From retail to real estate, German fortitude persists

The hard economic times have made some businesspeople think twice and reconsider their future strategies, but German investors are hanging tough and continuing to invest. With a strong presence in retail, production and energy, German investors believe in the potential of the local market and are hoping for better times.

Simona Bazavan

Last year, Germany ranked third among foreign investors to Romania with investments amounting to EUR 2.86 billion, about 24 percent more than the previous year, Julia Kohlheim, head of the economic section at the German Embassy to Bucharest, told Business Review.While German investors say that they are here to stay, they are also calling for responsible policies from local authorities to stabilize the business environment and if not create incentives, at least not erase some of the existing competitive advantages.

“I believe that Germany will further invest in Romania. Even though other countries like Hungary or Poland are more in the focus. I believe that more activity will take place in the fields of energy, waste management and production, and also in retail,” Jörg K. Menzer, managing partner of Noerr Bucharest Office, told Business Review.

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Retail – make or break

Retail is probably the leading sector for German investors in Romania. In spite of declining demand and worsening market conditions German retailers are holding their positions and continuing investments, hoping for better times.

DIY retailer Praktiker Romania entered the local market in 2002 and has so far invested over EUR 260 million here. It owns 26 stores in 22 cities nationwide, with a total sales area of 170,000 sqm and about 3,000 employees. In 2009 the company posted a EUR 257.6 turnover, 15.7 percent less than the previous year. Praktiker representatives said that in the context of the significant decrease in the DIY market, the drop was mainly caused by the depreciation of the exchange rate. The retailer is planning a series of expansion projects for some of its stores in Romania.

German Tengelmann Group runs two retail chains in Romania: discount chain Plus, which has been expanding throughout the country since 2002, and DIY retailer OBI. The latter has recently opened a EUR 5 million store in Ploiesti, its fifth in Romania after shops in Oradea, Bucharest, Arad and Pitesti. “Since the beginning of our activity and until the end of this year, we have invested around EUR 50 million”, Romano Quinzi, the company’s country manager told Business Review. “After the latest opening of our store in Ploiesti, that proved to be quite a success and has captured a lot of interest by the consumers and clients – exceeding our expectations, we have two more new openings: on August 26 we shall inaugurate our store in Sibiu, and by the end of September, our second store in Bucharest”, he added.Pludi Market SRL, the firm operating the Plus discount stores in Romania, opened last month its 100th store in Romania in Vaslui county, in which it invested EUR 1.5 million. The company currently has 2,102 employees and has announced that it has invested over EUR 200 million in stores and its logistics center in Ploiesti.

Selgros Cash & Carry, part of the German group Rewe, opened its 18th store in Bucharest last year, with an investment of EUR 38 million. The latest store is the company’s fourth in Bucharest and is located in the Drumul Taberei area of city. With an average investment of EUR 15 million in opening a Selgros store in Romania, the company plans to reach 20 in the future. The Rewe group’s other retail chains, Billa and Penny Market, also have a local presence.Another major player on the cash & carry segment is Metro Cash & Carry which is part of the international group of the same name. It entered the local market in 1996 by opening its first distribution center in Bucharest and has invested about EUR 500 million in Romania so far. Today the store network includes 25 distribution centers. Metro opened this May its fifth cash & carry distribution center in Bucharest after a EUR 15-20 million investment. The company has also recently launched a new store concept – Metro Punct – targeting resellers exclusively.

German insurance for hard times

German insurance companies are well represented on the Romanian market. The biggest player on the local general insurance market is Allianz-Tiriac. Asigurari Allianz Tiriac posted around EUR 303.5 million in income from gross written premiums on the general and life insurance at the end of 2009, down EUR 22.9 million on 2008. The insurer announced that it had signed up over 1.3 million contributors to mandatory and optional pension funds by the end of last year and made a RON 9 million operational profit from life insurance, a rise of about 3 percent on 2008.

Another player on the market is Signal Iduna Asigurari de Viata SA. Founded at the end of 2008, the company posted a total value of gross written premium of RON1.14 million for 2009. “The investment made by our shareholders to date is more than RON 43 million, out of which more than RON 14 million was invested in 2009,” Leslie Breer, president of the management board of Signal Iduna, told Business Review. “Starting up our operations during the recession that has impacted Romania led to reduced growth dynamics throughout the insurance industry. Looking at the market, in the last year we have seen a decrease of premiums which is putting the market back by two-three years. This has hit life insurance lines especially hard with substantial lapses and surrenders because the customers needed more liquidity and had less available income. Overall 2010 will continue to be a rather difficult year for personal insurance lines. I think that in the life insurance segment, clients will prefer more traditional products,” Breer added.

On the legal services market German Noerr founded an office in Bucharest as early as 1998. “As the only integrated international law firm with a German background we have advised and continue to advise many of the major investors in Romania, not only from Germany, but from all over the world. We are one of the biggest firms on the market and help our clients in all fields of law, tax and financial advice,” Menzer told Business Review. “In 2009 we also increased our workforce and invested a considerable six-digit sum in IT and human resources.”

Investors lose their energy

While players on the market agree that Romania has huge potential both for conventional and renewable energy, they also concur that the authorities’ support is crucial, especially in times likes these. The freeze in utilities prices only adds more pressure. “This is not a long-term solution and will only cause an accumulation of pressure in the system. A long-term solution should be based on sending the right signals to investors: predictability, stability and transparency in the legal framework and a reasonable rate of return that is correlated with the specific risk of that particular industry,” E.ON representatives told Business Review.

A member of the German E.ON Group, E.ON Romania is the platform company, founded in 2009 by the merger of the holding companies, E.ON Gaz Romania Holding and E.ON Energie Romania, which supports the group’s operational companies in Romania in the natural gas and electricity sector. They have been active since 2005, since the privatization of state-owned companies Distrigaz Nord and Electrica Moldova.“Between the privatization in 2005 and the end of 2009, E.ON invested approximately EUR 850 million in Romania, including the takeover contracts of Distrigaz Nord and Electrica Moldova (worth around EUR 400 million). The investments made so far were mainly targeted at the modernization and development of the energy distribution grids,” representatives added.

“While in 2009 E.ON Group managed to invest RON 260 million, unfortunately, this year our companies have been forced to adjust the initially proposed investment budget, which will fall significantly below last year’s amount,” company representatives continued.

Elsewhere, investments are still taking place. ABB has finished the 110/20 kV Harman substation, whose beneficiary is FDEE Electrica Distributie Transilvania Sud. Situated in the eastern part of Brasov, it supplies power to consumers in the area. The general contractor of the project was ABB in Romania.

Real estate gets real

German investors in real estate and construction were by no means spared by the significant decrease of this industry. Heberger Constructii, belonging to German Heberger-Group, was founded in 2004. In 2008 it delivered projects such as the Floreasca Business Park and a Felbermayr Service Station in Ilfov county. After posting a EUR 65 million turnover that year, in 2009 the figure plummeted to approximately EUR 19 million. The company’s current projects include an industrial facility in Chiajna and the Residential Development Parcul Banatului Chitila project, which are due this year.Fewer construction projects also translate into less demand for building materials and other related products. PVC profiles producer Gealan Romania says 2010 will be a difficult year for the industry, as was 2009. The market is expected to be back on the up only in 2011. “This year was a challenge for us and for our partners […] It is obvious we can’t talk about an increase in our business for this period, as the PVC product market reached EUR 400 million, down 50 percent on last year, while around 20 percent of the producers have ended their activity,” said Aurel Vlaicu, general manager of Gealan Romania.