After a little more than 10 years of operation, the Danish Investment Fund for Central and Eastern Europe (IØ) has reached a landmark of DKK 1 billion invested in a variety of business activities in Poland.
The reintroduction 11 years ago of market economy in Poland led to the establishment of close business links with Denmark. The communist regime had hardly left the stage, before Danish investors went to Poland in great numbers.
IØ is operating in all countries, which were behind the Iron Curtain during the Cold War. Right from the beginning, however, Poland has been the favourite of IØ’s Danish partners. Today, more than 130 of a total of 285 projects in IØ’s portfolio are in Poland.
A Leading Foreign Investor
IØ is a self-governing institution, established with contributions from the Danish Treasury. It offers capital and advice regarding investments in joint venture enterprises, in cooperation with partners from the trade and industry in Denmark and the investment countries.
According to the statistical office in Poland, IØ has become one of the leading foreign investors in the country.
It is a common belief that the motive behind Danish investments in Poland and in other Central and Eastern European countries is low production costs.
But this is a false perception, according to Max Kruse, who is IØ’s Regional Representative in Warsaw.
He estimates that in just a handful of the project companies re-export to Denmark of components or products is the major activity. In most companies, the main objective is to gain a foothold in the Polish market. As a valuable side effect, the export markets of Germany and the countries in Central and Eastern Europe can easily be reached from Poland.
Investments Covering Many Sectors
Torben Huss, IØ’s Department Director for Central Europe, draws attention to the fact that almost every sector is represented in the Polish portfolio. The project list covers everything from agriculture and fishing to food processing and manufacturing, and services like accounting, legal counselling and banking and insurance.
Unibank’s investment in a Polish regional bank, BWP, in Gdansk is an example of an investment that continues to bring Nordic and Baltic financial activities closer together. BWP is now being incorporated into the larger cooperation of Nordea, which also has affiliates in the three Baltic States. IØ’s investment in BWP amounted to DKK 12 million.
As a reflection of the structure of Danish trade and industry with its substantial number of small and medium-sized industries, IØ’s Poland portfolio also includes all sizes of investments. The smallest are investments of a few hundred thousand DKK in for instance transport companies, while the purchase of shares worth DKK 77 million in the brewery Okocim, in cooperation with Carlsberg, is one of the largest investments.
Environmental Awareness
IØ shares the environmental concerns regarding the heritage from the centrally controlled economy. Last year, IØ finished an environmental review of 64 of its projects in Poland.
The review concluded that the availability of foreign capital and the involvement of professional staff from Denmark ease the way to better environmental performance and to more attention being paid to occupational health and safety. 60 per cent of the projects turned out to comply with Danish environmental standards.
If the projects were below Danish standards, it was due to a lack of local wastewater treatment plants, facilities for controlled waste treatment, or due to market competition and financial constraints.
IØ also attacks these hindrances, as it administers a special facility for environmental investment projects (MIØ). Last year, 5 out of the 13 new projects in Poland were established in cooperation with MIØ, as they served specific environmental purposes. Four of the MIØ investments last year related to waste dumps.
IØ also cooperates with the Nordic Environmental Finance Corporation (NEFCO). The five Nordic countries own this facility. Its purpose is to facilitate the implementation of environmentally beneficial projects.
Satisfying Returns
Objectives such as environmental improvements do not compromise IØ’s overriding goal, which is to invest in project companies that are financially sustainable. IØ is a revolving fund, which withdraws from the projects after some years, so the project companies must be able to survive on commercial terms.
In 2000, IØ made a review of its first 10 years of operation and came to the conclusion that the 40 projects in Poland, from which IØ had withdrawn, had given IØ an average internal rate of return of 8.5 per cent/year.
IØ’s presence in Warsaw, where it has an office with one Danish and three Polish investment officers, is contributing to the good results in Poland. The staff members ensure the maintenance of a widespread network of Polish businesses and public and private institutions. They also ensure a high quality of work by IØ’s representatives on the boards of the project companies, as they speak the language and are familiar with local conditions.