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Poland: Build on current economic strength to innovate and invest in skills and infrastructure

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Poland’s economic growth remains strong. Rising family benefits and a booming jobs market are lifting household income while poverty rates and inequality are falling, says a new OECD report.

In its latest Economic Survey of Poland, the OECD encourages policy-makers to build on the country’s current economic strength and social progress in order to tackle major remaining challenges. To sustain rising living standards Poland has to develop its capacity to innovate and invest in skills and infrastructure, as is acknowledged in the government’s Strategy for Responsible Development. The report says that the level of expenditure on research and development, despite recent welcome rises and tax incentives, remains weak. Vocational training suffers from limited business engagement which is hindering many of the country’s plentiful small enterprises from modernising and improving productivity.

Poland is also ageing rapidly. The working age population is projected to decline markedly over the coming decades. The lowering of the retirement age risks increasing poverty among the elderly, particularly women, says the OECD. Women often have patchy career paths and their retirement age is now set to remain unusually low. Workers should be made aware of the benefits of working longer for their future pension income, the report says.

Despite efforts to improve childcare, it remains insufficient and expensive, especially in rural areas. More investment in childcare is required as part of a range of measures to help combine work and family life and strengthen the number of women in employment.

Presenting the Survey in Warsaw, OECD Deputy Secretary-General Mari Kiviniemi said, “Poland is in a strong position. A dynamic job market together with the Family 500 + programme has helped make economic development more inclusive. Many people now benefit from new opportunities and rising incomes.”

“The time is ripe to ensure that living standards continue to rise. Strengthening innovation, improving infrastructure and investing in skills will be crucial. With rising labour and skills shortages, many employers now realise how important it is to invest in training. The government must seize this opportunity to engage with them.”

Measures to improve tax compliance have succeeded in shrinking the public deficit despite higher spending on social benefits. But more resources – or shift in how they are used – will be needed to raise  spending in priority areas such as public infrastructure, healthcare and higher education and research.

Limiting reduced VAT rates, increasing environmental taxes and giving a stronger role to the progressive personal income tax would raise additional revenue while contributing to more equity and a greener environment.

Plans to reform higher education and improve research excellence and industry-science co-operation are welcome, the report says. The general health status of Poles and access to healthcare are very unequal, while environmental quality is below the average of OECD countries. Tax rates on air and water pollution and on CO2 emissions are low and many environmentally harmful fuel uses are exempt from taxation. Raising environmental taxes would provide stronger incentives to replace ageing coal-intensive equipment with greener alternatives.

A clear immigration policy strategy is also needed to better monitor integration of foreigners in line with labour market needs, the protection of their rights and their access to education and training.

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Belarus Rail Sector Reforms Would Boost Competitiveness, Contribution to Economy

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Organizational restructuring, tariff  reforms, and strategic use of digital technologies would boost the competitiveness of the Belarusian railway sector, improving rail passenger experience and contributing more to the economy, says a newly published World Bank Railway and Logistics sector study for Belarus.

Over the last decade, the railway sector’s share of transit traffic in Belarus has fallen from 35% to 29%, a decline caused largely by increased competition from road transport, combined with challenges in the railway sector’s organizational structure and tariff policies.

“Belarusian Railways isn’t a company in the conventional sense – it’s a Public Association that supervises 29 different state-owned legal entities, each with its own balance sheet, statement of accounts and assets, and decision-making processes,” says Alex Kremer, World Bank Country Manager for Belarus. “Consolidating all these entities into a single state-owned enterprise would help improve the sector’s overall management and competitiveness.”

The study recommends a new strategy for Belarusian Railways that includes revaluation of assets, changes to accounting practices, and development of commercial strategies and business plans both for freight and passenger units. The study also calls for the strategic use of digital technologies to improve customer service, increase operational efficiency, and support infrastructure management.

In Belarus, most rail prices are regulated by the state. While international passenger tariffs have increased, regional and local passenger service tariffs have declined considerably, compared with inflation and earnings. As such, Belarusian Railways has had to cross-subsidize passenger services by charging higher tariffs on its freight business, which adversely impacts its competitiveness against foreign carriers and road freight.

“Prices for passenger transport by rail are so low that a 30km rail journey costs less than a metro ride in Minsk,” says Winnie Wang, World Bank Senior Transport Specialist. “An obligation to cross-subsidizing loss-making passenger services which should be a public service has prevented Belarusian Railways from making critical investments in its freight network, and even threatens the railway’s financial viability. To enhance competitiveness, therefore, Belarusian Railways should review its tariffs and set its own prices.”

As an important first step in the long-term process of transforming the railway sector, the study suggests that Belarusian Railways undertakes analyses of freight and passenger markets and forecasts, investment needs and requirements, and organizational structure.

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Spending on health increase faster than rest of global economy

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Spending on health is outpacing the rest of the global economy, particularly in low- and middle-income countries, the World Health Organization (WHO) said on Wednesday.

According to the UN health agency, “countries are spending more on health, but people are still paying too much out of their own pockets”.

The agency’s new report on global health expenditure launched on Wednesday reveals that “spending on health is outpacing the rest of the global economy, accounting for 10 per cent of global gross domestic product (GDP).

The trend is particularly noticeable in low- and middle-income countries where health spending is growing on average six per cent annually compared with four per cent in high-income countries.

Health spending is made up of government expenditure, out-of-pocket payments and other sources, such as voluntary health insurance and employer-provided health programmes.

While reliance on out-of-pocket expenses is slowly declining around the world, the report notes that in low- and middle-income countries, domestic public funding for health is increasing and external funding in middle-income countries, declining.

Highlighting the importance of increasing domestic spending for achieving universal health coverage and the health-related Sustainable Development Goals (SDGs), Dr. Tedros Adhanom Ghebreyesus, WHO’s Director-General, said that this should be seen as “an investment in poverty reduction, jobs, productivity, inclusive economic growth, and healthier, safer, fairer societies.”

Worldwide, governments provide an average of 51 per cent of a country’s health spending, while more than 35 per cent of health spending per country comes from out-of-pocket expenses. One consequence of this is 100 million people pushed into extreme poverty each year, the report stresses.

When government spending on health increases, people are less likely to fall into poverty seeking health services. But government spending only reduces inequities in access when allocations are carefully planned to ensure that the entire population can obtain primary health care, the UN agency said.

“All WHO’s 194 Member States recognized the importance of primary health care in their adoption of the Declaration of Astana last October,” said Agnés Soucat, WHO’s Director for Health Systems, Governance and Financing. “Now they need to act on that declaration and prioritize spending on quality healthcare in the community,” she added.

The report also examines the role of external funding. As domestic spending increases, the proportion of funding provided by external aid has dropped to less than one per cent of global health expenditure. Almost half of these external funds are devoted to three diseases – HIV/AIDS, tuberculosis (TB) and malaria.

The report also points to ways that policy makers, health professionals and citizens alike can continue to strengthen health systems.

“Health is a human right and all countries need to prioritize efficient, cost-effective primary health care as the path to achieving universal health coverage and the Sustainable Development Goals,” Dr. Soucat concluded.

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Responsible investment and sustainable development growing priority for private equity

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Responsible investment – involving the management of  environmental, social and governance (ESG) issues – is an increasingly significant consideration for both private equity houses (general partners – GPs) and investors (limited partners – LPs), according to a new survey released today by PwC.

The Private Equity Responsible Investment Survey 2019 draws upon the views of 162 respondents from 35 countries/territories, including 145 PE houses. This is the fourth edition of the survey, following on from previous editions in 2016, 2015 and 2013.

The 2019 survey has found that nearly 81% of respondents are reporting ESG matters to their boards at least once a year, with a third (35%) doing so more often. Almost all (91%) report having a policy in place or in development, compared to 80% in 2013. Of these, 78% are using or developing KPIs to track, measure and report on progress of their responsible investment or ESG policy.

Most strikingly, 35% of respondents reported having a team dedicated to responsible investment activity (an increase from 27% in 2016). Of those without a specific function, 66% rely on their Investment/Deal teams to manage ESG matters.

Meanwhile, two thirds (67%) of respondents have identified and prioritised SDGs that are relevant to their investments (compared to 38% in 2016) and 43% have a proactive approach to monitoring and reporting portfolio company performance against the SDGs (up from 16% in 2016).

Will Jackson-Moore, Global Private Equity, Real Assets and Sovereign Fund Leader at PwC, says, ‘This is a really encouraging survey that suggests responsible investment is starting to come of age in terms of driving sustainable business practice. The private equity sector has a vital role to play in supporting sustainable development: the survey highlights that private equity houses and LPs are taking that responsibility seriously and driving genuine change. That is especially important as their role in global capital markets increases.

‘It is heartening to see that responsible investment is seen as a matter for those at the heart of the investment process and needs to be supported by rigorous monitoring and reporting. LPs are playing a vital role in applying pressure to act on key areas of ESG concerns and in influencing board agendas.

‘Yet while responsible investment may only be at the ‘young adult’ stage of development, these are signs of increasing maturity.’

Even so, the survey also acknowledges a continued distance between those considering action, and those taking proactive steps. For instance, while 89% of respondents cite cyber and data security as a concern, only 41% are taking action. Similarly, 83% are concerned by climate risk for their portfolio companies, yet only 31% have acted upon this.

Will Jackson-Moore says,‘There is a risk of “impact-washing” – where it is claimed that investments have a greater SDG-aligned contribution or positive impact than can be evidenced, or using positive examples of responsible investment to divert attention from other investments where  less action has been taken.

‘Yet investors and PE leaders have a role to play in continuing to influence responsible investment behaviour, through demanding more robust and granular reporting around ESG matters. For instance, PwC UK has worked with the well-respected global initiative The Impact Management Project to develop an impact assessment framework based on the SDGs, to support investors.

‘We are at the stage that we can see ESG genuinely driving returns, and enhanced ESG practices can potentially enhance multiples: it may well be the next big value lever.

‘It is therefore vital for PE houses and investors alike to recognise that even if responsible investment may seem challenging there are numerous solutions and frameworks that can be applied to achieve positive outcomes.’

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