Analysis 3/2017: Risky Game of GameINN: subsidies in place of reforms
GameINN, the sectoral program of grants for the electronic entertainment industry, encroaches on competences of private investors. However, an official distributing EU taxpayers' money will select and monitor his investment projects less carefully than a private investor who puts his own money at risk.
By providing cheap financing, the government tackles a non-issue, while ignoring the real obstacles to the growth of the industry. A recent government report shows that access to capital is the least significant of barriers to growth, at least for larger of the companies in the sector, and it is to them that the program is primarily directed. Instead, as their main problems the report identifies tax laws and scarcity of skilled workers.
The state provides capital to the video games sector through the EU funded sectoral program of NCBR (The National Centre for Research and Development), small grants from the Ministry of Culture, the venture capital of ARP (Industrial Development Agency) and a number of EU programs. Some of private funding sources, used by video game makers at present, may be partially superseded by these donations. It is unclear what market inefficiencies would be addressed by the state subsidies. As funding is granted to specific projects of selected firms, other companies in the sector will not benefit at all, so we can’t expect any wider positive influence.
Unfortunately, the policy of Beata Szydło government will not help companies to struggle against the main growth barriers. Ongoing discussions about sectoral taxes and recurring proposal to increase their progression only deepen concerns about the complexity and instability of tax rules. The lack of consistent immigration policy and absence of decisive actions against racist incidents make it difficult to attract foreign professionals. Nor does the government take appropriate steps to increase the pool of skilled professionals in the country.
The threat of the government taking over the shares owned by OFE (Open Pension Funds) still looms over the Warsaw stock exchange, strongly reducing its appeal and making it harder to raise capital there. Moreover, if Open Pension Funds are nationalized, the State Treasury would become the main shareholder in one video company: CD Projekt (21. 6%) and gain interest in four other.
To foster the development of the electronic entertainment sector, the state, rather than trying to replace private investors, should focus on its proper role: to create clear and stable rules of the game. Most important here are laws on taxes, immigration, education and higher education and regulations of pension funds. It would also be worthwhile to find a way to facilitate social financing in Poland, eg as a way to issue shares.
Full analysis by FOR (in Polish) aviliable here.
You are welcome to contact experts:
Mateusz Mucharzewski - Journalist (Graczpospolita.pl), Economist
mateusz.mucharzewski@gmail.com
Rafał Trzeciakowski - Economist at FOR
rafal.trzeciakowski@for.org.pl
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