Analysis. How Romania’s infrastructure woes create business

Sorin Melenciuc | 08/04/2018 | 13:00

If strong infrastructure is considered a key factor in development, weak infrastructure is usually seen as its opposite: a factor in underdevelopment. But decades of poor infrastructure in a rapidly developing country have stimulated the growth of ‘poor infrastructure-related’ businesses in Romania.

 

New business models vowing to relieve the infrastructural woes of other businesses have developed in Romania during the last decade. And commentators say they have grown stronger, as infrastructure projects are rare due to lack of financing.

 

Couriers take the strain

The first major disadvantage of poor infrastructure is that it reduces people’s ability to move around the country, say experts. But they still have to get merchandise and items from one part of the country to another, and are persuaded to send even objects they would usually carry with them while visiting friends or relatives. As a consequence, this poor infrastructure-related behavior has boosted the activity of local courier firms. “Many companies that had their own distribution branches closed them and came to us. They could have chosen rail, but there is a huge lack of investment,” Fan Courier CEO Felix Patrascanu told Business Review.

Poor infrastructure has also kept giant international couriers out. “If Romania had good infrastructure, the multinational companies would probably also be present on the domestic courier market. But they prefer to operate only international couriers in Romania,” Patrascanu said.

 

Domestic flights soar

But in other sectors, multinational companies have been the first to take advantage of poor infrastructure. A couple of years ago, if you wanted to fly from Bucharest to the biggest city in Transylvania, Cluj-Napoca, you had only one option: state-owned company Tarom and a return fare of more than EUR 200. Today, you can buy tickets for the same route from EUR 17 with low-cost carriers like Wizz Air or Blue Air, which are posting record passenger numbers.

According to recent official data, the number of passengers on domestic flights in Romania soared 53.7 percent in 2017, to a record high of 2.74 million. Growing incomes, cheap flights by low-cost airlines and poor infrastructure across the country have all boosted passenger numbers in recent years.

In the last couple of years, no-frills carriers like Wizz Air, Blue Air and Ryanair have entered the domestic flights market in Romania, which was controlled for years by state-owned Tarom, trying to benefit from the rising appetite for flights between large urban areas. But lack of investment in increasing airport capacity is already affecting passengers’ comfort, especially at Henri Coanda International Airport, say players.

 

Uberisation

Bucharest is said to be Europe’s most congested city. In the face of local authorities’ inertia, solutions proposed by emerging technology-driven business models are helping tackle the capital’s traffic troubles.

In 2017, Bucharest was ranked the most congested city on the continent and fifth in the world by TomTom’s Traffic Index. On average, Bucharest drivers can expect to spend 50 percent more time stuck in their cars than inhabitants of global cities like New York, Istanbul, Rio de Janeiro and Beijing, which are home to between 8 and 21 million people. In the face of the city’s mounting traffic problems – the most pressing of them being, alongside traffic-clogged arteries and the ensuing air and noise pollution, the poor state of many roads, scarcity of parking spots and ageing car parks – local authorities have been notoriously slow to react.

It’s no surprise that Uber, to many a byword for disruption, has successfully exported its business model, one of the major global symbols of the sharing economy, to Bucharest.

At the other end of the spectrum, Porsche Finance Group Romania, the local branch of Porsche Bank AG, made Bucharest one of the first major European cities to experience the product of its think-like-a-startup mentality, the sharetoo car sharing business line for corporate clients.

While both provide Bucharest’s digitally savvy consumers with alternative transport experiences, they promise to do so while also benefitting the city they operate in. Since entering the market in February 2015, Uber has attracted 300,000 registered users in four major cities, making Romania its largest market in CEE, after Poland and well ahead of the Czech Republic, Croatia and Slovakia. Of the total, 250,000 are based in Bucharest. According to Alexandra Corolea, Uber senior communications associate for the East Balkans, the service managed to more than triple its user figures at the end of its first year.

“The service grew also because its reliability improved dramatically. While, at first, a car arrived, on average, in 12 minutes, now the waiting time is under 4 minutes. Our objective is to reduce it to below 2 minutes,” Corolea said. According to a survey conducted by the company in October 2017 on 2,770 Uber users, many of them combine the service with public transportation. “One in two respondents prefer Uber or public transportation when they are headed somewhere with limited parking spaces,” Corolea noted.

“Moreover, in Bucharest, the service extends the city’s public transportation network – more than 20 percent of Uber rides in Bucharest begin close to a subway station or public transportation hub, especially in the outskirts, which are underserved by public transportation,” she added. The service, surveys show, has had a real impact on decreasing the number of cars in Bucharest.

 

Short-distance tourism

The difficulty of moving around the country has also boosted one particular type of tourism: short-distance tourism. It follows the proverb: “If the mountain won’t come to Muhammad, then Muhammad must go to the mountain”. Tourism entrepreneurs have moved their investments closer to clients, in or around the big cities. Someone living in Bucharest can now visit several local attractions without much traveling.

Austrian group A-HEAT has invested around EUR 30 million in Therme Bucharest, one of the biggest European centers of wellness based on thermal water, which opened in January 2016.

The facility has an outdoor area of over 250,000 sqm and an indoor area of 30,000 sqm, and can host 4,000 visitors at a time. It is split into three zones: The Palms (for relaxation), Elysium (wellness) and Galaxy (the family area, with playground).

Representatives say the investment has already proved successful. Within less than a year after its official opening, Therme Bucharest expended the Galaxy area by 4,000 sqm, following an investment of EUR 10 million.

The expansion was decided earlier than initially planned due to the success enjoyed since the opening, according to Therme representatives. “Romanians were very open to the new relaxing, wellness and fun at Therme Bucharest. Expansion was a natural step due to our visitors to the Galaxy area,” said Stelian Iacob, general manager of Therme Bucharest.

Other tourism investments close to Bucharest have proved fruitful, as inhabitants of Bucharest have had increasing difficulty visiting resorts like Comana (30 km south of Bucharest) due to heavy traffic.

 

Prevailing disadvantages

But these poor infrastructure-related businesses are far from able to offset the many disadvantages the lack of infrastructure creates. Local entrepreneurs warn that entire regions of Romania are cut off and lack a future if the situation does not improve. “Lack of investments isolates. Government investments are usually followed by private sector investments. We have already isolated Moldova (Romania’s poorest region) and we risk being cut off from the major European transport corridors,” Patrascanu told Business Review.

Investors also point out that poor infrastructure increases the costs of running businesses in Romania. “In order to have good logistics, you need investments from two sources: private and public. If the public investments are missing, you risk investing money for nothing,” Patrascanu added. Investors and mere drivers alike want the government to speed up investments in motorways, city ring roads and national roads in order to improve Romania’s transport links. Looking on the motorway map of Europe, Romania is a blank spot on the fringes of the continent’s busy network.

The country is the seventh largest among European Union member states, but has only 748 kilometers of motorways, less than Bulgaria, which is about half the size.

Featured photo courtesy: Dreamstime

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