Our SilverBack colleagues in Lublin have been celebrating National Independence Day but there’s more than fireworks flying in Poland these days. Even during recent dark days. October was a grim month as the Israel-Gaza conflict joined Europe’s own war, Ukraine, in the horror headlines and financial markets balked. For the third consecutive month global stock markets experienced losses, but with one exception. Poland. The country’s twenty biggest publicly quoted companies in Warsaw’s WIG20 Index bucked the trend and clocked up a stunning 13% gain in just one month. Of course, the market commentariat were quick to identify the trigger for sudden optimism in Warsaw.
The surprise success of Polish opposition parties in ousting the incumbent PiS governing party in the October 15th elections appears to have excited international investors. Irrespective of politics, there is the potential for an immediate financial windfall as a new pro-EU Civic Coalition government will help Poland access up to €35 billion of Brussels’ funding earmarked for Covid recovery and digital/green economic transitions. However, it would be a mistake to think that Poland’s digital and green transition was paralysed by politics. In fact, the 13% October gain in Polish equities hints at more powerful drivers than just a changed government being unleashed. We would consider the following developments as significant strategic economic moves from earlier years which are now focusing minds and capital.
Gigafactories: Back in 2019, the European Bank for Reconstruction and Development (EBRD) loaned €250m, alongside Polish government grants of €95m, to South Korea’s LG Chem for the construction of one of Europe’s largest electric vehicle (EV) battery factory in Wrocław in Western Poland. Total investment was €3 billion in a plant which today has 7,000 employees and an annual battery production capacity of 70GWh. Furthermore, the knock-on effect of such spectacular cleantech execution has attracted other hi-spec industries to Wrocław.
Semiconductors: In June of this year US semi-conductor giant, Intel, announced a $4.6 billion investment in constructing a new chip factory in Poland’s third largest city. Interestingly, this below-the-radar readiness of Poland for mission-critical projects led to a surprising confession from Intel’s CEO, Pat Gelsinger: “When we began the process, we hadn’t considered Poland”. Again, it feels like that 13% October stocks rocket was not just politics, but the ‘coiled spring’ of Poland’s digital technology strategy.
Data Centres: Indeed, as a gateway to Eastern Europe, Poland has become the 15th largest Data Centre market in the world(Source: Data Centre Magazine). For those readers who saw our recent article on data centres becoming a growth proxy for Artificial Intelligence (AI) it is interesting to see PMR analysis forecasting a doubling in power capacity from 107 MW in 2021 to 215 MW by 2027. Warsaw is the dominant market offering 61% of capacity led by Data4, Atman and Microsoft. Arguably, it’s all about Microsoft in recent weeks as it rides the AI wave to an all-time-high share price and taking Apple’s position as the world’s most valuable company ($2.7 trillion). However, it is very clear Poland has identified digital technology as a national wealth creator. Consultants, McKinsey, have taken notice with a 2022 report identifying Poland as the largest digital economy in the Central and Eastern European region, growing that sector by 20% per annum. That sort of growth could drive Poland’s overall economic status to the very top of the wealth tables.
The text books say financial markets discount the future so they might be looking at the recent projections of the World Bank for the remaining years of this decade. Indeed, recent policy papers from the UK’s Labour Party and articles in the Financial Times, based on these World Bank forecasts, have identified the real possibility that average Polish incomes will exceed those of Brexit Britain by 2030. Who’d have thought that? Well, the answer won’t be on the side of any red double-decker buses! The ministerial occupants of 10 Downing Street have had plenty of their own notorious parties in the recent past but it feels like our colleagues in Lublin will be the ones witnessing fizzy days ahead.
Finally, Lublin itself offers some clues to Polish success too. The city of just over 350,000 people has a massive student population of 60,000 and has been selected as European Youth Capital for 2023. One can’t help feeling that Poland didn’t just see technology and youth as its future. It backed both of them too. Brawo Polska.