ADVANTAGE AUSTRIA Romania celebrated 70 years this week, the occasion being marked by the release of “Celebrating 70 Years” anniversary book, which reviews the long standing history of the Romanian office of ADVANTAGE AUSTRIA, Austria’s official trade promotion organizations. A department of the Austrian Federal Economic Chamber, ADVANTAGE AUSTRIA has more than 650,000 member companies, and employs 800 people of 80 different nationalities across 100 offices in 70 countries. This makes ADVANTAGE AUSTRIA the second biggest office network in the world after the US Commercial Service. Founded on May 1st, 1950, the Bucharest Office was the 5th office opened worldwide after Paris, London, Frankfurt and Rome. BR also wanted to mark this occasion and sat down with Gerd Bommer, Head of ADVANTAGE AUSTRIA Romania, for an in-depth talk, part of #FISPreview, a new series of interviews which prefaces the upcoming Foreign Investors Summit 2020.
You’ve represented ADVANTAGE AUSTRIA in several countries like the USA, Finland, Latvia and Qatar before becoming Head of ADVANTAGE AUSTRIA Romania in 2016. Were you familiar in any way with the specifics of the Romanian business environment before this appointment?
I have to be honest, that I was never before in Romania, neither as a tourist, nor as a posting. But Romania as a “next destination” came into my mind, because I had Romanian friends and they were all warm and lovely people, who motivated me to do that step. Also, I have been living abroad for quite some time now, far away from Europe, and I couldn’t see my friends and family as often as I would have wanted to. The move to Romania brought me closer to them. Furthermore, the very strong position of the Austrian companies in Romania makes it a highly attractive and interesting posting. Romania is within the top 15 countries for Austria in every aspect. In terms of exports is in top 15, but in terms of direct investments is in top 5. Plus, there is a lot of potential and dynamic in the Romanian economy, which means you can do a lot and that’s what I was interested in. As Heads of the ADVANTAGE AUSTRIA network we do know and contact our colleagues beforehand and do get really good information, furthermore we do reports, when leaving the offices, which are also a great preparation and wealth of information for the successor. Overall, I’m very happy I took this decision, I’ve been here for 4 years and I’m very happy.
You have been Head of ADVANTAGE AUSTRIA Qatar for almost 5 years, now you’ve just entered your 5th year as head of ADVANTAGE AUSTRIA Romania. How would you describe the differences, but also the similarities, in terms of FDI opportunities and bilateral trade between the two countries?
Those 2 experiences are hardly comparable, as Qatar was a completely different style of living and working, as there were only approx. 35 Austrian companies physically present in the country and as the main drivers of our daily business were the construction sector and project business. Qatar discovered its big gas and oil reserves only in the 1980s and the exploitation of these reserves only started off later. The rise of Qatar, “the biggest small nation in the world” as it’s called, came relatively late, in the 2000s. That led to a lot of financial revenue which they transformed into a very strong development, as for instance Dubai did.
Qatar was interesting mainly in the construction sector and project business, the metro being built, the highways, new buildings and so on. This was a completely different setting, because the domestic market was not interesting for foodstuffs, for consumer products, but we have been very strong in the project business, which exploded in the 2010s. I opened the office in Qatar 2011, and that helped our Austrian companies create a very strong influx of contracts and projects.
Romania is not only an attractive market in terms of construction and other projects, but also in terms of domestic market and exporting from Romania, what has been produced in local production units. There are 3500 Romanian companies with Austrian capital and 1500 Austrian companies active on the Romanian market. Those facts give much more basis for a positive FDI decision plus Romania has qualified and well-priced labor force, which has to be “imported” in Qatar. The Austrian companies in Romania serve the domestic market, we export from Romania, and we also produce for the Austrian companies, and when I say produce I don’t mean just tangible products, but also intangible like software development, or IT security for example. The strong and big domestic market with huge potential attracted many investments in Romania. Furthermore the privatization process ignited a wave of FDI’s from Austria in Romania, a fact, which is not at all given in Qatar, where you need a local partner.
I know you travel a lot around the country. After Bucharest, what city ranks first in terms of Austrian investments in Romania?
After Bucharest, Cluj-Napoca is pretty clearly the most important city for us for two reasons. One is the metal industry and the other one is IT. Cluj is in IT the most dynamic biotope, despite Bucharest being bigger. Then of course, Timisoara, Sibiu, and Brasov, are also important. But Austrian companies are spread somewhat evenly across all over Romania. From Suceava to Timisoara, from Constanta to Satu Mare, it doesn’t matter where, Austrian companies are present. But in terms of centers, it’s Bucharest clearly, including Ilfov, and the next one would be Cluj-Napoca, where I do have a second office to serve the business community there.
In what sectors Austrian FDIs were the most influential for the Romanian economy?
Austria is the market leader or amongst the 3 market leaders in sectors like oil/gas, banking, insurance, logistics, sugar, packaging, construction, energy production (especially renewable), construction materials, real estate development and wood processing. Those sectors have been shaped strongly by Austrian foreign investors over the last 30 years.
Austrian companies are some of the most active foreign investors in Romania ranking constantly over the years among the top 3 countries of origin for FDIs. Why do you think this is, our countries geographical proximity, our shared historical ties?
There is no simple answer, but a wide variety of reasons. In the 1990s, when markets opened up in CEE, we were the pioneers. For example, the first foreign bank opened up in Russia was an Austrian bank. We are a bit daring and we have a cultural background that helps us a lot. Let us start with history and cultural ties, which have been long-standing. We must not forget, that Vienna is more eastwards, than Prague and very close to Bratislava and Budapest. As I’ve said, Austrian direct investors are pioneers with a great portion of bravery, determination and endurance. They especially focused on Central, Eastern and South-Eastern Europe as the potential was high, demand was strong, the markets big, competitors from other countries hesitated for many years, the production capacities (land, energy, labor force) were abundant, great opportunities in form of privatization on the market and we do have a distinct cultural feeling for the people and business world.
“Until the takeover of Borealis in Abu Dhabi by OMV of this year, the takeovers of Petrom by OMV and of BCR by Erste Bank were the two biggest FDIs ever done by Austrian investors abroad.”
ADVANTAGE AUSTRIA Romania turns 70 years this month. You’re launching a book with this occasion, on the history of the Romanian office. Walk us through the milestones of ADVANTAGE AUSTRIA Romania.
The opening of the office of ADVANTAGE AUSTRIA in Bucharest on the 1st of May 1950 was the 5th office opened worldwide after Paris, London, Frankfurt and Rome. This emphasized the importance of Romania for Austria. We’re really proud to be here in Romania and to have such wonderful hosts and host country.
Today ADVANTAGE AUSTRIA has more than 100 offices in over 70 countries in this world. The intense business interaction started with a bilateral trade volume of EUR 115 mio. and today stands 35-fold at more than EUR 4 bio. The 1990s were pioneering days, the 2000s were the heydays of new Austrian investments in Romania and after the financial crisis our commitment and endurance was the highlight. Austrian companies kept on investing and reinvesting and moved into a very strong position!
There is a longstanding history, in the book we concentrated on the last 20 years, because this is when we had this “big push”, but we are very happy to be able to support the Austrian companies because this celebration is actually to show their accomplishments, their performance, their efforts. I think it’s all about the companies and not that much about us, without them we wouldn’t exist, without our Romanian partners we wouldn’t exist.
In more recent history, Romania has seen 2 major events which shaped the country we see today: the 1989 Revolution and the 2007 integration in the EU. How were these events seen from the eyes of ADVANTAGE AUSTRIA and Austrian companies and investors?
1989 was a repositioning of Romania in the world. That opened up a lot of new opportunities for Romania, a new development and development speed, but also, of course new opportunities for foreign investors. It created a new market with a lot of potential, manifold opportunities in the market and especially the privatization of state-owned companies helped achieving a strong position in short time.
The EU integration was another strong push forward, though a bit overshadowed by the financial crisis, which started soon after, but it led to the harmonization of more or less everything. The legal and tax aspects, permits, approval procedures resp. mutual recognition of technical standards, checks, education and the like made business much easier, therefore boosting the development of bilateral trade and direct investments even further. That made business much easier and also gave a huge boost to the development and prosperity of Romania.
“It took a bit of time for Romania to implement the new EU standards and regulations, and I don’t mean that Romania is lagging behind, but it’s a process. The European Union is a century project and nothing comes overnight.”
In the past 20 years, Austria has seen an “eastward trend” in its foreign investments, with almost half of its FDIs going into Central and Eastern Europe, with Romania among the top countries on the receiving end of these investments. Is there still room for new Austrian investments, or do you think the Romanian market is somehow saturated and Austrian investors will start looking at other countries in the region?
The market potential in both domestic terms but also in terms of exports is so huge in Romania that the trend of investments is going to continue. Of course, it’s not going to be as massive as in the 2000s, but the trend is still clearly positive. For instance, we saw that the Austrian construction company Leier invested EUR 25 million in three factories in 2019 and even now during the Covid crisis, coming out of the crisis with bigger capacities will give them a competitive edge.
Austrian businesses still have high goals in their development in Romania, therefore you can expect them to stay here and keep on investing and reinvesting. Think about the gas exploration in the Black Sea, the many big infrastructure projects seeing a new dynamic now, the enormous potential of tourism in Romania and the ever rising disposable household incomes.
As a second point Covid-19 showed us the vulnerability of far destinations for production and supply chains for home markets. Therefore, we rather expect the investments in far countries rather for their domestic markets and not like in Romania for domestic markets, supplies for the mother companies in Austria or worldwide exports.
“If the infrastructure push that the government goes for right now continues over the next few years, this is going to have a massive impact. The demand is there and is growing, and the country is going to develop. I see more than enough potential.”
Austrian companies are present in many industries of Romania, such as banking, realty, energy, retail, etc. Do you see any possible untapped business sector in which Austrian investors could be interested in?
We do not fully understand why the food and beverage sector is so underrepresented by Austrian companies here, that is one such industry. Definitely the metal industry provides many opportunities, the IT sector and also the domestic tourism potential could open up opportunities for Austrian investors. There is always room to improve in the tourism industry. Brasov is the city with the biggest density of tourists and just to give your readers an idea, for winter tourism we started to develop the “Cupa de Ski Austriaca” (Austrian Ski Cup) in Poiana Brasov, which was just a ski race in the very beginning. Then we did a round table and now we’re planning to set up a whole conference for winter sports, around the “Cupa de Ski” in its fourth year. So we’re trying to show what can you do in the winter sports industry and if that is fully understood, then we think we can push for investments in that area.
“Austria, in terms of per capita income, is the biggest tourism country in the world, with double the per capita income than Spain, for example. 16 percent of our GDP depends directly or indirectly on tourism so we really know what we’re talking about. Tourism is definitely one of the sectors that has opportunities for the next 20-30 years.”
Does ADVANTAGE AUSTRIA Romania prioritize any specific sectors for future investments?
We do not do that for investments only, but also to facilitate Austrian additional exports and the sectors are in the food and drinks industry, wood processing, construction materials, tourism industry, oil and gas, and of course Romania’s strong IT sector.
What is/wil be in the near term the biggest competitive advantage of Romania as compared with other countries for attracting FDIs?
A big competitive advantage is the big domestic market, with 19 million inhabitants, plus strongly growing disposable household incomes, which means there’s going to be a lot of money going into consumption. Houses will be renovated; new cars will be bought – the car sector right now is booming again – so the domestic market together with the disposable household income will be a big push for Romania.
Also, the favorable production conditions and especially the untapped potentials. But the emphasis of Romania has to go towards productivity. If you raise salaries by 8-10-12 percent per year or more, and the productivity doesn’t do the same then Romania will lose the competitive edge it had before.
How would you start a national branding campaign for Romania in order to attract new FDIs?
We are in good contact with Invest Romania, which is a great project, they are the experts in that field and we support them happily, as it creates win-win-situations for everyone. We are going to do a webinar together with Invest Romania, where I am going to be one of the speakers. This is what I mean, go out, speak about your advantages, show them to the world.
Besides the branding I guess it is very important to out into the target markets and present your favorable conditions. Where do you see most investments coming in from, where do you think the most potential is going to come in from, and this why you have to go out there and communicate: if you have good conditions, talk about it, let people know.
What are the biggest obstacles faced by foreign investors, Austrian or otherwise, in Romania? How can we solve them and attract more FDIs?
The bureaucracy – red tape – is a real issue. We talk with the government all the time. Facilitating businesses to work with less focus on bureaucracy could attract more FDI. Therefore, processes should be streamlined, re-engineered and digitalization should be even more of a high priority, but the government already put it on its agenda. It’s not very easy right now, but in terms of bureaucracy, there’s a long way to go. Also, stability, predictability and transparency are the three major words, this is what a foreign investor needs.
We have Austrian companies invested in 50 different markets, we have companies in 180 different markets. The conditions are not the same everywhere, are completely different in fact. But the investor can actually adapt to the market condition, but the point is for the market to be stable, you can’t change the rules every 6 months. You have to keep it stable and predictable, because if you have a big investment right now, it will take 2-3 years until the investment is actually operating. The last is transparency, let companies know what you’re doing.
Austrian companies are also very active in the transition towards green energy in Romania. Based on your experience, how can Romania make this transition work?
Romania was extremely successful in kicking off the transition with its Green Certificate System. The changes to this system then nearly completely halted all investments in that sector. Distinct changes are necessary in that area in order to facilitate the transition to gain momentum again. The Green Certificate Scheme should be adapted into an area where it’s healthy, for the state, for the companies as well, which means you should find the right balance where you attract investments but you don’t overpay the investors.
Likewise, legal changes could give a great impetus, e. g. if building standards are upgraded in that sense. With legislation you could force companies when they’re doing an investment into production facilities to have photovoltaic panels or solar-thermal panels on top of their roofs. You can do subsidies schemes for single family homes, or for electric cars, which already happened in Bucharest, with a subsidy of EUR 10,000 for EVs, which is quite high, but it ignited an electric vehicles boom. The same can be done with renewables.
Bio-gas and bio-mass are two underrated sectors at the moment, both have been shaken a bit by regulations, but if you allow projects in that sectors, then Romania can do a lot.
You are also the Commercial Counselor for the Austrian Embassy in Romania. What can you tell us about the diplomatic and commercial relations between our countries and how do you see them developing in the future?
Diplomatic relations have always been excellent, but I guess our Ambassador Isabel Rauscher is much more qualified to talk about that. I know they have been longstanding, this year we are celebrating 100 years of diplomatic relations between our countries, which have always been very good.
For the commercial relations, I clearly do expect the strong upward dynamic to persist! Even Covid-19 cannot change the mid-term development.
In 2019, Austrian imports from Romania were reported at USD 1.7 billion, while exports to Romania were USD 2.8 billion. How do you see this balance developing in 2020 and how could it be improved in the next 5-10 years?
Of course due to the Covid-crisis we did see a fall-back of the bilateral trade, which was actually not as dramatic as we anticipated in the beginning. Overall our internal estimate for additional export potential is in the area of 8% annually. In terms of imports the Neptun offshore gas project and BRUA could be a huge game changer, if substantial quantities are being traded via the hub Baumgarten in Austria.
The biggest challenge of this year was of course the Covid-19 pandemic. How did the organizations you represent (ADVANTAGE AUSTRIA and the Austrian Embassy) adapt in this new context? From your interactions with them, how did the Austrian companies react to these challenges?
As an office, for the physical and social distancing regulations and sanitary measures we of course follow all the rules, but in terms of services we offered in the past half year, we were much more focused on traveling measures, economic impetus programs and the like. We did already serve 20 % more clients this year, than in 2019 overall. What changed a bit were business trips, meetings, which of course went down to about 10%.
Austrian companies were very cautious in terms of business trips and physical meetings, but the move to digital was very quick. Investments have not been stopped, that is what I can clearly confirm. A problem that remains in the digital world is the new customer acquisition, there we see the need for real face-to-face contacts. But Austrian companies did not stop investing, showing that we’re here for the long term.
How do you see the economic recovery measures implemented by Romanian authorities?
Recladim Romania! The economic recovery measures by the Romanian government are very comprehensive and both deep and broad, meaning reaching many beneficiaries, but also going a long way for them. I do see a strong need to support especially Romanian Small and Medium sized Entrerprices (SMEs). But you have to get the money, grants, or the guarantees promised to reach the companies, and you also need to have a bit of a long term vision. The companies that really need this aid are in the tourism sector and SMEs, they are financially not as well equipped as the bigger multinational companies.
“Kurzarbeit for instance brings a lot of flexibility and cost saving for companies.”
At Business Review’s upcoming Working Romania conference, we will be talking about employment opportunities and vocational training programs with some of Romania’s top professionals in these subjects. At ADVANTAGE AUSTRIA you’re currently involved in the Dual Education project, which supports youth exactly in those fields. Tell us more about this project. How does it work and what are its main goals?
It makes me proud, that you know about our projects in Bucuresti, Cluj-Napoca and Ploiesti in the fields of welders, metalworkers, sales staff, electricians, auto mechanics and auto body painters. The only PR we do for this project is towards the students we want to attract. Every 7th Romanian dual education student is in one of our programs and we see this as the absolute win-win-win situation. A clear win and goal for the companies are the skilled workers they get this way, for the youth it is a sustainable career opportunity, the strong focus on practical work in the companies is positive for both sides and the parents know, that their children have a secure future with a dual education program. We are happy, that we can contribute to the social and economic development of Romania, our Austrian investors and the skilled workers.
Let me inform you, that our dual education programs in Romania are right now one of five finalists at the World Trade Promotion Organization Awards for a World Award in the category of “Best initiative to advance trade related sustainable development goals”. The Covid-crisis postponed everything and the award should be awarded digitally in October 2020, instead of May. We are really excited about it.
The limited (specialized) human resources represented the most important issue for many investors before Covid-19 crisis. What will be the reality in the next year, in your opinion?
One thing that we have seen, both in Austria and in Romania, is that the biggest proportion of people unemployed, in Kurzarbeit, or in technical unemployment, is actually made up of unskilled workers. There are certain educational backgrounds that lead into unemployment. It’s a sectoral problem and it will take some time until we can solve this.
In my opinion Romania will have a smaller dent in the development and a much stronger growth next year, than other countries. Romania is therefore in a great position in my opinion. In terms of workforce the skilled workers and white collar sectors are not impacted strongly, the scarcity is still given there, but the other blue collar sectors suffered and not strongly trained and educated workers will be much easier available.
For the industry, Q3 and Q4 will be rather difficult and they will recover only in 2021, so let’s see what that means in terms of economic development. But, talking about government programs, the push for direct investments from abroad and the infrastructure push will show an enormous effect.
What will help ease the situation is productivity gains and digitalization resp. streamlining of processes. The government and authorities should focus on those areas and education programs.
On the same subject, in what sectors do you think Romania needs a bigger and better specialized workforce? Is the Dual Education project prioritizing these sectors?
The workforce scarcity has reached all areas in the last years, but especially skilled workers tended to work abroad. Our dual education projects have been chosen after conducting a study with Austrian investors in Romania, which showed a massive demand. The results of this study defined our strategy in terms of profession, geography and number of students.
On October 21-22, Business Review will host the 7th edition of the Foreign Investors Summit. How do you see the future of FDIs in Romania and what is your message for those involved?
A crisis is the best time to invest! Romania stays attractive!
I had some talks with Austrian investors and I asked them “Are you going to step down a bit, are you going to slow down?” and they said “No, full speed forward!” because a crisis is the best time to invest, and after it we are going to be in a better position than before.
Romania, and the Romanian economy is going to stay attractive for the Austrian investors. We are here to stay and we are going to develop our countries together.