Strained Spain hopes pain will give way to gain

With almost half of the 3,718 Spanish companies active in Romania at the end of 2009 operating in real estate and construction, Spanish investments in Romania dropped by more than 80 percent last year. Eduardo Prieto Kessler, economic and commercial counselor with the Embassy of Spain in Romania, told Business Review that Romania continues to be attractive to foreign investors but improvements are needed.

Simona Bazavan

How much did Spanish-owned firms invest in Romania last year?

According to data provided by the Spanish Ministry of Industry and Commerce, direct Spanish investments in Romania in the first nine months of 2009 amounted to EUR 12.6 million, down almost 85 percent over the same period of 2008 (EUR 82 million). Between 2006 and 2008, these investments grew significantly thanks to the attractiveness of the Romanian real estate sector, in which major companies are present. The powerful drop in direct Spanish investments was caused by the crisis and by the lack of liquidity. During the economic boom times, when property prices were rising from one day to the next, huge sums were invested in the Romanian real estate market. It’s only natural that in a time of crisis, dominated by uncertainty over the evolution of the real estate market, the pace of investment will slow down and investors become more cautious. The majority of Spanish companies on the Romanian real estate market have made significant acquisitions of land, especially in Bucharest, in good locations. They are now waiting for the market to resume its growth. There are some smaller companies, which, lacking in financial strength or having taken out major bank loans, have liquidated or are planning to liquidate their assets here.

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What was the amount of Spanish exports to Romania/Romanian exports to Spain in 2009 and how did it compare to the year before?

Bilateral trade between Spain and Romania reached its historical peak in 2008 with a total EUR 1,805 million. This was the result of EUR 1,049 million of Spanish exports to Romania and EUR 756 million worth of Spanish imports of Romanian goods. Spanish exports to Romania increased by 138 percent between 2004 and 2008 (a 34.7 percent yearly average) while Romanian exports to Spain almost doubled during the same period. As a result, our trade balance, which used to be negative, turned positive to the Spanish side from 2006 to 2008.

What were the major Spanish investments in 2009?

Spanish investors are interested in the automobile industry, infrastructure and environmental projects, consulting and engineering works, as well as the production of renewable energy and biofuels. Other areas of interest to them are agriculture, tourism and homebuilding.

How many Spanish firms operate in Romania?

According to the National Office Trade Register, Spain remained the ninth largest foreign investor in Romania at the end of 2009. Some 3,718 companies with Spanish shareholders were operating in Romania, compared to 3,451 active companies in December 2008. Almost half of them operate in the real estate and construction sectors.

Is Romania an attractive economy for Spanish investments?

Romania offers attractive labor costs for foreign investors and a qualified work force in a strategic geographical position with a high market potential. From the fiscal point of view its profit tax is low compared to other EU countries and it provides incentives and support for the establishment of foreign companies. Nonetheless, the country needs to improve its business environment. Reducing bureaucracy, fighting red tape, streamlining administrative proceedings and improving predictability in the administration’s decisions are fundamental for investors. A strong and professional public sector that facilitates the development of private initiative is also needed. Respect for legitimate contracts, transparent procurement processes and payment without undue delays are other problems that should be solved in order to maintain and attract foreign investment.

How has the crisis affected the Romanian workers in Spain?

Romanian workers in Spain are affected by the crisis as are Spanish workers. The unemployment rate is high and some have lost their jobs although the social security network provides support for them. As a far as we know, so far Romanian workers are not coming back to Romania because they receive benefits and social services (health, education, etc.) that are very attractive for them and, besides, their prospects of finding a job here are not good either.

Probably in one or two years’ time some of them will be tempted home by a better economic environment in Romania. Nonetheless some of the problems referred to must be solved in order to attract Romanian workers back home.

It is important that the country seizes the opportunities brought about by EU membership and modernizes its infrastructure, industry and agricultural sector as well as reinforces its administration and institutions.

How do you see future Spanish investment projects in Romania?

Investors already established in the country are playing a long-term game and are just slowing the pace of their investment until the economic and financial crisis eases. As for new investments, there are still good opportunities in Romania thanks to its low labor costs, strategic position and growth potential. This, together with its EU membership, makes Romania an attractive country for investment, when economic stability is achieved and the business environment is improved.

As for specific projects, Iberdrola Renovables, SA, the world biggest wind-farm owner, recently approved the building of the world’s largest onshore wind-energy project in Romania, requiring at least USD 2 billion in investment through 2017. This will be the single most important Spanish investment ever in Romania. Iberdrola Renovables SA is planning 50 Romanian wind parks that would supply the equivalent of almost 1 million homes, with the project amounting to a third of the new wind power Iberdrola has planned for Eastern Europe, after investing EUR 100 million in the area in 2009. Other Spanish wind farm developers and operators will continue their investments in Romania when the legal framework is cleared and developed.