Poland and Slovakia go full throttle for KIA car factory

Poland and Slovakia are competing to attract investment in a new car factory by South Koreas KIA Motor Corporation. The factory will turn out 300 thousand cars annually from an investment of around 600 million US dollars. Three thousand jobs will be created. With so much at stake, and unemployment high in both countries - it's not surprising that Warsaw and Bratislava are both keen to attract the KIA plant. Well this week the government in Warsaw upped the stakes offering to incur certain costs if the factory came to Poland. Richard Mbewe is Chief economist at Warsaw Investment Group.

"Well what the Polish government is offering now is that they are ready to turn this city, let's not call it a city it's a town, it's called Kobierzyce into a special economic area whereby companies which have registered their business activities in this area are entitle to certain government conditions. For example the government is proposing that for a period of ten years the companies would not be paying income tax. Then the company, such as KIA, would also get financial grants, especially if they are creating new work places and they finance training for some of the workers."

So by setting up this special economic zone is it (the government) hoping to avoid trouble with the European Union, which keeps a close eye on whether countries are offering unfair competition?

"Yes in this case they are not going to set up a special zone in the sense that it could help problems with the EU. Actually what they will do is incorporate this city into an already existing zone. This is something they have been trying to do with this small town near Warsaw, where there was a cable factory and they want to incorporate it into another one which is quite a number of kilometres from Warsaw, about 20 kilometres away."

Poland though is up against some tough competition from Slovakia, which seems quite confident of winning the KIA factory for Slovakia. Is there any sign of which way the decision is going to go?

"Well from what I can see, this offer the Polish government is coming up with, taking into account that corporate tax has been reduced, beginning this year, to be now 19%, while in Slovakia it is on 18%, then the chances of Poland are quite high, especially as Poland is actually in the middle of Europe, on the crossroads of Europe, but you have problems with infrastructure and that's totally another issue."

If the decision goes against Poland, what's the damage? I mean, how important is this to the governments credibility?

"If the decision goes against Poland there will immediately be two problems. One will be political. The opposition will be hammering the government that they cannot organize an offer that will attract foreigners to invest here. Secondly for the economy itself, it will mean that foreign investors are not confident about the Polish market even though Poland is entering the EU. The investment climate for Poland would turn from bad to worse."

So you would describe the investment climate at the moment as bad even though investment growth is quite strong?

"Well investment growth is quite strong but not as far as Poland would expect. My opinion is that there is very little investment going on because of various reasons, bad business climate, higher taxes, high labour costs, not only salaries but also top-ups like social security, health security and so on, but at the same time Poland is lacking infrastructure. A number of years in the transition period were wasted because Poland could not create new infrastructure. That's why you will find the deputy Prime Minister who is responsible for infrastructure is under heavy criticism from independent economists and opposition parties because of the fact that there is not much infrastructure being built in the country. And then there is a lot of competition coming up from, as you were saying, Slovakia, let alone the Baltic countries which seemed to be much better prepared to enter the EU and absorb investment and money coming from that area."