2008 FDI promise fades in glare of recession

Although 2008 is generally perceived as the beginning of the current downturn on the Romanian market, the crisis affected the local economy only in the last part of the year. Therefore, last year was not as bad as many might have feared for foreign direct investments (FDI) in Romania. According to data published in September by the UN in its World Investment Report, Romania was one of the most attractive countries in the region regarding FDI inflows. Both privatizations and the positive evolution of emerging markets influenced FDI inflows in countries like Romania and protected them from the negative impact of the crisis in 2008. According to Doina Ciomag, executive director at the Foreign Investors Council (FIC), four countries in the region – Poland (with USD 16.5 billion), Romania (USD 13.3 billion), Czech Republic (USD 10.7 billion) and Bulgaria (USD 9.2 billion) picked up about 77 percent of the total FDI floated in 2008 in the newest ten EU members. But the rosy picture deteriorated towards the end of the year.”There was a significant fall in foreign investment in the last quarter of 2008 as the global economic downturn began to affect Romania. However, many investors continued to see that Romania has considerable long-term potential,” says Mark Gibbins, partner and head of taxation services at KPMG. He notes that by the end of 2008, the country had seen a shift away from short-term speculative investment, and greater interest in longer-term projects, which offered good prospects of healthy returns over a few years. According to him, Romania was particularly appealing to foreign investors in 2008 because of its rapidly growing economy. “However, in spite of the current downturn, the country remains attractive and many sectors have potential for investors with an interest in steady growth over the long term,” he adds.Nor was this confined to just a few corners of the economy. The KPMG partner goes on to say that for most of 2008 there was significant growth in foreign investment in many sectors. “Real estate attracted particular interest, although it saw a sharp decline in the last three or four months of the year, a trend which has continued in 2009,” says Gibbins. According to National Bank of Romania (BNR) data, the processing industry, metallurgy, food and beverages, tobacco, oil, the chemical and rubber sector, plastics, transportation and the cement industry were among the fields of interest for foreign investors last year. But financial and insurance brokerage, construction and real estate transactions, commerce and IT&C also got foreign investors' cash in 2008. Moreover, “Romania attracted two large new investment projects carried out by Nokia and Ford. But there are also other companies active on the local market for years that decided to extend and diversify their activities, including – but not limited to – Quadrant, Procter & Gamble and Malt Soufflet,” says Ciomag. According to Gibbins, despite the economic boom which Romania was enjoying up until the second half of 2008, there were still significant sectors of the economy with potential which were nevertheless neglected by investors. “Tourism is one such area. In spite of Romania having considerable natural beauty and many attractions, the tourist sector is still underdeveloped, at least in terms of attracting foreign investment.” In his opinion, this is exactly the sort of area which investors should look at in the future if they want to invest in something sustainable, which will yield steady profits in the long term. But while 2008 was a good year for FDI in Romania, 2009 has been the first full year affected by the current crisis. According to BNR data, quoted by Mediafax, FDI dropped by 53 percent in the first eight months of 2009 on the same period of 2008 in Romania, to EUR 3.15 billion. Also, intra-group loans were worth about EUR 1.69 billion compared to EUR 2.99 billion in the same period of the year before. FDI fell in the first seven months of 2009 by 47.9 percent, to EUR 3.09 billion. Stake participations, including reinvested profit, posted a significant decrease in the first eight months, to EUR 1.46 billion from EUR 3.73 billion. But it is noteworthy that FDI completely covered the EUR 2.44 billion current account deficit posted from January to August.Breaking it down geographically, according to BNR data, FDI went mainly to Bucharest-Ilfov (62.7 percent), followed by the center (8.3 percent), South-East (7.3 percent), South (7 percent) and West (5.4 percent). The North-East region was less attractive to foreign investors, absorbing just 2.3 percent of the total FDI. By source, Austria is the main foreign investor in Romania, followed by Holland, Germany, France, Italy, Greece, Switzerland, Cyprus, Luxembourg and Hungary. The BNR's statistics indicate almost 67 percent of participation in FDI companies was represented by firms' development, 32 percent by M&A and just about 1 percent by greenfield investments.
The outlook deteriorates
Official statistics and estimations indicate that 2009 will be less favorable in terms of FDI in Romania, with the figure slumping to half that posted in 2008, or about EUR 4 billion. “In our opinion, the main fields that foreign investors will focus on in the future are those that have a great potential for growth, those where market demand is not met and niches where both international expertise and experience is needed,” says Ciomag. IT, agriculture, infrastructure, specialized financial services (such as insurance), and services for supporting production for both individuals and companies are some of these domains. Fiscal policy is one of the key elements in attracting new foreign investors, so frequent changes could discourage them. “The FIC believes that in the current economic and political context, fiscal policy permanence needs to be the main priority for the Romanian authorities, in order to maintain a positive climate and to support a strong business environment,” says Ciomag. In her opinion, the key elements of such a policy are twofold: the formulation of a coherent fiscal strategy on the medium and long term while adopting some measures to help the economy recover; secondly, to ensure a high level of transparency in addition to an enhanced partnership between authorities and contributors. As Gibbins puts it, “Investors may be deterred if taxes rise, and this is a time when the government should be making great efforts to attract investors.” According to him, there is strong competition for investments in the Central and Eastern European region and low tax rates are seen as an incentive to invest in many countries. “In Romania, there is perceived to be a significant subterranean economy, and high levels of tax evasion. So instead of raising the flat tax or VAT, the authorities should concentrate on combating fiscal evasion,” says Gibbins. In his opinion, one way they could do this would be to improve the efficiency of tax audits to focus on auditing those taxpayers which are statistically more likely to be evading tax. “I would also urge the authorities to redouble their efforts to improve the take-up rate of EU funds, which at present is quite low. This is a missed opportunity, particularly as substantial amounts of EU funding are available to support infrastructure projects which this country so badly needs,” he says. “Such projects would improve Romania's attractiveness as an investment destination in the long term, and in the short term would help mitigate the effects of the recession because they would create jobs.” Of course, political instability does not help the economy, and there is even a risk that the IMF agreement could be adversely affected if the present situation continues. This would have very serious consequences for the economy. But specialists hope that once the presidential elections are over a stable government can be formed to make the right decisions to help put the economy back on track.
Banks' 2008 results hold up despite crisis
Although the storm of the economic crisis began to brew in Romania last year, 2008 was still a good year overall for banks active on the local market. But 2009 has changed lenders' investment plans, as a result of their more cautious approach to the market. Although the Romanian banking system felt the crisis later than other economies, the negative effects started to intensify in September last year. Despite this, many banks on the local market posted significant profits in 2008, with only the last quarter of the year being more difficult as a result of the current downturn. According to a National Bank of Romania (BNR) report on 2008, the local banking system's main profitability indicators were better than those posted in December 2007: ROA (return on assets) was 1.56 percent in 2008 compared with 1.01 percent in 2007, and ROE (return on equity) was 17.04 percent up from 9.43 percent in 2007. But as the BNR researchers noted in their report, the evolution has been driven both by the selling of shares owned by four lenders in an insurance company and by the expansion of net incomes from interest. Both the financial crisis and increased domestic competition between players have changed the situation on the market, and banks have switched from the aggressive lending activity seen in the first three quarters of 2008 to a significant withdrawal from lending and increased focus on attracting deposits in the last quarter.The American credit crunch brought about a freeze on the lending market both in Romania and abroad. As a result, starting from September last year, lenders needed to adjust their strategies to adapt to the new economic conditions and get through this difficult period. More restrained activity, the closure of some branches to increase efficiency, cost-cutting measures, the reduction of both employee numbers and salaries and a hiring freeze have been some of the main strategic measures that lenders have started to apply since January. Besides, many banks – of all sizes – have canceled or postponed their investments in future developments, as a result of a more cautious approach to the local market. Furthermore, some lenders have invested significantly in launching new products, many of them addressed to a specific section of customers. Targeting accessible niches has seemed to be a way for banks to avoid the worst effects of the crisis. Besides, many lenders have decided to adopt a more customer-oriented strategy, which has meant creating customized products and services for each type of client. Some lenders have set up along with their customers a specific framework to support them during the crisis. In order to meet their customers' needs, some banks have decided to be closer to them, offering support services during the turmoil. The aim of this approach was to minimize the damage for their clients.The main events on the market last year were the founding of BCR Banca pentru Locuinte, the opening of an Ireland Depfa Bank branch in Romania and UniCredit Tiriac Bank's takeover of Banca di Roma, as part of the international transaction. On top of that, RBS took over ABN Amro's operations and two banks changed their operational name: CEC became CEC Bank after a rebranding process that needed significant investments and Egnatia was rebadged as Marfin Bank. According to BNR's report on 2008, the top six foreign investors in the local banking system were Greece, Austria and the Netherlands, followed by Italy, Hungary and France. The same research found that although the top five banks in Romania ranked by assets owned over half of the total banking assets, they saw their weight fall from 56.3 percent in December 2007 to 54.3 percent in December last year. This was a result of the increased popularity of banking products and an aggressive strategy to attract new customers. While the last quarter of 2008 was not the happiest one for banks in terms of lending, the BNR's data showed that long-term loans, foreign currency and consumer loans dominated the total retail credit granted by lenders. Over half of new loans in 2008 had a promotional interest rate. Furthermore, loans for buying and building homes were dynamic last year, with an increase of 47.2 percent, overtaking consumer loans which posted growth of 33.7 percent. However, consumer goods loans remained dominant in terms of absolute value in 2008. Ranked by type of credit, foreign currency loans consolidated their position in 2008, making up a weight of about 57.8 percent of the total non-governmental loans. BNR's researchers found that the solid dynamic of foreign currency loans last year was due to increased demand and the lower interest rates charged by lenders. Moreover, although the growth rhythm of non-governmental lending posted a reduction, with an increase of 25.8 percent in real terms in 2008 compared with 50.5 percent in 2007, the worsening of lenders' credit portfolios could not be avoided. Going forward, specialists expect lending to bounce back in the second half of 2010, but not to the same levels as those posted from 2005 to 2008.
Production facilities drive up investments in the automotive industry
For Dacia Group, controlled by French carmaker Renault, 2008 was the year in which sales reached their peak and then started to descend as the recession kicked in towards the end of the year. Last year Dacia sold 257,854 cars, compared to 230,294 in 2007, but towards the end of 2008 the company announced that it was halting production at Mioveni for a period in order to reduce costs. Nevertheless, Dacia continued to top the list of the most important investors in this segment, with its average annual investments reaching EUR 200 million in 2008. According to company officials, one of the major challenges for the carmaker this year has been to adjust its production activity to the commercial demand. “We also continued to invest in the evolution of our model range and especially in preparing the launch of our upcoming SUV, scheduled for 2010. As far as the commercial results go, Dacia is on track to end 2009 with a higher volume of sales than in 2008, mostly due to the rise in our exports, which account for more than 85 percent of total sales,” Silviu Sepciu, chief of the media relations office at Dacia, told Business Review. The firm's investments in 2009 should reach around EUR 100 million, including its outlay for the SUV. Another important player on this segment is Ford of Europe, the owner of the Craiova car factory. In 2008, the carmaker stopped production of the Daewoo model Matiz – which had enjoyed great success up to then – as a first step after it bought the company. Under the privatization contract of the Craiova factory, Ford of Europe committed to invest EUR 675 million in the next four years, to realize a production capacity of 300,000 cars per year. The company launched this year the first model produced at Craiova, Transit Connect.
Not yet tired of expansion
Tire producers continued to expand on the local market. Continental, for one, which made its first investment in Romania in 1998, in a tire plant in Timisoara, gradually extended its local investments. It is currently present with both its groups, automotive and rubber, and with five out of the corporation's six divisions: passenger and light truck tires, contitech, powertrain, chassis & safety and interior. Continental owns eight production units, three research and development centers in Timisoara, Sibiu, Carei, Arad and Iasi, a joint venture in Slatina and an Eastern European tire distribution center in Sacalaz. It currently has a work force of about 7,100. “Continental has proven its commitment in being a reliable partner for the Romanian economy. Every year we have expanded the business, reaching an investment volume of around EUR 350 million by 2009 and overall creating more than 7,000 jobs,” Thierry Wipff, GM of the Continental factory in Timisoara, told BR. Meanwhile, American car components producer Delphi started production operations at the end of 2008 at its recently completed investment in its Iasi-based plant, in the local industrial park. The company also started the construction of a new plant located near Iasi in the Miroslava locality. According to the firm, the production facility was scheduled to be completed by the end of this year. The Miroslava investment is a greenfield one. Delphi also owns two car complements production plants in Ineu and Sinnicolau Mare.
Ongoing projects, the investment priorities for industrial producers
Heavy industry showed severe signs of weakening when the crisis started, towards the end of 2008, and companies responded accordingly. Alro, a subsidiary of primary and processed aluminum producer Vimetco NV, brought in hard-hitting cost reduction measures at the end of last year, which focused on core activities and services, relevant business assets and high levels of product quality. The company also implemented programs for the reduction of consumption of raw materials, energy and gas. As a result, indirect production costs were reduced by over 40 percent compared with the 2009 budget. As part of its strategy to address the market situation, Alro limited its investments to projects already in progress, mainly focusing on increasing product quality and the output of flat rolled products. The company had allotted USD 6 million to investments this year. But in the first half of this year, the total amount of investments made reached USD 2.65 million, money which was directed towards projects with the aim of increasing production capacity, upgrading equipment, reducing industrial water consumption and improving working conditions. According to company information, the overall investments made in modernizing Alro facilities reached USD 254 million between 2002 and 2009.The company has continued investing this year, despite the economic climate. Alro has finished the commissioning of its annealing furnace with controlled atmosphere, following an investment of approximately USD 3 million. “Despite the international financial situation, Alro continues its long-term development program, whilst also, in the short run, continuing the implementation of its necessary cost reduction plan. Our strategy is focused on increasing the output of high value added products while offering our clients the best product quality. The commissioning of the annealing furnace is a key indicator of progress in our overall investment program that will allow us to diversify our portfolio of high added value products,” said Marian Nastase, vice-president of the Alro board.Meanwhile, last month Vimetco announced the restarting of Alum, its alumina producer in Tulcea. The refinery underwent an upgrading program that began in February 2007. The reopening of the plant has involved hiring 470 people, meaning that the plant now employs 600 in total.Elsewhere on the market, ArcelorMittal Galati, controlled by Indian businessman Lakshmi Mittal, commissioned this year a new automatic gauge control (AGC) at the heavy plates mill no. 2, following an EUR 8 million total investment. The AGC, linked with the implementation of a new IT system on the rolling line, will achieve a better plate thickness and flatness, as well as improved product tracking. “This investment demonstrates our commitment to continue producing high quality plates in Galati and to growing our business in Romania,” said Thierry Le Gall, ArcelorMittal Galati GM, in June this year. The heavy plates mill capacity at Galati makes the site the largest production facility for plates at group level, followed by Burns Harbor of the United States, and in Europe by Gijon, Spain. ArcelorMittal Galati also made environmental investments of over USD 130 million between 2001 and 2008.
Wind of change blows through energy market
For the energy sector, the biggest investment announced in 2008 came from Czech group CEZ, which bought a 600 MW wind farm in the Dobrogea region from Continental Wind Partners. According to company data, the project requires EUR 1.1 billion of investments. “This wind farm project will strengthen the position of CEZ Group in Romania and widen our activities in energy production. Investing in renewable resources is one of the strategic measures we are taking to respond to the EU energy-climatic package. Equally, we are focusing on extending our production portfolio by gas power plants and nuclear plants, using this as another way to meet our targets to reduce CO2 emissions,” said Martin Roman, chairman of the board and CEO of CEZ. For oil companies, 2008 was a year of significant investments both in retail and exploration and production. Petrom, controlled by Austrian oil company OMV, invested EUR 1.74 billion in 2008, while the company announced that in the first nine months of this year it had invested just EUR 631 million, three times less than the total investments made in 2008.Other companies, such as Lukoil and MOL Romania, strengthened their retail network. “The present context, even though it is challenging, does not suppose a change in the investment principles. We shall continue to expand our network while modernizing the existing filling stations. By the end of 2009, 20 filling stations will have a new layout, corresponding to MOL Group's most updated visual identity. For the coming period MOL will continue to analyze all the market opportunities corresponding to its long-term development strategy and to focus on increasing efficiency in all the company's activities,” said Zsolt Szalay, country chairman of MOL Romania.
Discounters increase investment pace
The local retail market has attracted new investments from many of the foreign retailers active in the country in the last year and this year, although the pace of expansion of their national chains has recently slowed due to the financial crisis. Kaufland ranks top among retailers based on its social capital contribution in 2008. The firm has opened six stores this year, just one fewer than last year. By the end of 2009, it will have invested up to EUR 60 million in new stores in the country, with an average investment of EUR 10 million per unit. In fact, discount store operators kept up their investment pace in Romania this year, while most of the other hypermarket and supermarket operators have slowed down expansion. Real was another active retailer this year, opening two stores after six openings last year, but the value of yearly investments has consequently dropped. The most recent store, inside AFI Palace Cotroceni shopping mall, required an outlay of EUR 23 million. Plus Discount has also been busy setting up units in Romania in 2009. It opened 15 discount stores this year, at an average investment of EUR 1.5 million for each one, which would bring the investment value this year to EUR 22.5 million. Last year it opened 20 shops in the country. Carrefour has opened two hypermarkets this year and five Carrefour Market supermarkets, which shows the continuous focus of the retailer on the supermarket segment. It has also invested in expanding some of its existing units. Delhaize, which runs the Mega Image chain of supermarkets in Romania, bought 14 La Fourmi stores in the country last year, and continued with the acquisition of Prodas supermarkets. Apart from these moves, the company also invested in a logistics center in Popesti-Leordeni. This year, Delhaize increased its share capital by EUR 17 million to fuel its expansion program. Fegro Markt, operator of the Selgros Cash & Carry chain in the country, opened just one store this year, in Bucharest, following an investment of EUR 38 million. Selgros Cash & Carry is part of the Rewe group, which also runs Billa and Penny Market units in Romania. As investments in retail units have fallen due to lower consumer spending around the country, producers of consumer goods have started to implement cost-cutting measures. Some of those, however, include investments as well. Food producer Smithfield announced last year it would put EUR 20 million into a new farm in Timis county, as well as start a chain of stores under the Comtim brand. By the end of 2008, Smithfield had invested USD 600 million in Romania, with most of its production units being greenfield investments. Soft drinks producer Coca-Cola, which has undergone a cost-cutting program and closed some of its production facilities in Romania in the last couple of years, has however invested in a warehouse and in a cogeneration plant in Ploiesti, at a cost of some EUR 16 million. The move should help Coca-Cola further reduce its costs. Overall, the company has invested around EUR 45 million in Romania in the last two years. The company is not listed in the Top 100 foreign investors as the data supplied by the National Trade Register Office takes into account increases in the social capital, while for some companies new investments may not necessarily be reflected in increases in this capital. Unilever, the producer of consumer goods, said it would move two production lines from a factory which it plans to close down in the Czech Republic to Romania. Another consumer goods producer, Procter & Gamble is currently building a new factory in Urlati, a total investment estimated at USD 100 million. This will be the first greenfield project for P&G in Romania.
Real estate downturn brings smaller investment pool
The downturn on the local real estate market has meant fewer investors putting money into new projects this year, with most of the current developments on the market having been started one or two years ago. The market has also seen reduced investment activity, with just a handful of deals recorded this year and last. Construction materials producers have only continued investment plans started in previous years, and as demand for materials has dropped, have not further increased their production capacities. Carpatcement, the local subsidiary of German HeidelbergCement, has invested EUR 350 million in total in Romania since 1998, when it entered the market, according to the company. It runs three cement factories in Romania. Holcim has invested over EUR 600 million since its market entry, out of which around EUR 250 million went on modernization programs and the expansion of production units. Lafarge Ciment, the local subsidiary of French group Lafarge, has recently completed works on a silo in Medgidia, following an investment of EUR 16.5 million. This is the largest such silo in the world, said the company. The investment was planned from 2006, when the real estate market was booming and Lafarge thought it should increase its cement production capacity in Romania. Construction works started in 2008, when the crisis had already hit, but the firm kept working on the project as it expects demand for cement to pick up on the long term. Fewer real estate developers proceeded with their development plans in Romania. Many projects have been stalled until it becomes clearer where the market is heading. Most of the deliveries this year were projects started one or two years ago. The scarcity of new projects on the market was due to the lack of new financing from banks. River Invest has put EUR 30 million into the second phase of the Sema Parc mixed project, out of the planned EUR 140 million investment scheduled for the 2009-2011 period. Investment fund Europolis bought two office buildings in the Sema Parc project in a transaction worth over EUR 100 million. The fund is also planning to start construction works on its Orhideea Towers office project in Bucharest. The investment will amount to EUR 100 million. Investor AEW Europe last year put some EUR 90 million into buying a retail park in Targu Mures developed by BelRom. The same developer sold this year another similar retail park in Braila to investment fund NEPI, in a deal worth EUR 63 million. The real estate arm of Deutsche Bank was also among the few investors to have put money in Romanian properties. The investor signed last year a contract to take over the entire Upground mixed project, for a total of EUR 340 million. So far it has acquired two office buildings in the compound and still has to acquire the residential component. Telecom players invest in mobile internet and new technologies
The telecom and IT industry has been heavily affected by the recession and operators in this industry saw their revenues take a nosedive as of last year. Telecom players fought fiercely over mobile internet, launching new offers and repositioning existing ones, which were the main targets of investments to achieve customer retention. In 2008, one of the main areas of investment for Orange Romania was to expand its network of high- speed mobile data, which has continued into this year. HSDPA internet services with speeds of up to 7.2 Mbps are available in 48 localities while HSDPA 3.6 Mbps are available in over 700 places. Also, the firm's EDGE network has national coverage. “Among the main projects we have invested in this year are the development of the online channel and launching the franchise as a new model of business for Orange business partners,” said Thierry Millet, CEO of Orange Romania. Another main focus is the development of convergent services suited to business clients, which integrate voice and mobile and fixed data, added Millet. Orange also repositioned its postpay portfolio under three categories, depending on the communication needs of the clients. The operator budgeted both in 2008 and 2009 capital investments of approximately EUR 200 million each year, the former CEO of Orange Romania, Richard Moat, previously told BR.Meanwhile, Vodafone Romania will focus on “developing the network and the portfolio of products and services, including mobile data services, which is a segment with growth potential,” said Liliana Solomon, CEO of Vodafone Romania. In September, the firm launched HSPA+ technology which allows it to increase threefold download and upload speeds for mobile data. Download speeds increased from 7.2 Mbps to 21.6 Mbps while upload speeds rose from 1.45 Mbps to 5.7 Mbps. This offer targets mainly business clients. In September 2008, Vodafone Romania premiered on the Romanian market a service (Vodafone Zona Mea and Vodafone Mobile Office Zone) which allows the customer to receive by mobile phone calls made to their landline, a move which the company hopes will both encourage more of its customers to take up fixed telephony and bring it new ones from the competition. At the end of June, Cosmote Group announced it had taken over Telemobil (Zapp), an acquisition for which the company paid EUR 61 million. Additionally, Cosmote also took over the debts and obligations of Zapp, which amounted to EUR 146 million, of which the majority of the funds were spent by Telemobil to expand the 3G and CDMA networks. In October, Cosmote launched Cosmote Private Wire, an integrated solution of mobile and fixed telephony voice services especially conceived for corporate clients. The main investments made by Romtelecom in 2008, and also continued in 2009, were into a strategy to reposition the company as a multi-services entertainer on the Romanian market. “Specifically, we concentrated on growing on the newer emerging market segments, such as data, broadband and television, while also focusing on safeguarding the traditional business. Moreover, we are heavily investing in new technologies, which allow faster speeds, such as VDSL, to allow us to capture as much as possible from the broadband & data market demand,” said Yorgos Ioannidis, CEO of Romtelecom. In April this year, the company launched its commercial offer of mobile broadband based on CDMA technology. “We also plan to launch the IPTV service in the very near future. We have already started to test the service in a few areas,” added Ioannidis. “In 2010 we will also continue to focus on consolidating the position of the company on the growing market segments, such as broadband internet, data and TV services, while coming with appealing proposals for fixed voice service,” concluded the CEO. Elsewhere on the market, RCS&RDS, which has had a 3G license since 2007, launched only this year its mobile internet services for mobile phones and through USB modem at transfer speeds of up to 7.2 Mbps in Timis, Bihor, Brasov, Craiova, Constanta, Cluj and Iasi. The firm intends to take its mobile internet services nationwide by December 2009. “We aim to expand Digi Net Mobil at the level of the entire country so that all our subscribers can benefit from mobile internet services at the lowest prices,” said Ovidiu Popa, commercial manager at RCS&RDS. The firm launched in July the channel DigiSport. The president of the company, Alexandru Oprea, said he plans Digi Sport to have operational expenses of EUR 1.4 million in 2009 and EUR 1.8 million in 2010. In 2008, UPC Romania made total investments of EUR 40 million. The funds went into the modernization of the network and expanding the digital television services. For 2009, the company has budgeted investments of EUR 52 million. “In 2009, we have focused more on investments in the network that have totaled EUR 30 million. The difference, up to EUR 52 million, which is the budget for 2009, was used for various technological services,” said Ariana Badin, PR & communication manager at UPC Romania. In October, the firm launched in premiere on the local market Digital Video Recorder (DVR), a supplementary option to the digital television service it had launched previously. October was a busy month for UPC, which also launched high-definition television nationwide. Badin says the new service had secured, in less than a month from its launch, 3,000 contracts.

IT&C industry struggles with lack of liquidity
IT&C retail was perhaps the hardest hit. Since last year, IT&C retailers have faced an unprecedented lack of liquidity, which has forced many to sell divisions, relocate stores or, in the worst case scenario, declare bankruptcy. Not only were investments scarce, but large retail chains disappeared. In April 2008, Primex, which ran the chains of electronic home appliances and IT&C Teknosa and Cosmo, filed for bankruptcy. Primex was the fourth largest operator on this market. Another example is Ultra Pro Computers, operated by K Tech Electronics, which could be declared bankrupt in December. K Tech has accumulated debts of approximately EUR 28 million to date, and preliminary data show it has in total 84 creditors. In December 2008, Ultra Pro Computers had 55 stores. Since July, the retailer has not opened any more outlets. In 2008, K Tech Electronics posted revenues of EUR 84.9 million. In the first six months of the year, its income fell dramatically to EUR 13.5 million. Elsewhere on the market, Flamingo International has undergone reorganization, after a bumpy period in the company's history. QVT fund had previously called for the dissolution of the firm and opposed the decision of the Shareholders' General Meeting in favor of an injection of new capital into the company through a bond issuance. Later, QVT sold its 22 percent participation in the company to a foreign fund which will support the company's re-launch strategy, and the bond issuance will go ahead this month. The transaction amounted to EUR 1.2 million. The company also changed management. Adrian Olteanu was placed at the head of the firm. The main shareholder in Flamingo International is Dragos Cinca, with 25.2 percent of the capital. Businessman Dan Adamescu, through two of his companies Nova Trade and Astra, has 17.54 percent of shares, while Alexandru Ion Tiriac has 5.12 percent. Last year in April, Asesoft Distribution purchased 50 percent of the shares in Combox Delivery. The value of the transaction was not made public. At the end of March 2008, Asesoft announced it had taken over a 25 percent share package in delivery company Curiero for EUR 7 million. In March 2009, Asesoft Distribution also announced it had purchased the indirect distribution division of Flamingo International. The value of the transaction was not made public. “The object of the transaction is that Flamingo cedes to Asesoft some contracts of indirect distribution. In 2008, the respective contracts represented a ratio of 15 percent in the entire turnover of Flamingo. In 2008 Flamingo International posted a turnover of EUR 203 million,” commented officials.Whoever had cash to spend on the online retail market invested in this period. In April, Asesoft Distribution took over a 51 percent stake in eMag. The value of the transaction was not disclosed but the media put it at EUR 10 million. eMag estimated a turnover of EUR 110 million in 2008, but later revised its estimations downwards by approximately EUR 40 million. Also in online retail, businessman Marius Ghenea, owner of FiT Distribution, launched an online toy sale store called ToyFun.ro in May 2009. The company aims to obtain a turnover of EUR 450,000 by the end of the year. Ghenea said that the investment that will go into the first year of activity for the site will amount to EUR 200,000. He also took over a new online store, PCGarage.ro in September. In November last year, the manager bought the shares of Gravity Design SRL, which had the brands www.floridelux.ro and the seasonal site www.brazidecraciun.ro. At the beginning of this year, Ghenea took over the e-commerce domains 24pc.ro and shopit.ro.