Poland's military is continuously undergoing changes - all designed to restructure itself into a more capable and mobile force compatible with NATO troops. It is changing every area of operation from force structure and staff organizations to training programs, doctrine, and security procedures and beyond. These changes in Poland’s military, and the reorganization plans for the entire Polish defense industry, however, are competing with other reforms that the state budget must also finance.
In 2009, the Polish government allocated 1.95% of GDP, an amount of about $8.6 billion (PLN 25 billion), for defense expenditures; of which 21.6% are allocated for modernization of the army, hardware purchase, and infrastructure maintenance, (49.7%) will be spent on salaries and pensions, and 28.7% on other expenditures. The Polish government aims to meet NATO target of 2% of GDP spending on defense.
The modernization of the Polish army includes improvement of troop capacity and mobility, and improvement of air defense systems as well as moving towards a smaller professional army. On August 5, 2008, the Council of Ministers accepted the government program to restructure and modernize the Polish army. The Office of General Staff drafted the “Polish Army Development Program 2009-2018.” By the end of 2018, the Ministry of Defense plans to spend about 77 billion PLN (about $35 billion) on the modernization of the Polish army, including 59 billion PLN (about $27 billion) on equipment purchase, and 18 billion PLN (about $8 billion) on operational expenditures.
Additional source of revenue from the Foreign Military Financing (FMF) Program is expected to increase this amount by $27 million in 2009.
The FMF Program consists of congressionally appropriated grants and loans which enable eligible foreign governments to purchase U.S. defense articles, services, and training through the Foreign Military Sales program. The Office of Defense Cooperation, along with the Defense Security Cooperation Agency coordinates utilization of Poland’s annual FMF allocations. Since 1995, Poland has received $3.7 billion of U.S. Government-sponsored loans, $57 million of Coalition Solidarity Funding grant assistance; and over $ 314 million of FMF grants. This financial assistance has been effectively utilized to support continuing transformation and modernization of the Polish Armed Forces.
Poland receives one third of NATO funds allocated for the development of defense infrastructure projects. By the end of 2009, the value of NATO financed projects in Poland will reach PLN 2.5 billion (about $ 860 million). Also, Poland has one of the largest International Military Education and Training (IMET) programs in the United States European Command (EUCOM) and is one of top 10 worldwide. Poland has trained over 2200 military and civilian students since 1992 using IMET, FMS (Foreign Military Sales) and the Regional Defense Counterterrorism Fellowship Program (CTFP). These programs help reform defense establishments of Poland and build Poland’s capacity to conduct peace and stability operations. Poland has a state Partnership Program with the Illinois National Guard.
Opportunities for American firms exist mainly in investment, technology transfer, and co-production work. Polish defense companies seek cooperation agreements or joint venture opportunities with foreign defense companies that, combined with the relatively lower cost of production in Poland (particularly tanks, armored vehicles, artillery, ships, aircraft, and helicopters), will be attractive to potential customers.
Receptivity to American products is high due to an excellent reputation for high quality products, reliability, and technical assistance. However, technological advantage is not the only factor determining success in the market. American companies should focus on educating end-users and other players in the defense sector. A successful U.S. exporter is expected to support its agent/representative at trade shows, seminars, and conferences.
Poland’s defense budget is negotiated annually and the budget parameters are set during these negotiations. The Polish government is required by law to hold tenders for major procurements. Financial value, project complexity, international cooperation and political sensitivity determine the project category. Poland has an offset policy coordinated by the Department of Offset Programs at the Ministry of Economy. These offset requirements are an important part of defense procurement contracts. Offsets are sensitive political issues that involve regional interests in Poland; therefore, the allocation of offsets is the exclusive responsibility of the Ministry of Economy. Offsets can best be approached through partnerships with local companies.
American companies interested in military procurements in Poland are advised to use various resources to increase the chances of getting their company’s information into vendor’s databases within the military/defense sector. We advise American suppliers of military/defense equipment and services to contact the American Embassy in Warsaw as it pertains to information on defense related business in Poland and current political issues prior to contacting any Polish government agency. This applies particularly to the Office of Defense Cooperation (ODC) and the U.S. Commercial Service.
Defense cooperation is considered the integrated package of security assistance and defense cooperation in armaments activities. The U.S. government security assistance program for the government of Poland is managed by the Office of Defense Cooperation and includes Foreign Military Sales (FMS), Direct Commercial Sales (DCS) and a number of programs under the auspices of defense cooperation in armaments activities.
The U.S. Commercial Service identifies the defense industry as one of its sectors with sizeable American sales potential in Poland. Our office offers a number of commercial export promotion programs and advice on regulation compliance, the market potential for a product or service, agent/representative vetting, and provides advocacy support.
The Polish army is moving away from a draft-based army towards a smaller professional unit better suited to the NATO mission. Poland's membership in NATO has already brought numerous opportunities for U.S. companies in terms of upgrades and adjustment. In addition, Poland became a close U.S. ally in Europe through its support in the international interventions in Iraq and Afghanistan, which also called for upgrades and adjustments in terms of developing a more capable and mobile force compatible with NATO troops.
A tender to supply of 48 fighter aircraft for the Polish armed forces as awarded to Lockheed Martin increased industrial cooperation opportunities for both U.S. and Polish companies in the defense sector including direct investment in form of sub-supply agreements, acquisition of know-how, training assistance, new technologies and licenses to help modernize the Polish defense industry and enabling its involvement in greater international cooperation. All 48 aircraft have been already delivered to Poland, but various opportunities for American firms still exist, mainly in investment, technology transfer, and co-production work.