Poland needs billions for investments. The capital gap towards the West reaches PLN 14.5 billion annually

Further economic development of Poland requires new impulses, including, above all, greater involvement of private capital and the banking sector – indicate in the report of Bank Gospodarstwa Krajowego (BGK) and the Polish Economic Institute (PIE). Poland needs investments that will enable it to remain competitive and take its economy to the next stage of development.

“The current model of Poland's development was based on… low labor costs and well-educated employeeson the inflow of capital and innovation from abroad and on progressing integration with the European Union. There are many indications that this model is slowly exhausting itself,” it was written in the report “Investments as the foundation of a new model of Poland's development”.

“Poland needs investments that will enable it to maintain competitiveness and take the economy to the next stage of development – these investments are not only large infrastructure projects, but also high-risk investments (understood primarily as investments in the development of advanced technologies, digitalization or dynamic growth and expansion), which provide an opportunity to create highly innovative and therefore profitable enterprises in the country,” it added.

Risk aversion: Polish companies finance themselves mainly with their own capital

As the authors of the study indicate, although over 70 percent enterprises undertook some investment activities in 2024, the investment rate of Polish companies has been decreasing for a decade – the percentage of entrepreneurs investing in Poland is clearly lower than in most European Union countries.

“In 2024, 96 percent of enterprises in Poland financed investments from their own funds, and only 38 percent used credit and loans. This confirms the aversion to using external debt financing. According to the PIE study, the lack of the need to invest is often associated with a lack of motivation and knowledge. Actions are needed to increase entrepreneurs' interest in external sources of financing,” it was written.

“Not only communication and promotion are important, but also the structure of financial instruments that will minimize entrepreneurs' subjective fears resulting from the burden of debt,” it added.

The report shows that nearly 58 percent surveyed companies take actions that allow them to be assessed as development-oriented.

“However, about 10 percent of companies whose attitude and actions suggest a development orientation did not undertake any investment activities in 2024 due to lack of capital or financing. This means that low equity capital and difficult access to financing are significant barriers for some promising entrepreneurs,” the report says.

As BGK and PIE point out, the mobilization of private capital will be necessary to finance strategic infrastructure investments.

“This is due, among other things, to the existing fiscal challenges and the prospect of limiting the availability of EU funds. It is necessary to develop infrastructure funds and support the activity of pension funds and insurance companies,” it was written.

“There is also a need to introduce changes to increase state tax revenues. Research indicates that changes in this area may meet with social acceptance if they are properly justified and implemented for specific purposes,” it added.

Capital gap: Poland is far behind Europe in the development of VC and PE funds

The authors of the report indicate that Poland also needs to make up for the gap between it and Western European countries in terms of the development of the capital market, including VC and PE funds, which are key to financing the growth of companies.

“Deloitte's estimates show that the capital gap in VC investments between Poland and France is PLN 0.5-2.2 billion – the value of transactions carried out in Poland each year should be that much higher for our VC market to be on a scale comparable to that observed in France,” they wrote.

“The difference between the Polish and American VC markets amounts to PLN 17.4-19.1 billion on an annual basis. If we extend these estimates to the entire activity of PE funds, the gap between Poland and Europe amounts to approximately PLN 14.5 billion of unrealized investments per year,” it added.

As noted, the Polish capital investment market is mainly comprised of private foreign capital (responsible for 49% of transactions completed in 2024 on the VC market) and public funds managed by PFR Ventures, Vinci, NCBR and State Treasury companies (approximately 30%).

“Assets accumulated under the second and third pillar of the pension system are not currently used to finance investments of PE funds. However, if these funds were used to the extent they are used in Western Europe, it would cover only 4.2% of the gap separating the Polish PE market from the European average,” say the authors of the report.

The role of home savings and development institutions in financing innovation

In the report, BGK and PIE indicate that the need to develop the capital market is a problem that affects the whole of Europe, and Poland compares unfavorably to the region.

“Europe's weakness results from the fragmentation of the financial market and the multitude of legal systems in force on the continent. Effective implementation of the necessary investments of rapidly growing companies requires not only capital strengthening of national VC and PE funds, but also the creation of a competitive capital market in the European Union (the idea of ​​​​creating a single capital market is returning)” – it was written.

“The financial assets of Polish households accounted for approximately 93 percent of GDP in 2024, and the financial assets of Polish entrepreneurs only 41 percent of GDP. Average values for the European Union were significantly higher (214 and 140 percent of GDP, respectively). Additionally, a large part of Polish assets are cash and deposits. Poles also keep a large part of their wealth on the real estate market. The capital accumulated in this type of assets is difficult to use to finance higher-risk investments” – added.

The authors of the report point out that the Polish banking sector is relatively small compared to countries such as Germany, Spain or Finland.

“Additionally, traditional banking activities do not meet the specificity of development investments needed by the Polish economy. However, the role of national and international development institutions is growing. These institutions are becoming more and more effective in mobilizing private capital to co-finance infrastructure investments (e.g. energy), they also create solutions to support fast-growing companies, and additionally reduce the risk and credibility of investment projects and VC and PE funds in which they are directly involved as investors,” it was written.

“The Innovate Poland program fits into this framework – through the involvement of funds from public institutions (PFR, BGK and EIF) and State Treasury companies (PZU), it stimulates the development of the Polish capital investment market” – it was added.

In the opinion of BGK and PIE, it is crucial to increase the possibility of financing necessary investments through capital injections.

“In this context, in the short term the role of development institutions will be important, but in the longer term it will be crucial to increase the ability to shift savings and resources in this direction,” the report wrote.

“Taking into account the characteristics of individual sources of capital (budget and EU funds, private financial assets, development institutions and foreign investors), the possibility of using them for long-term financing of necessary investments is currently limited. It is necessary to create appropriate incentives encouraging households and entrepreneurs to increase the savings rate and invest the accumulated capital in capital market instruments,” it added. (PAP Business)

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