1 ENG-1

Lodzkie ENG-1 ENG-1

Malopolskie ENG-2 ENG-2 ENG-2 ENG-2

Mazowieckie ENG-7

DE-1

JAP-1

FR-1

ENG-10

DE-1

JAP-1

FR-3

ENG-7

DE-1

JAP-1

ENG-7

DE-1

JAP-1

FR-1

Pomorskie ENG-2 ENG-3 ENG-3

DE-1

ES-1

FR-1

Swietokrzyskie ENG-1

DE-1

ENG-1

DE-1

Wielkopolskie ENG-3 ENG-3 ENG-3 ENG-1

Zachodnio-

pomorskie

ENG-1 ENG-1 ENG-1

ENG-English ,DE-German ,FR-French ,JP-Japanese ,ES-Spanish

The number of International Schools in regions

Academy of International

Studies

Adam Mickiewicz UniversityOriental Institute

JagiellonianUniversityFaculty of Filology

Warsaw UniversityOriental Institute

WarsawPoznan

Chinese Faculties at Polish Universities

Krakow

Lodz

Students from Poland are winning major programming contests

Country Ranking

2200

2300

2400

2500

2600

USA Poland Canada China Russia

poin

ts

Best Universities1. Warsaw University2. Moscow State University3. Saratov State University

...9. Jagiellonian University23. Poznan University of

Technology

TopCoder is fast becoming the major league for programming competitions

Source: www.topcoder.com, May 2005

Polish students were the best coders in 2003, 2004 and 2005

Source: www.topcoder.com, August 2005

Poles are hard working and determined to succeed – leading global survey

Strategic Location\ Manufacturing Hub

(i) EU member• 450 million consumers in the EU• New road infrastructure – massive investment of EU funds• 90 billion Euro of EU Funds (2007-2013)

(ii) Bridging East and West• 250 million people within a 1000 km radius• Deep sea terminal access – Gdansk• Access to air and railway connections

(iii) Services&Manufacturing hub• 19% CIT• Human resources• Low risk

• Part of the single market of 455 million

• Free movement of goods, services, capital and labour

• A rise of production volume

• Increase in FDI inflow

• Increase of economic credibility

• Transparent and known legal system

• Financial aid funds from the EU

• Saving of time on procedures while exporting and importing to the EU

• Easy transport within the EU, no delays on border crossings

• No exchange rate risks after Poland joins the Euro

Polish EU Accession is beneficial for your Company

Strategic Location

Easy access to Established EU and New Markets of EE

EUROPE – THE BEST DESTINATION OF FDI

Job creation 2005

Number of projects 2005

Source: Ernst & Young

EUROPEAN UNION – CORPORATE INCOME TAX

EU COUNTRIES CIT

GERMANY 38.34%

SPAIN 35%

FRANCE 33.33%

THE UK 30%

GREECE 29%

CZECH REPUBLIC 24%

SLOVAKIA 19%

POLAND 19%

Vs.

ASIAN COUNTRIES CIT

JAPAN 40.7%

INDIA 33.66%

CHINA 33%

MALAYSIA 28%

REPUBLIC OF KOREA

27.5%

Source: KPMG

Major cities in Poland offer direct air connections

Direct flights to major European and world cities

TO FROM

LONDON

WARSAW

GDAŃSK, WROCŁAW

KRAKÓW, BYDGOSZCZ

SZCZECIN, RZESZÓW

COPENHAGEN

WARSAW, SZCZECIN

GDAŃSK, WROCŁAW

POZNAŃ, KRAKÓW

FRANKFURT

WARSAW, GDAŃSK

RZESZÓW, KATOWICE

WROCŁAW, KRAKÓW

POZNAŃ

PARISWARSAW, KATOWICE

KRAKÓW

MUNICHWARSAW, WROCŁAW

KATOWICE, KRAKÓW

BARCELONAWARSAW, KATOWICE

KRAKÓW

NEW YORK,

CHICAGOWARSAW, KRAKÓW

TEL AVIV WARSAW, KRAKÓW

Overseas flights

European flights

Domestic connections

SZCZECIN

GDAŃSK

BYDGOSZCZ

POZNAŃ

ZIELONA GÓRA

WROCŁAW

KATOWICE

KRAKÓW

WARSAW

RZESZÓW

ŁÓDŹ

Source: Polish Airports

SLAWKOW - Railway connection

Possibility to use faster railway connection straight to Poland

• Central geographic location

• Excellent logistics options

• New road infrastructure – massive investment of EU funds

• Several deep sea terminals access– Gdansk, Gdynia,

Szczecin

• Easy access to East

Poland as a hub for expansion in CEE

Structural & Cohesion Funds

Source: EU Commission

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Czech Rep. Estonia Hungary Latvia Lithuania Poland Slovenia Slovakia

€m

2004 2005 2006

More than 90 billion Euros in 2007-2013

WHO WE ARE

Company Country

of origin

Sector Location Jobs

LG Philips LCD

South Korea

electronics Kobierzyce 3149

Michelin France Motor-vehicle Olsztyn 520

Heesung South Korea

electronics Kobierzyce 2742

AAM USA Motor-vehicle Oława 361

Cadbury Schweppes

UK food Skarbimierz 500

MAN Trucks Germany Motor-vehicle Niepołomice

650

Sharp Japan electronics Toruń 3000

Bridgestone Japan automotive Stargard 750

Last year: 46 projects, 2 bn Euro, 24 thous. jobs

Poland – key sector locations

Metallurgy & MetalAutomotive

SERVICES

PolandMachinery & Equipment

Electrical Machinery & Apparatus

Bielsko-Biała

Kraków

Łódź

Warszawa

Olsztyn

Poznań

Shared Service Centres in Poland

Wrocław

accounting, taxes, salaries, IT, legal division.

outsourcing of IT services

accounting and finance

accounting and finance

accounting and finance

human resources

transactions services

accounting

outsourcing of IT services, accounting and finance

back office support services

human resources

accounting

accounting, payments (salaries), taxes

human resources

outsourcing of IT services, accounting and finance

Bydgoszcz

global competence centre

Source: McKinsey, PAIiIZ

Kraków

Warszawa

Bydgoszcz

Gdańsk

R & D Centres in Poland

Wrocław

Zielona Góra

Source: PAIiIZ

Poznań

Major Chinese Investors in Poland

G R O U P

Koszalin

Wolka Kosowska

Zyrardow

Warszawa

Gdansk

First Chinese Industrial Park in Europe - established in 2004 - SEZ Koszalin City

Athletic Group - quotes

• "Chinese business will benefit from highly favorable investment conditions in the special economic zones.”

• "We see many advantages in conducting business in Poland. One is its developed market. Another is that producing in Poland enables us to avoid customs barriers and high transport costs.”

• ”We're close to the Western European market, which

creates many possibilities for our companies in future."

Location – Biskupice Podgórne near Wroclaw

Declared investment outlays – EUR 429 mln

Activity - electronics

Wroclaw

LG.Philips LCD factory in Poland

„Poland has a central location in Europe and will soon obtain an excellent transport infrastructure. The nearby city of Wroclaw has a student population of more than 100,000, which means that there will be a steady supply of well qualified graduates for recruitment purposes."

Duke Koo,Executive Vice President of Worldwide Sales from LG.Philips LCD

KrakowRichard Lada Corporate Director CEE Motorola EMEA

“Motorola Global Software Group selected Krakow in Poland as the site for its first European software development centre after reviewing numerous sites on the continent. It based its selection on the availability of highly qualified talent, excellent universities, as well as the positive attitude and assistance of national and local authorities”

Motorola IncLocation - Krakow

Capital invested – USD 1 mln

Plans - USA18 mln

Employment - 250

Activity - electronics

Investor’s opinion

Pierre-Yves Fargeas,President of Shell Poland

”The range of operations performed by Shell's financial and accounting centres requires locating them in places with plenty of well-educated, mobile and foreign-languages' savy people.”

Shell PolandLocation - KrakowCapital invested – USD 27 mlnEmployment - 800Activity – financialand accounting centre

Krakow

Investor’s opinion

Conclusions

Investment Potential

- international ranking- economic indicators

Human Capital

- demographic structure- talent pool

Strategic Location\ Services&Manufacturing Hub

- EU member- bridging East and West- services&Manufacturing hub

Conclusions

Poland = Attractive Place for Investment

on the top of that we offer

INCENTIVES

Conclusions

Incentives:

(i) CIT exemption

(ii) Real estate tax exemption

(iii) Financial grants for strategic investors – tailor made

PL 00-585 Warsaw, 12 Bagatela Street, phone: (+48 22) 334 98 00, fax: (+48 22) 334 99 99; e-mail: post@paiz.gov.pl; www.paiz.gov.pl

More information:

individual talks

PAIiIZ stand

www.paiz.gov.pl