By Associated Press
Published March 28, 2004
WARSAW - A Polish company exports tulips to Holland. Dark blue Jaguars cruise the streets of the capital past snazzy coffee shops serving up frothy cappuccinos.
Just weeks before Poland joins the European Union on May 1, Warsaw struts a new prosperity. But all is not what it seems: Despite strong economic growth driven by exports, the country faces high unemployment, political uncertainty and vast corruption.
"It's a Dr. Jekyll and Mr. Hyde economy," said Krzysztof Rybinski, chief economist for BPH bank in Warsaw. "And the first few months of EU membership will show whether Jekyll or the monster Hyde will prevail."
Paradoxes abound. Those who can afford new Volvos or BMWs must drive them along potholed roads. The hip cafes that draw fashionable young people are often housed in drab Stalinist-era concrete blocks.
And many of the luxury goods for sale in the bright new shops and malls remain off-limits to many in Poland, where only 1 percent earn more than $18,000 a year.
Such contrasts exist in all eight former communist states due to join the EU, but the stakes are highest in Poland, the largest of the new countries.
With more than 38-million people, Poland accounts for 52 percent of the new EU citizens. Poles will be 8.4 percent of the union's population, so its economic performance will have a major effect on the rest of the bloc, the world's largest economic union.
Analysts say Poland's greatest economic strength is the many modern, efficient companies that have made the transition and are selling successfully to EU countries.
Ten years ago, Polish exports consisted mostly of raw products like coal, sulfur, apples and meat. Today exports also include higher value goods like precision surgical instruments, pharmaceuticals and car engines.
Among the successes is a Polish company that exports tulips to the Netherlands. In 2003, Poland overtook Sweden as the largest European manufacturer for Swedish furnishings giant Ikea. Only China produces more for Ikea, according to figures provided by the company.
"Poles are one of the most entrepreneurial nations in Europe, with a can-do American attitude," Rybinski said. "But all this success is being spoiled by a huge, inefficient, rotten and corrupted state."
Of the 10 new EU countries, corruption is perceived to be highest in Poland, according to Transparency International, a private group that monitors corruption.
"Companies that refuse to pay bribes are harassed and often go bankrupt," said Magda Brennek of the organization's Poland branch. "Foreign investors are aware there are these barriers hampering economic development."
Despite a growth rate projected at 5 percent for this year, the highest of any new EU country, Poland has not attracted enough foreign investment to bring down its 20 percent unemployment rate.
Some investors are put off by infrastructure weaknesses including old and unsafe railroad tracks, a lack of modern highways and broad areas lacking in fixed-line telephone coverage.
Tax regulations, complicated and always in flux, make things more difficult.
The government tried to help matters by lowering the corporate tax rate this year from 27 to 19 percent, but investors remain leery because they fear the government will be forced to raise it again in coming years to pay off the huge deficit, Rybinski said.
Though its military alliance with the United States in Iraq is strong, political leadership at home is weak. On Friday, Prime Minister Leszek Miller said he would step down the day after Poland joins the EU - the result of low approval ratings in part because of government spending cuts meant to make the country ready for the EU.
In a drive to cut unemployment and bring down a huge deficit, Miller has struggled recently to push through spending cuts and other promarket measures.
Government critics say the cuts are too timid. But there are success stories.
Irena Eris, 50, founded her cosmetics company - called Dr Irena Eris - in 1983, when Poland was under communist rule.
Today her company has a 16 percent share of the domestic market for skin creams, roughly the same as that of cosmetics giant L'Oreal. It is also boosting exports to the United States, Russia, Germany and several other counties.
During communism, Eris said, she had to limit production to avoid incurring the wrath of communist officials who viewed entrepreneurs with great suspicion and shut down private businesses that did too well.
"There was nothing in the shops and people wanted to buy something good," Eris said. "But I couldn't sell it because of the risk of angering communist officials." Link