Poland’s new instruments for prioritising export support to Ukraine

Janusz Wladyczak, CEO of KUKE, Poland’s export credit agency, discusses KUKE’s enhanced role in supporting reconstruction in Ukraine as conflict continues, the new tools at its disposal and its continued activities in Africa and emerging markets

KUKE covered more than $1 billion exports in 2023. That was a near 20% growth in export cover while Poland’s total exports stagnated in 2023 (down 1% in local currency terms). What was behind that?

Last year was another one with strong growth in our export and foreign investment insurance business, up approximately fivefold compared to the pre-Covid era. This resulted from a whole set of new solutions introduced at the beginning of the pandemic and from KUKE’s changed approach. Some of the MLT transactions were postponed until 2024, which looks very promising too.

Besides classic products like export credit insurance and cover for Polish foreign direct investments (FDIs), which by the way have gained momentum recently, we’ve also issued guarantee instruments for working capital financing and investment credits extended by local financial institutions to Polish exporters on a massive scale.

The latter tools are real ‘best-sellers’ as banks look for safe credit expansion in a slowing economy while companies receive an incentive to invest despite volatile and totally unpredictable economic surroundings.

It is worth mentioning that a lot more Polish companies than the EU average perceive uncertainty as the main obstacle to investments. And according to the European Investment Bank, they indicate uncertainty as a strong barrier much more often than do companies in other EU countries. Economists see the relatively low rate of investment as a significant weakness of the Polish economy. KUKE’s new instruments and even closer relations with the banking sector may help to overcome this hurdle. This shows the increasing role of ECAs in general with entering new business areas, expanding the product pool, and becoming critical vehicles implementing state policies.

Ukraine remains a top priority

As Ukraine’s neighbour and with strong economic ties, we have put support for the country, and Polish businesses active there, as our top priority from the very beginning of the conflict. After fine-tuning the instruments that were at our disposal to the war conditions we sought legislative changes that would increase our capabilities in Ukraine and adapt our offering to this specific situation. The amended act regulating state guaranteed insurance which passed in August allowed us to create a complex support system for Polish companies to effectively and safely join Ukraine’s reconstruction.

After fast implementation KUKE became the first ECA to restore investment insurance and guarantees for Polish companies as well as foreign entities based in Poland willing to rebuild Ukraine.

Seeing the market niche, we started to fully cover the war risk. We have felt that all-round cover may be important for our companies and for strengthening the Ukrainian economy too.

This is especially due to the fact that funds dedicated to the large projects that will be disbursed by multilaterals are still in the process of being gathered and will start to work only when the war stops. However, even before that we strongly believe that the reconstruction of Ukraine is taking place here and now, on a daily basis, and not as part of one off transactions. There was no point in waiting for some ‘cut off’ day. The role of ECAs in that process is critical.

So far, we are happy to see that some European ECAs are restoring export insurance to the Ukrainian market, which we did just four months after the Russian aggression in 2022. We believe that more will join. From the start, we hoped that our initiative would help our Ukrainian colleagues but at the same time would open up doors to Polish companies, of which approximately 3,000 declared readiness to participate in tenders, for example, for the reconstruction of destroyed infrastructure.

On the other hand, we expected to see that business would be extremely cautious about investing. There is some interest, pipeline building, but in fact no transactions have concluded. As foreseen, Polish firms are more active in selling goods.

Exports to Ukraine covered by us increased by almost 60% last year, and volumes returned to prewar levels. At the same time, Ukraine became the seventh biggest export market for the Polish economy.

The change in the law also enabled us to reinsure the Polish transportation sector which should also enhance exports. This will be the first solution of this type in the world, which will help Polish logistics companies and improve transport infrastructure with Ukraine, which is crucial for supplying the market, supporting the war effort, but also unblocking exports from Ukraine and helping its budget and foreign currency revenues. Poland would simultaneously increase its role as a hub in the reconstruction process. We are now waiting for the green light from the European Commission. The talks are in progress. So Ukraine will certainly be one of the main directions of KUKE's activity in 2024.

Green energy transition progress

The second crucial element of the new regulations act is allowing KUKE to participate in Poland's green energy transformation. The cost of this is estimated at €300-400 billion by 2040. The European Commission’s consent is also required here. KUKE's guarantee potential and our good and proven cooperation with banks will be very useful in the energy transition process.

Africa remains a key focus

Africa, both North and Sub-Saharan will remain a key focus for our business in 2024. We are currently working on several projects that are securing its funding. They should be finalised within two years and we estimate their value at $5-6 billion, of which $1.5-2 billion will fall on the Polish element. Although there are many challenges we may encounter there, and that's why we aren’t forgetting about other regions.

Southeast Asia offers many opportunities with GDP growth averaging around 5%. Recently, together with PwC Poland and PFR TFI [Polish International Development Fund], we published a report on best investment directions for Polish FDI in Central and Eastern Europe (CEE) and Asia. Malaysia, Indonesia and Vietnam are top destinations, with Kazakhstan and Uzbekistan also on the list. Gulf countries are still very important despite the tension in the region related to the war between Israel and Hamas. And we see that Polish companies are successfully switching from the stagnating EU countries where export volumes decreased in recent months to vibrant emerging markets with double-digit export growth.

Africa, as we all know, has great potential, but remains unpredictable due to the geopolitical situation. Problems with debt servicing, local currency volatility, socio-political instability, and border conflicts demand caution when picking up projects. One thing must be pointed out is that there are so few investments with foreign capital in manufacturing industries. Its development on the continent would provide jobs and opportunities for a better life for young people, many of whom are thinking about emigrating, which causes further tensions in neighbouring countries or further in Europe.

Foreign investors focus more on the mining industry or on improving infrastructure, which is of course needed, but the maintenance of such will not create millions of jobs in the long term. On the other hand, in order to continue the technological and energy revolution conducive to preventing climate change, the West needs specific critical raw materials and commodities that – in the event of a confrontation with Russia and China – can be sourced, among others, from African countries. Poland will also gradually join this race.

A version of this interview first appeared in TXF.