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February 15, 2007

Improving Poland's transport infrastructure

Analyst Insight by Adisa Banjanovic.

Poland's road transport system is one of the worst in Eastern Europe. EU plans to increase its structural funding for the period 2007 to 2013 will boost the Polish government's investment in infrastructure. This will benefit underdeveloped regions and create business and job opportunities.

Issue

Poor road networks are stalling economic development by slowing down the movement of goods and people. The Polish government will use higher EU funding to co-finance its infrastructure upgrading:

  • EU aid to Poland is set to rise from 2% of the country's GDP to 4% between 2007 and 2013. The funds are part of the EU Structural and Cohesion Funds aimed to improve transport infrastructure, regional development, education and environment. Poland will receive a total of €91 billion of which around €60 billion will be allocated to the Structural Funds;
  • EU funding will assist the Polish government in financing regional development and will provide businesses opportunities and create jobs. Total funds for infrastructure (including environment) account for the majority of the EU funds at 38.4%, according to preliminary allocations for 2007-2013. Poland's co-financing for this is estimated at €3.8 billion.

Importance

An adequate road network is essential for both national and international transport:

  • Poland is the largest Eastern European country with a land area of 31.3 million hectares. However, only 3% of Polish roads currently meet EU standards;
  • In 2005, the density of Poland's road network was 1.19 km per sq km of land, lower than Hungary (1.73 km/sq km) and the Czech Republic (1.62 km/sq km);
  • Congestion has increased adding to the infrastructure burden. The possession of passenger cars rose from 32.26 per 100 households in 1990 to 63.15 per 100 households in 2006.

In 2005, the Polish government introduced the law on Inland Transport Infrastructure Investment, together with the National Transport Fund. The main objective of the Fund is to ensure additional financial resources for transport infrastructure, besides the EU funds, supplied by income from existing sources such as fuel taxes and tolls.

Implications

The quality of transport infrastructure is essential for stimulating economic development and competitiveness:

  • The Polish economy is developing at a much slower rate than other EU-8 member states. Real GDP growth reached 5.0% in 2006 compared to the EU-8 average of 6.7%.

Improvement to infrastructure will be of great importance for East-West trade:

  • West European imports from Russia rose from US$49.3 billion in 2000 to US$124 billion in 2005 while exports increased from US$19.4 billion to US$64.9 billion over the same period. Much of this trade goes through Poland.

The construction industry will benefit the most as well as manufacturing and agricultural exports:

  • Improved road networks will enable goods to reach overseas markets faster and at lower costs. This will spur economic growth as exports account for a large part of the country's GDP. Export growth intensified after Poland joined the EU and started receiving funding;
  • Building new roads will give impetus to the Polish construction industry as well as the creation of jobs that will assist reducing high unemployment;
  • The influx of EU funds since 2004 has already made Poland more attractive to foreign investors. Poland received the highest volume of FDI inflows amongst Eastern European countries that reached US$16.2 billion in 2006. Improved transport infrastructure will attract further investment.

Improved road transport will reduce the gap between poorer rural regions and wealthy urban centres:

  • Agriculture has declined from 8.0% of GDP in 1995 to 4.6% in 2006. The sector will benefit from more developed roads to transport goods and the rising unemployed in rural areas will obtain easier access to regions with greater job opportunities.
  • Unemployment is still high in Poland at 14.0% in 2006. Easier movement of labour from rural regions to more developed urban regions will help and road building will create jobs in construction.

Future scenarios

From 2007, Poland will become the main recipient of EU funds. This together with the Introduction of the National Transport Fund will enable the Polish government to improve the country's infrastructure for transport of goods and labour.

In addition to the National Transport Fund, one of the new sub-funds includes financing for the improvement of railways:

  • In 2005 the government adopted the Strategy on Restructuring of Polish Railways (Polskie Koleje Panstwowe S.A.) aimed at increasing railway competitiveness and improving the efficiency of PKP S.A.

EU and government co-financing will provide the majority of transport investments but the remaining funds will come from public and private collaboration, with the objective that businesses will contribute 20%. Encouraging strong private sector participation and local competition within the transport industry are essential to ensure long-term competitiveness.

Poland's growth has been mainly driven by trade activities and so improved transport infrastructure will contribute to sustainable economic growth. The combination of national and EU funding should guarantee significant improvements in infrastructure though the results will only be visible in the medium- to long-term.


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