The current crisis may be an opportunity for Poland and Visegrad Group countries to get out of their position as subcontractors for large Western European industrial groups. ICT and energy will serve as springboards for Poland and the V4 to further economic convergence.
In Chinese, the word crisis is written with two ideograms: the first means “danger” and the second means “opportunity”. The worldwide sanitary and economic crisis is unprecedented.
It is not a crisis linked to demand as it was the case during the Great Depression in the 1930s and it is neither a crisis linked to supply as observed after oil price shock in 1973.
During the present coronavirus crisis, face-to-face relations are no longer possible. The current crisis may be a danger if the current economic organisation in Europe and in the world does not change, or if economic thinking is only short-term oriented.
However, the current crisis might be an opportunity. Capitalism and the low-cost production model, which started about forty years ago and which caused the delocalisation process of European industries to China shows its limits (especially with the visible lack of sanitary masks in Europe).
Excessive globalisation should shrink after the crisis, which constitutes an opportunity to relocate industries, especially strategic ones, to the old continent in order to build a cohesive, sovereign and homogeneous European Union. In turn, this would cover food, sanitation and energy needs.
How can coronavirus post-crisis period be an opportunity for Poland and Visegrad Group? Two economic sectors seem to have a key position after the crisis: new technologies as well as energy and climate.
An accelerator for new technology
Face-to-face relationships are no longer possible led to the emergence of a new way of life during this crisis, such as with the generalisation of home office work. Consumption methods have also changed considerably; with the closure of non-essential businesses during the lockdown period, online sales services such as Amazon and Netflix have seen a significant increase.
Several months after the first lockdowns, we already have the proof that the use of new technologies is a valuable aid to fight against the virus. Artificial intelligence makes it possible to identify, track and predict the outbreaks of the virus.
The digitalisation and use of smartphone apps can speed up the processing of healthcare reimbursements. Drones can deliver medical supplies and try to better enforce containment. Robots, which are not sensitive to the virus, can perform many tasks, such as cleaning, sterilisation, food and medication delivery, which contribute to reducing substantially human contacts.
Artificial intelligence may be an aid for the development of new drugs and supercomputers’ work on a vaccine against coronavirus. The period of confinement may also be favourable for home-training of the population in new technologies.
Compatibility with democratic values and privacy
However, the development of new technologies must not be in contradiction with the fundamental values of democracy, such as privacy and individual freedoms.
For example, artificial intelligence helps to identify cases of non-compliance or people affected by the virus, as it is the case in China where the global monitoring system SenseTime used facial recognition technology and temperature detection software to identify people who might have temperature and who would, therefore, be more likely to have contracted coronavirus.
Nevertheless, as this violates privacy and fundamental values, it is not possible to use such a system in European societies, who would also never accept such tracking measures like in Asian countries. A Pan-European Privacy-Preserving Proximity Tracing (PEPP-PT) project was started in March 2020.
At the end of the containment period in the EU, applications of tracing such as Bluetooth (which allow to follow up contacts of a smartphone user) are used but not GPS applications which imply a geo-localisation system.
Using of Bluetooth application happens on a voluntary basis, anonymously, data keep for a given time and in accordance with European data protection regulation.
Another issue is that tracing applications on smartphones should be used by a large number of the population. In Poland, according to most recent estimates, just 64 per cent of the population aged over fifteen has a smartphone, which means that to be efficient, almost the whole population should use Bluetooth application.
However, even if a smaller group would use such a system, it could still have a strong impact.
Springboard sector for Poland and V4 economies
In Poland, economic actors also became aware of the stimulating impact of the coronavirus crisis to develop new technologies. In April 2020, the foundation Digital Poland issued a call to the Polish government in order to accelerate the digitalisation of the economy.
The declaration, signed by 19 economic organisations, contains 81 recommendations based on three themes: digital finance, digital state and telecommunications and health system’s digitalisation process.
Companies in information and communication technologies (ICT) sector experienced a flourishing development in Poland over the past decade: their number increased by about 10 per cent every year, the fastest-growing pace in the European Union.
In 2017, the latest available data, 105,800 ICT companies were active in Poland according to Eurostat, a number which doubled since 2010.
Poland’s market share in the ICT sector in terms of the number of enterprises represented 10.4 per cent of the EU-27 in 2017. Poland ranked at third place in EU in terms of the number of ICT companies in 2017, fifth in terms of persons employed (384,200 in 2017) and seventh in terms of cumulative turnover (34.3 billion euros). ICT sector’s share of Polish GDP was six per cent in 2017, a similar level to Spain, Norway and Portugal.
However, even if Digital Economy and Society Index (DESI) published by European commission confirms Poland’s rapid progress, it still has a wide margin for improvement, as Poland is ranked twenty-fifth out of twenty-eight in the last ranking published in June 2019.
The main resource for Poland to continue its rapid development of ICT sector after COVID-19 crisis, at the same pace as during the past decade, is its highly skilled workforce. Hacker Rank placed Poland at a third place for developers’ quality in the world in 2017 with a score of 98 per cent, just behind China and Russia. Polish developers also have strong language skills in English as well as German.
In addition to developers’ good qualifications, the ICT sector is a springboard for the Polish economy and continuation of its convergence in terms of living standard towards former EU15 states. Indeed, average gross monthly wage in ICT sector stood at 9,083 zlotych (2,110 euros) in January 2020, the sector with the highest average wage in Poland, well above the average wage of 5,283 zlotych (1,230 euros) in the private sector.
In other words, the ICT sector is a driving force for raising living standard in Poland. It also helps to gradually bridge living standards’ disparities between Warsaw and the province, with ICT companies developing outside Warsaw mainly in the cities of Krakow, Katowice, Poznan, Wroclaw, the Tri-city area but also Rzeszow or Szczecin.
While GDP per capita (PPP) reaches 71 per cent of EU average in Poland in 2018, it amounted 156 per cent in Warsaw capital region but did not exceed 75 per cent of the EU average in 14 of 16 Polish regions.
The development of the ICT sector has especially a key role in ensuring the sustainability of Polish economic activity over the long term, through increasing productivity and developing products with higher technological value.
Since the economic transformation of the 1990s, the Polish economic model has been based on strong labour cost competitiveness towards former EU15 states. However, this model has been reaching gradually its limits in recent years with wages growth exceeding largely labour productivity growth.
Over the period 2016-2019, average labour costs growth reached 6.2 per cent per year while labour productivity growth reached only 3.6 per cent yearly in Poland. Even if spending on research and development (R&D) has increased in recent years in Poland, it accounted for only 1.21 per cent of GDP in 2018, a level still far from the 2020 target given by European Commission (1.7 per cent) and the level of neighbouring Germany (3.13 per cent in 2018).
Energy and climate issues: a crucial challenge for Poland
Apart from new technologies, the mining and energy sectors are still identified as strategic for the Polish economy. The challenge of global warming is crucial for Poland as for all EU member states.
For the full implementation of Paris Agreement under the United Nations Framework Convention on Climate Change (December 2015), aiming to limit global warming to 1.5 degrees Celsius by 2100 compared to the pre-industrial era, EU member states will have to reach carbon neutrality by 2050.
However, Poland was the only EU member state to oppose this deadline and get more time during the European Council in Brussels on 12 December 2019. This week, the link between additional funding and climate goals was watered down during the most recent European Council meeting, which will allow Poland to access future transition funds without a net-zero target.
Coal pollution is a burning public health problem in Poland, where 33 of the 50 most polluted cities in Europe are located and where about 50,000 deaths are caused every year due to air pollution. Poland remains EU’s largest coal producer (almost 70 per cent of EU’s total production), where large coalfields employed 83,000 people in 2018 and where coal still supplies 55 per cent of the country’s energy and 78 per cent of the electricity consumed.
Suffice to say that if energy transition, a crucial challenge, is essential for Poland in the long run, it will have to be spread over time in order to mitigate economic costs. The energy transition cost, set by the European Union by 2050, varies from 140 to 900 billion euros over the next 30 years according to different estimates.
The two main aspects of the energy transition in Poland are the gradual closing of the mining sector and especially in parallel finding alternative energy sources to coal in order to produce electricity.
In order to try to facilitate energy transition, the European Union initiated the Just Transition Mechanism, which is expected to have between 100 and 150 billion euros for investments for the period 2021-2027, broken down in three items.
The Just Transition Fund provides primarily grants, the InvestEU scheme crowds in private investment and European Bank of Investment (EIB) loans leverage public financing.
Poland will be the first beneficiary from Just Transition Mechanism for the period 2021-2027 and is likely to benefit most from the Just Transition Fund – increased by 10 billion euros according to the agreement reached by the European Council in July 2020 but which in total only amounts to 17.5 billion euros.
In Silesia, where 18 coal mines are still active representing 78,000 jobs, actions of the fund will be driven towards the diversification of the regional economy and making it more modern and competitive.
The fund’s key actions could target in particular productive investments in SMEs and start-ups, promoting investments in the creation of new firms (for example in consulting services), investments in research and innovation activities, investments in regeneration and decontamination of sites, in enhancing the circular economy and upskilling and reskilling of workers.
However, two billion euros represent only peanuts compared to the global cost of the energy transition in Poland. However, it might be an interesting tool to support Poland’s energy transformation, it will certainly not be the primary source of its financing, and that is why other sources are necessary.
The massive development of renewable energy sources
Generally, Poland will have to get public and private funding to finance climate transition. In order to be able to close gradually coal mines, Poland should find other sources to produce energy and electricity, which means concretely elaborating a new long-term energy policy.
The government planned for instance to launch the first nuclear unit by 2033 and the next five every two years until 2043. Nevertheless, nuclear is not a future energy source, as the United Nations already stated in a rapport in 1997. Phasing out of nuclear power is planned by 2022 in Germany.
The debate concerning the possible opening of a new coal-fired power plant in Ostroleka by 2023 must also belong to the old world. It means concretely that Poland should develop massively renewable energy sources (wind power plants, hydropower plants, biomass and biogas as well as biomass and biogas co-combustion power plants, solar power plants) in order to successfully pass its energy transition.
The development of renewable energies should increase considerably in Poland during the coming years. In 2018, only 11.3 per cent of global energy consumed in Poland came from renewable energy sources (stagnating since 2013), still below the goal given by the European Commission for 2020 (15 per cent) and one of the lowest shares in the EU.
Solar energy has potential as average solar irradiation is more or less uniform across the country. Poland already has potential for wind energy, especially with the coast of the Baltic sea; capacity of wind farms was from 5,8 gigawatts in 2018, putting Poland already at the seventh place in the EU in terms of accumulating capacity.
Biomass energy has a huge potential for development in Poland due to the presence of straw and because 60 per cent of Polish territory is agricultural land.
Renewables energy may be a huge opportunity for foreign companies to invest and for job creation in Poland, in all stages of the investment process (developer stage, unit construction stage and operational stage). For a successful energy transition, Poland should take enough time to develop an ambitious energy policy (even if it needs beyond 2050 to reach carbon neutrality), together with a strong willingness and flexibility from the population.
Under those circumstances, the closing of coal mines will have a limited impact on the Polish labour market in a middle or long-term perspective. Currently, the mining sector still offers many benefits for employees and the average salary is about 50 per cent higher than the average wage in Poland in 2019 even if the sector’s productivity is not growing.
The European Commission estimates that Silesia will be the Polish region most affected by the closure of coal mines because nearly 40,000 miners could lose their jobs.
However, if coal mines’ closing is a long-term plan, it will have limited impact as miners average age is over average age in many sectors. In 2015, 64 per cent of miners were over 45 years old and most of them will have early retirement opportunities. New mining sector employees are, despite lagging behind the overall education structure of the workforce, better educated, which will consequently facilitate diversification of the regional economy.
Culture and history might be an opportunity to diversify economic activity in Silesia. As examples, the Silesian Museum in Katowice is built in a coal mine, the Bytom theatre was built inside the building that houses the mine chapel and offices. Euro-Centrum in Katowice, located near still-operating Wieczorek mine, is powered by renewable energy.
As its Director of Innovation Patryk Bialas said, “We provide testing for small and medium-sized enterprises, in the field of energy efficiency, in buildings and efficiency of renewables, solar technologies, smart grid tests”.
Solidary and self-sufficient
By the end of coronavirus crisis, the European Union, confident in each of its member states, will have to develop an economic and industrial strategy in order to become cohesive and self-sufficient for primary and strategic products.
The current crisis may be an opportunity for Poland and Visegrad Group countries to get out of their position as subcontractors for large Western European industrial groups. The development of the ICT sector will a springboard be for the V4 that leads to further economic convergence with the EU15.
Due to a global emergency for climate, we are now on the eve of global change, which will be visible for the energy sector. The energy transition will have a huge impact on various economic sector: construction, transportation with the need to develop rail transport and a decline in air sector, tourism with the emergence of intra-European tourism where Poland also has great potential.
The end of the economic model based on low-cost production will lead to the relocation of strategic industries in the EU and should have as a goal the homogenisation of economic condition, allowing to clear the East-West European divide left by the Iron Curtain until 1989.
This article is part of the #DemocraCE project.