Various alarming headlines have recently appeared in Poland’s local press, berating, among other things, the shaky private sector and the cancellation of the 3G mobile phone tender. The Polish economy certainly seems to be slowing down after a number of years of strong gross domestic product growth. Unemployment looks set to increase, the current account deficit remains high, interest rates are way above neighbouring countries’ and export figures are in need of a serious boost. So what does this mean for the many international law firms in Poland?
Most have sizeable operations which have been established in Warsaw for most of the 1990s, and there are others which have just arrived – three UK law firms entered the market just this year. Much of the work of the international firms has been driven by foreign investment, which has included everything from straightforward greenfield work involving the setting up of subsidiaries and the acquisition of real estate, to the more complex privatisation arrangements involving buying shares or other assets from the Polish State Treasury. Work has also been found in the financing of major projects and the raising of funds on the Polish or foreign debt and equity markets.
A number of large Polish corporates have over the last few years become used to working with international firms, for both their domestic and foreign work. In order to capture this work, the international firms have succeeded in attracting top Polish legal talent, hiring and training young Polish lawyers who are often just out of university. But the name or reputation of an international firm has not always been enough. It is the quality of Polish legal advice, the experience of the local lawyers and their ability to draft and negotiate in English as well as Polish, and their commercial skills and ability to push a deal through to conclusion that often determines the client’s choice.
In these areas there is strong competition among firms, whether they be international or domestic. The use of the word “international” can be misleading when, in firms that would be considered international, over 90 per cent of the lawyers are Polish. The investment in people and training has undoubtedly paid off, since in most of these firms the majority of the Warsaw-based partners are local, some of whom started as junior lawyers in the early 1990s, becoming partners by the end of the decade.
However, recent events may have clouded the future for foreign investment and the Polish economy as a whole. In one such event, the treasury minister has applied to the courts to annul the sale of 30 per cent of the share capital of Poland’s largest insurance company PZU to the pan-European insurance company Eureko, based in Amsterdam. This has disturbed the foreign investment community, which feels that this is evidence of the increasing strength of the anti-foreign investor lobby. Certainly, such a lobby exists, but it may be argued that it is not likely to prevail or dominate government thinking.
When elections are held next year it is probable that the left-of-centre party – the SLD – will win. Once in power, it is likely to be more foreign investment friendly than the current right-of-centre government. So there may be some slowdown in foreign investment in the short term, but it should not affect the legal sector too much. There remains the substantial finance needs of the various infrastructural sectors such as power, telecoms and highways, which, with EU membership not far away, will continue even if the economy has slowed down.
Likewise, privatisation will continue in certain key sectors despite political interference. The best example of this is energy. There have been problems but the process will continue. And in the areas of project finance and privatisation, there is significant work for the international law firms that have offices in Poland.
Michael Davies is Warsaw managing partner at Allen & Overy.