Dutch courage helps maintain top slot

Investors from the Netherlands were among the pioneering companies that came to Romania as early as the beginning of the nineties, increasing their presence after EU accession in 2007 and now claiming prime position among the country’s top foreign investment sources. Business Review takes a look at the results posted by some of the big Dutch investors in 2010 as well as their future plans.

Simona Bazavan

Dutch and Austrian companies have been fighting it out for the top position among foreign investors to Romania for the past decade, according to National Bank of Romania (BNR) data. But while many of the investors coming from the Netherlands are Dutch-capitalized companies, others are foreign firms registered there due to a friendlier fiscal regime than in other European countries.

Judging by official statistics from the Netherlands Embassy in Bucharest, at the end of 2010 there were 3,846 Dutch-capitalized companies registered locally, with a total investment value of EUR 5.85 billion, making the country number one in the league table of foreign investors in Romania. At the end of 2009 total investment amounted to EUR 4.06 billion and there were 3,584 Dutch-capital companies registered in Romania.

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Wholesale trade, agriculture, horticulture and the food industry, ship building, transport and logistics, banking, insurance and financial services, water management and irrigation are the main fields targeted by Dutch investors so far.

As for potential future trends, the Dutch are now focusing on logistics and infrastructure, water, waste management and energy. “Aside from that, there is great potential for the development of the Romanian agri-food sector. The Netherlands has a lot of expertise in this field. We are the second biggest exporter of agri-products worldwide, while Romania, with the potential to feed 80 million (EU) people, is a net importer. Romania could greatly benefit from Dutch expertise,” Hans Smaling, counselor of economic and trade affairs with the Netherlands Embassy in Bucharest, told BR. He added that Romania has the potential to become a trade hub for Central and Eastern Europe with the port of Constanta as a gateway.

“There is a need for the development of the port of Constanta and the Danube ports, better navigability on the Danube and investments in water management. In these sectors we are happy with the activities of the two public-private partnerships between the Ministry of Economy from the Netherlands and Dutch companies active in these fields in Romania: the European Gateway Platform and the Netherlands Water Platform respectively. Their objective is to promote Dutch expertise in Romania and stimulate new investments,” Smaling said.

The empty half of the glass is that many of the issues that hindered Dutch investors, as well as those of other nationalities, a few years ago, still apply. Bureaucracy, the payment of arrears, legal uncertainty and issues related to public procurement continue to be a challenge for the local business environment.

Den Braven seals the deal

A well established Dutch investor on the local market is Den Braven Sealants through its local subsidiary Den Braven Romania. Since 1997 the company has invested about EUR 25 million locally, approximately EUR 20 million of which went into a local polyurethane foam plant, the group’s only one in Eastern Europe. Another EUR 100,000 was invested in 2010. The local construction market has fully felt the strain of the recession and 2011 will most likely continue to be a difficult year.

“The growth registered in the first three months is a positive sign, but in my opinion its effects will not be visible across the entire economy until at least five years’ time because there haven’t been any new investments in the last few years and the public’s low purchasing power will not be able to sustain consumption that in its turn would generate healthy economic growth,” Adrian State, general director of Den Braven Romania, told BR. He added that he also believes that the construction market will hit its lowest level in 2011. Nevertheless, Den Braven Romania has reported a EUR 39.5 million turnover for 2010, 28 percent up on the previous year. Officials said growth was possible as the firm had invested in production prior to the beginning of the economic crisis.

The company’s exports reached EUR 19.6 percent in 2010, up 62.7 percent compared to 2009. Sales of polyurethane foams, the company’s main product, rose 65 percent on external markets and by 11 percent in Romania. Den Braven exported to 32 countries, with Poland, Austria, Italy, the Czech Republic and Slovakia its main export destinations.

In Q1 2011 Den Braven Romania reported an EUR 8.1 million turnover, 25 percent up on the same period of the previous year. The results were generated by a 46 percent increase in exports, while local sales hiked 3 percent against the backdrop of bad weather and lack of investment projects. Overall, the company estimates that its turnover will go up by at least 10 percent in 2011.

In the summer of 2010 Den Braven was taken over by two Dutch investment funds, Egeria in partnership with Wagram, which acquired its majority share package. The new shareholders made public at the time that they intended to increase production capacity by investing in the local Den Braven foam plant. The investments are predicted to double the turnover of the Romanian subsidiary over the next couple of years, according to company representatives.

Looking to reap new business opportunities

Agriculture is often mentioned with energy as one of the fields that can bring considerable economic growth to Romania in the years to come. An example of a company with such intentions is Sequoia Management, which has announced plans to invest roughly EUR 5 million in the first phase of an agriculture project and another EUR 20 million in biomass with the latter project depending on the approval of the legal framework and legislation for green certificates, Igor Jitta, the company’s managing director, told BR.

Sequoia is an independent corporate finance advisory and private equity firm, specialized in strategic corporate advisory services and private equity investments with a focus on the Benelux and Romania. The local office was founded by Jitta in 2008.

“In addition to its corporate finance advisory practice, Sequoia is actively looking for direct investment opportunities,” he added. One of Sequoia’s group companies is shareholder of local freight forwarding company IB Cargo which has seen a 20 percent revenue increase last year, according to the MD.

Retail raises problems

Heineken Romania, part of the Dutch Heineken Group, was founded in 1998 under the name of Brau Union. The company reported a RON 934 million turnover for 2010, 7 percent up on the previous year. Sales volumes went up by 6 percent, mainly due to the Ciuc Premium and Bucegi brands.

“In 2010 Heineken Romania reported a 7 percent turnover increase compared to 2009, against the local beer market’s downward trend. This performance proves that our long-term strategy of focusing on market share is paying off, although 2010 was a difficult economic and financial year,” said Jan Derck van Karnebeek, general manager of Heineken Romania.

As of April the brewer imports eight more brands from its international portfolio: Amstel, Birra Moretti, Krusovice, Foster’s, Murphy’s, Strongbow, Sol and Desperados.

Other brands in the Heineken portfolio are Ciuc Premium, Golden Brau, Neumarkt, Bucegi, Edelweiss and Zipfer (both imports), Gösser, Schlossgold, Silva, Gambrinus, Harghita and Hategana. It has breweries in Miercurea Ciuc, Targu Mures, Craiova and Constanta, with about 1,100 employees.

The Romanian beer market sank by 3.5 percent last year, falling to a volume of 17 million hectoliters, according to the Brewers of Romania Association.

The economic crisis has made victims of local retailers and one such example is Spar which entered insolvency in 2009. The local Spar network is operated by Dutch company Spar International. While back in 2008 Spar Romania reported a turnover of approximately EUR 44 million through 21 local stores, last year its business reached only EUR 10 million. By the end of 2009 the company had closed a third of its units and the remaining network was halved in 2010. “Spar Romania experienced significant difficulties with retail sales falling to EUR 10 million. Store numbers also decreased from 14 to 7. It is expected that a new Spar structure will be implemented to develop Spar in Romania,” reads the company’s 2010 annual report.

Spar International started operations locally in 2005 with the first store being opened the next year by two local businessmen from Arad under an operating license from Spar International. In 2010, Spar worldwide had retail sales of EUR 29 billion from 12,136 outlets in 33 countries.

The Dutch way of handling money

ING Bank, part of the ING Group, was one of the first banks to open a subsidiary in Romania after 1989. Besides the banking wing, ING is present locally through five other divisions, ING Asigurari de Viata, Pensii, Lease, Commercial Finance and Real Estate Investment Management.

In the first quarter of 2010, ING Group reported a EUR 1.38 million net profit compared to EUR 1.23 billion the previous year. The underlying return on equity improved to 14.7 percent. Back in 2009, ING Bank Romania posted a gross profit of RON 84 million, 20 percent down on 2008, and a RON 695 million net income, up 30 percent on the previous year. On the insurance market ING posted RON 527.1 million gross written premiums in 2009, down 5.4 percent on the previous year.

Dutch Eureko Group is present in Romania through Eureko Asigurari and Eureko Societate de Administrare a Fondurilor de Pensii Private. In 2010, the group’s gross written premiums increased by one percent to reach EUR 19.85 billion. The Dutch group’s net profit was EUR 1.22 billion, down 12 percent compared to the net result reported in 2009 (EUR 1.38 billion). Group assets reached EUR 93.9 billion, up one percent from 2009. The solvency ratio was 220 percent at the end of 2010. Eureko Romania was founded in 1995 as Interamerican Romania and rebranded as Eureko in 2009.