24 (119) 2016
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An overview of UK-Polish trade

by Łukasz Lemke, business consultant, BPCC Trade
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Over the past 25 years, international trade emerged as one of the main drivers of Poland’s economic growth. Between 1992 and 2015, the value of Poland’s imports rose by 1,500% and exports by 1,800%.

As impressive as Poland’s overall GDP growth was, it was outpaced by trade growth as Poland became more closely integrated with the European and the global economies. Although Polish businesses now export to 218 countries and territories, the UK has consistently remained one of the top five trading partners, in recent years advancing to become Poland’s second largest export market after Germany. In terms of Poland’s bilateral trading partners, the UK ranks sixth, behind Italy but ahead of France.

As of the end of last year, Poland is the UK’s 21st-largest export destination, accounting for 1.3% of UK’s exports, and 12th-largest import source, accounting for 2.0% of all goods imported.

In the early 1990s, Poland was at the start of its transformation towards a market economy. It would undergo dramatic changes, including a period of hyperinflation, currency redenomination, and unemployment reaching over 20%, before becoming the model of successful transition that it is today.

In 1992, Poland’s GDP was around £140 billion, while imports to Poland were £8.8 billion and exports from Poland £7.5 billion. By 2015 Poland’s GDP more than doubled to around £360 billion. Yet imports soared to £137 billion and exports to £135 billion. Economic growth was uninterrupted between 1992 and 2015, averaging around 4% a year – but the value of imports and exports grew even faster.

Four phases of UK-Polish trade growth

During the 1990s, Poland adopted international trading rules and norms – entering CEFTA and EFTA in 1993, signing the EU association agreement in 1994, and entering the WTO in 1995. Finally, EU accession in 2004 ended all import duties between EU member states. The impact of these events, especially EU accession, has left a clear mark on the value of Poland’s imports and exports. In just the first eight years after joining the EU, Polish exports to the UK increased sevenfold, while UK imports to Poland quadrupled.

Four main phases can be discerned in the UK and Poland’s trade relationship. The first phase, between 1990-1997, when Poland first opened up to international markets, is characterised by very fast growth in trade in both directions. Poland’s imports from the UK grew by an annual average of 27%, significantly faster than Polish exports to the UK (17%). Between 1997-2003 growth of imports from the UK slowed down markedly (to 2%), while Polish exports to the UK continued to rise rapidly (by 29%). The third phase, following Poland’s accession to the EU through to 2008, again shows high acceleration in trade in both directions, with Polish imports from the UK growing by 22% annually, while Polish exports to the UK grew at an impressive 45%. The fourth phase, (2008-2015) covers the crisis and post-crisis years, and shows another slowdown in growth of imports from the UK (2%), while Polish exports to the UK grew by 10% annually. Poland’s overall international trade follows a similar pattern, with rates of 38%, 10%, 35%, 3% for imports to Poland, and 22%, 18%, 37%, 8% for exports from Poland.

Source: Central Statistical Office (1990-2016)

Source: Central Statistical Office (1990-2016)

Poland’s exports to the UK as a proportion of all exports have risen from 4% in the 1990s to almost 7%. This represents a more than 26-fold increase in value, from £321 million in 1992 to £8.6 billion in 2014. In the same period, the value of Poland’s imports from the UK increased six-fold, from £598 million to £3.5 billion, falling as a percentage of Poland’s imports from almost 7% to under 3%. The main reason for this is the fact that other European economies were faster to take advantage of opportunities offered by the Polish market.

Source: Central Statistical Office (1990-2016)

Source: Central Statistical Office (1990-2016)

Product categories of goods traded

Analysing the categories of goods traded between the UK and Poland, there is a clear and continuous shift from primary resources, commodities, and low value-added goods towards highly processed goods, final goods and high value-added products and components.

Looking at Poland’s exports to the UK, the proportion of textiles and textile products fell from 7.5% in 1996 to 1.2% in 2014, base metals and base metals products from 17% to 4.8%, wood and paper products 4.5% to 1.8%. In the same period, the proportion of mechanical, machine and electrical equipment rose from 16% to 29%, transport equipment from 5.2% (1997) to 14%, and optical and photographic instruments from 0.3% to 1.2%.

Source: Central Statistical Office (1990-2016)

Source: Central Statistical Office (1990-2016)

By 2015, the largest groups of Polish exports to the UK, together accounting for more than 50% of goods traded, were machine, mechanical and electrical equipment at 29%, transport equipment at 14%, and prepared foodstuffs at 9%. The value of these categories increased impressively by £2.4 billion (2,481%), £1.1 billion (960%), and £0.8 billion (4,379%) respectively in this period. Altogether, food and agriculture are important sectors of Poland’s economy, and account for a growing proportion of exports to the UK, reaching over 16% in 2014 from 6% on average in the 1990s. Over the past five years, prepared foodstuffs have been among the fastest growing categories, averaging 21% annual growth in value. Exports to the UK account for around 20% of food the sector’s revenues, with Polish brands such as Krakus, Morliny, Pudliszki, Sokołów, Wedel, Wawel, Tymbark, Kamis, Tarczyński, and Mlekpol supplying UK retailers such as Tesco, Asda, Morrisons, Sainsbury’s.

Source: Central Statistical Office (1990-2016)

Looking at UK imports to Poland, the main categories traded are again highly processed, high value-added goods, although the shift over time is less pronounced – the proportion of primary resources such as fuels did fall, and chemical and pharmaceutical products rose from 12.7% in 1996 to 25% in 2014, but some other highly processed categories lost importance – such as machine, mechanical and electrical equipment falling from 30% to 20%. The categories with highest growth in value since 1996 are the chemical industry £0.7 billion, a rise of 403%, transport equipment, £0.4 billion, 376%, and machine, mechanical and electrical equipment, £0.3 billion, 90%.

Source: Central Statistical Office (1990-2016)
(The category of ‘pearls, precious stones and metals, products thereof’ is in fact largely one item – bars of silver bullion from Poland’s metals giant KGHM.)

Source: Central Statistical Office (1990-2016)

Future outlook

Poland’s international trade continues to develop. The EU now accounts for 77.1% of Polish exports, but by 2020 is projected to fall to 72.7% as Poland opens more towards markets in Africa and South America. An early example of this diversification is the recent rise of food exports to Africa after Russia’s embargo in 2014. Poland’s economic relationship with the UK also continues to develop in other ways, with significant FDI inflows, movement of Polish entrepreneurs to the UK, and sizeable trade in services – which somewhat improves the UK’s trading balance with Poland from minus £5 billion in goods to minus £4.6 billion considering goods and services. The role of closer connections between enterprises, such as direct sourcing and contract manufacturing, is also rising. One of the stated policy goals of Poland’s new conservative government is to raise the role of exports from companies owned by domestic capital, who at present account for around 50% of the value of Poland’s exports (estimates range from ~40% to ~60%). The remainder comes FDI-owned firms – brands such as Fiat, VW, GM, Ikea, Samsung, which base their production in Poland, as well as direct sourcing by foreign investors, such as the £300 million a year of food exports by Tesco. Planned measures to support Polish firms include the creation of an Export Support Agency and strengthening of the SME sector. As a final point, one of the main limiting factors for UK imports to Poland, especially in consumer products, have been high prices and low levels of disposable income. As Poland’s economic growth continues and incomes rise, the attractiveness of UK products will only improve.

UK enterprises were slower to react to opportunities in the CEE region than their European counterparts because of a perception that English-speaking markets worldwide held more promise, considering fewer practical barriers to entry. Correct or not, this perception is now changing and the CEE region is becoming a higher priority destination for UK exporters. In response to this changing approach, the UK government, as part of its strategy to encourage 100,000 new exporters by 2020, has set up the Overseas Business Network (OBN) to support UK exporters in the CEE region (with OBN partners in seven countries) and worldwide (40 OBN partners overall). As the OBN partner in Poland, the BPCC provides export support services for UK companies looking to enter the market.

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