Special Economic Zones (SEZ), which have been operating in Poland for over 20 years, have proven to be a very effective tool to attract capital, create new jobs, and modernize the Polish economy. On the occasion of the 25th anniversary of the first SEZ – Euro-Park Mielec – we will take a closer look at their history and importance to the Polish economic landscape.
Author: Paweł Kolczyński
Special Economic Zones are separate areas of the country where entrepreneurs can conduct business while obtaining support in the form of tax exemptions (corporate and personal) from the income earned from an economic activity specified in the act. The goal of creating the zones and introducing such regulations was clear – to accelerate the development of particular regions by creating new investments and jobs.
The beginning, legal status, and the first zone in Mielec
The Act on Special Economic Zones came into force in October 1994. Since then, this document, together with its amendments, has served as the basic legal act regulating the activity of SEZs in Poland. The Act defined a Special Economic Zone as “a separate, uninhabited part of the territory of the Republic of Poland, established in accordance with the provisions of this Act, within which economic activity may be conducted under the rules determined herein.” It aimed to accelerate the economic development of parts of the country’s territory, for instance, by means of developing specific areas of economic activity, boosting export, increasing competitiveness of produced goods and rendered services, as well as developing the existing industrial assets and economic infrastructure.
As stipulated in the Act, the original intention was to establish Special Economic Zones in various regions of Poland. However, only one zone was founded in the beginning – Euro-Park Mielec SEZ (in 1995). Today marks a quarter of a century since its creation. Therefore, it is a good time to take a closer look at the effects of Special Economic Zones, with the first one being their perfect example.
Based on such analysis, it is possible to determine how promising Special Economic Zones are for investors. In the past, the role of SEZ administrators was restricted to managing permits and investment land. Over the years, along with the SEZ’s economic development, the range of services provided to investors has been gradually expanding – now including specialized technical, legal, and human resources assistance. Nowadays, thanks to the active cooperation of SEZ authorities with investors, vocational schools, science and technology parks, as well as other entities, SEZ are important centers for the development of innovative enterprises.
Established in 1995, Euro-Park Mielec has enjoyed great interest from both Polish companies and foreign investors from the very beginning. The reason was the economic growth in the zone in addition to the positive experiences of entrepreneurs and investors. All this contributed to the further development of the SEZ. In the following years – by the end of the 20th century – 14 Special Economic Zones were established in total, including 13 new zones: SEZ Kamienna Góra, SEZ Katowice, SEZ Kostrzyn-Słubice, SEZ Kraków, SEZ Legnica, SEZ Łódź, Pomeranian SEZ, SEZ Słupsk, SEZ Starachowice, SEZ Suwałki, TSEZ Tarnobrzeg (“Euro-Park Wisłosan”), SEZ Wałbrzych (“Invest-Park”), and the Warmia and Mazury SEZ.
In this article, the character of Special Economic Zones and the effects of their establishment will be described through the analysis of the first of such zones in Poland – SEZ Mielec.
Euro-Park Mielec as a response to the crisis
The beginnings of the Special Economic Zone in Mielec are inseparably connected with the problem of political transformation in Poland. In the first half of the 1990s, the WSK PZL-Mielec factory, which, for almost three decades, served as the region’s economic center, was threatened with bankruptcy. It led to the expected domino effect. The loss of the key sales market, i.e., the USSR, led to the collapse of production. This entailed a drastic reduction in jobs and an increase in unemployment to 22% (compared to the then national average of 16%). For the town, this was almost a disaster. The economic recession affected many, including highly qualified workers.
Growing problems in Mielec transformed into the increasing motivation to look for solutions. A decision was made to establish an innovative (for the Polish reality at the time) project to fund a Special Economic Zone – an area with privileged business conditions, which would attract new entrepreneurs and thus revitalize the labor market. The regulation on creating the zone was issued on September 5, 1995, by the Council of Ministers. It was then agreed that it would operate for 20 years. What is more, the Industrial Development Agency (the IDA; Polish: Agencja Rozwoju Przemysłu S.A.; ARP) became the zone’s administrator.
The early days of the SEZ
The main goal of the Mielec SEZ was to create new jobs and stop the growth of unemployment. To this end, the IDA made specific decisions. The industrial assets and economic infrastructure that remained after the restructuring of WSK PZL-Mielec have been developed. In the first years of the SEZ (1995–1996), a comprehensive investor service system was developed. Simultaneously, an effective information and promotion campaign was conducted.
The factor that positively influenced the activities in the initial phase following the establishment of the Mielec zone was the fact that the IDA owns most of the local plots of land dedicated to investments. This made the decision-making process and providing services to investors very efficient.
The next two years brought the biggest and most important investments and the highly dynamic expansion of the zone. Many investors turned out to be crucial for the region: United Technologies Automotive (since 1999 Lear Automotive) and BRW (Black Red White). Although other SEZs were being established in the following years, Mielec continued to attract many companies, including brands such as Krono-Wood, Zielona Budka, Kirchhoff, Onduline, and Frantschach.
After 2000, the Act on Special Economic Zones was amended, allowing to create subzones in other locations. This created an opportunity for further dynamic territorial expansion of Euro-Park Mielec. The first subzones were located in Chełm, Gorlice, and Dębica, while the following ones in Sanok, Leżajsk, Jarosław, or Pustków, among others. The zone in Mielec attracted mostly small and medium enterprises. At that time, a progressive diversification in terms of countries of origin of the capital in the zone could also be observed – with German, British, and French companies starting to invest. Simultaneously, the share of Polish companies was increasing.
The first decade of success
The first 10 years of the Mielec SEZ clearly showed that the project positively influenced the region’s economic development. There was a dynamic increase in capital expenditures. As early as 1997, their value amounted to around PLN 100 million. A year later, the expenses incurred by investors reached PLN 700 million. The following year’s growth was less dynamic, amounting to about PLN 300 million, but this allowed to exceed the symbolic ceiling of PLN 1 billion in terms of total capital expenditure in the zone. The year 2000 brought another year-on-year increase in capital expenditure, extending it to PLN 400 million. The following years were not that fruitful, with an annual growth of about PLN 100 million. After 10 years of the zone’s operation, in 2005, the total expenditures mounted up to PLN 2.5 billion. The dynamics of employment growth in the Mielec area was equally positive. The first years of the SEZ’s operation saw a radical expansion in the number of newly created and maintained jobs. In 1997 alone, employment rose almost fivefold – to over 3,500 employees.
Revival of the Mielec zone and resistance to crisis
For Euro-Park Mielec, the first years of the 21st century were a period of stabilization. The development progressed, but, naturally, it could not be as dynamic as at the very beginning. The year 2007 gave a new impetus to the project – a decision to enlarge the zone’s area by almost 225 ha (630 ac) – and was a sign of reacceleration. What is even more significant, in the same year, an extremely important government decision was made to extend the period of operation of the Mielec zone until 2020 (instead of 2015, as originally planned). Its expansion and the creation of a broader time perspective contributed to attracting investors, and those who were already operating in the SEZ were encouraged to make further endowments. The next amendment to the SEZ Act, in 2008, proved to be a renewed incentive for companies. It provided, among other things, an increase in the allowed size of the SEZ or the possibility of settling a tax loss to calculate the amount of aid used.
Interestingly, for both Euro-Park Mielec and other SEZs, the effects of the 2008 economic crisis turned out to be less severe than initially anticipated. In 2009, the number of valid business permits increased by 20.8%, which was the best result since 2000. The rate of growth of capital expenditures in that year was still higher than in 2002–2005, though it significantly decreased compared to 2007–2008. A result of favorable conditions for doing business in the Mielec SEZ was that although the crisis reached this place as well, it did not translate into a catastrophe, but only a slowdown in the steady growth.
Billions of investments, tens of thousands of employees. What attracts investors?
After two decades of the Mielec zone, the numbers spoke for themselves. At the end of 2013, the employment level amounted to 23,500 people, and the total value of capital expenditures incurred by investors since the beginning of the zone’s operation reached over PLN 6 billion. The total number of permits issued over 18 years came to around 180. During the 20th anniversary of the SEZs, the expenditures exceeded PLN 7 billion, and the employment level – 30,000 employees.
Euro-Park Mielec has permanently changed the region. This would not have been possible without the effective cooperation of several milieux, including state institutions, local authorities, and entrepreneurs.
What factors primarily attracted investors to the Mielec SEZ? It is not easy to establish a hierarchy of criteria. The key factor may have been the synergy of various elements making up a business-attractive investment package. These included: financial incentives, diversified investment offer (e.g., greenfield, brownfield, or build-to-suit investment options), accessibility of the location and media infrastructure, availability and qualifications of employees, low labor costs, education infrastructure, distance from sales or supply markets, as well as good practices in project handling and post-investment services.
As emphasized by Waldemar Barnaś, director of the Mielec branch of the IDA responsible for administering the zone, its attractiveness for investors results from multidimensional economic potential. “Favorable tax rules are only the foundation on which other issues, important for a potential investor, are built. What is fundamental is the logistics and location of the zone at the intersection of the A4 highway and the Via Carpatia road, currently under construction, near the border crossings to Slovakia or Ukraine. The industrial potential of the region is strengthened by developed vocational education, which allows obtaining qualified employees. All this contributes to a friendly ecosystem, which attracts investors,” Barnaś said.
The results of investor surveys confirm all this. A study conducted by KPMG in 2014, concluded that as many as 92% of respondents (representing 14% of all companies in the zone) assessed its functioning positively or very positively. The quality of cooperation with the authorities of the Euro-Park Mielec SEZ was particularly distinguished – 88% of the investigated companies were satisfied.
The present and the future
In 2019, the IDA issued other 53 decisions on support for entrepreneurs, 32 in the investment area of SEZ Euro-Park Mielec, and 21 in the SEZ Tarnobrzeg (“Euro-Park Wisłosan”). Entrepreneurs declared to incur almost PLN 1.7 billion of capital expenditures and create over 900 jobs.
Years after their foundation, it becomes clear that Special Economic Zones have contributed to the regular growth of the potential of Polish enterprises and building their investment value. The successes of the SEZs translated into the expansion of the project and the constitution of the Polish Investment Zone in May 2018. From then onwards, entrepreneurs operating all over Poland (and not only in the zones) who have made new investments in both public and private sectors, can count on income tax exemptions (corporate and personal income tax). At the same time, the existing permits for conducting business activity in the Special Economic Zones, as provided for in regulations concerning the Polish Investment Zone (Act on Support for New Investments), remain in force until the end of 2026. The Polish Investment Zone, administered by the IDA, includes two provinces of Poland – Subcarpathia, and Lublin, as well as the southern part of Mazovia. The IDA also manages the TSEZ Euro-Park Kobierzyce subzone.
Among the largest declared investments in these areas, the field that deserves particular attention is the furniture industry. Nowy Styl, a manufacturer of chairs and office furniture, declared PLN 150 million of investment in 2019. Another company, MARMA Polskie Folie, a member of the plastics processing industry, set forth PLN 53 million in the same year. The declared involvement of Varroc Lighting Systems is even more impressive – with the planned spending of almost PLN 230 million in Lublin Province in 2020. These examples show what significant investments can be created within SEZs.
The natural question is, therefore, what the future holds for the Special Economic Zones and in what directions they will develop. Their effects are already visible in the Mielec SEZ, which has undergone a thorough transformation in over 20 years. It currently provides entrepreneurs with tax exemptions, a well-prepared communication and technical infrastructure, as well as available qualified staff. As representatives of the IDA declare, the challenge which the zones face during the fourth industrial revolution is to include them in the process of building an economy based on knowledge and innovation.
“For over two decades, Special Economic Zones have contributed to the rebuilding of the industry in many regions of Poland. Now their effects should reach further. Therefore, the Polish Investment Zone was established so that entrepreneurs could develop their business on preferential terms, not only in the SEZ. The new model of support responds to the needs of sustainable development of the whole country, which have been enshrined in the Strategy for Responsible Development. The strategy highlights innovation’s role in creating Poland’s GDP and a long-term change in its structure due to the increased innovation. In the following years, one of the aims of the IDA is to stimulate this growth by offering Polish companies instruments supporting innovation, such as grants within the Open Innovation Network, supporting technology transfer to companies from the SME sector,” said Cezariusz Lesisz, President of the Management Board of the Industrial Development Agency.
The development of modern, advanced industries and branches of industry hiring highly qualified employees is one of the pillars of the IDA’s activity. As Special Economic Zones are being included in this process, the role of administrators evolves. The challenges that these entities face require implementing instruments of effective cooperation between investors, local governments, and the administrators. The range of services provided to investors is gradually increasing and now involves specialized support – technical, legal, and in the field of human resources.
The 25 years of the Euro-Park Mielec SEZ’s operations have translated into the creation of 75,000 jobs and PLN 20 billion investments. The presence of the IDA in the regions managed by the SEZ often resulted in a complete socio-economic transformation of the area. Not only did we manage to reduce unemployment, but, above all, to create opportunities for development in the coming years. Today, the aim is to continue this mission and create other positive prospects – for industry, employees, and investors. In the times of the COVID-19 pandemic, the circumstances are not favorable, but a quarter of a century of SEZ operation has proven that the zones were created for this very purpose – to function under challenging conditions.
Jarczewski, W. Kontekst powstania SSE w Mielcu, in: Dziesięć lat doświadczeń…, op. cit., p. 39.
 Ibid., p. 45.
Micek, G. Rozwój SSE Euro-Park Mielec, in: Dziesięć lat doświadczeń pierwszej polskiej specjalnej strefy ekonomicznej: Mielec 1995–2005, in: B. Domański, K. Gwosdz (Eds.), Cracow, 2005, p. 49.
 Ibid., p. 52.
 Ibid., pp. 57–62.
 Ibid., p. 8.