US giants lead local investment wave

Newsroom 25/06/2012 | 08:16

Romania attracted around USD 1 billion of US investment between 1990 and March 2012, making America the 12th largest investor locally. Defense and energy are strong growth areas with US firms also active in IT, manufacturing and agriculture, among other fields.

Ovidiu Posirca  

Trade between Romanian and the US reached USD 1.96 billion in 2011, gaining 32 percent year-on-year. Romanian exports were up by 65 percent to USD 1.1 billion last year, while imports of American goods gained 30 percent to USD 656 million, according to the National Statistics Institute (INS). The value of US exports of goods to Romania, not services, was USD 914 million in 2011,  according to US Embassy Commercial Attaché Keith Kirkham.

Business advocacy group AmCham says that Romanian needs a comprehensive energy strategy, covering all sectors, not just electricity, to attract foreign investors and retrain the existing ones. In addition, the country’s infrastructure needs urgent development, be it energy or road.

AmCham says that US companies doing business in the Romanian healthcare sector are especially concerned in the drawing up of the new Health Law and the calculation algorithm of the clawback tax in the pharmaceuticals industry. The inappropriate drafting of this projects could lead to business relocations, warns AmCham.

US companies are looking for appropriate PPP legislation, as they have often evaluated the available proposals as not rentable enough to join. In addition, transparency and economic predictability remain long-term objectives, along with a fiscal policy that stimulates growth.

“Investors would like to see more transparency and predictability in government decision-making and to be consulted when the government makes policy decisions that affect their respective industries,” says Kirkham.

There are about 6,453 US ventures in Romania, including large companies such as Ford and Microsoft, according to the Embassy of Romania in the United States.

Keep the wheels rolling

US car manufacturer Ford began this May to produce a new 1.0 liter EcoBoost petrol engine in Craiova. This follows an investment of EUR 180 million in the modernization and upgrade of the Craiova engine plant. The company will kick off production of the new B-MAX model later this June. Ford plans to manufacture 60,000 units this year, increasing output to 100,000 cars next year. This is two years’ behind the initial production plan.

Ford Motor Company acquired in 2008 the Automobile Craiova plant after buying a majority stake in Automobile Craiova from the state in 2007. According to the updated privatization contract, Ford will produce 810,000 cars and 1.5 million engines between 2012 and 2017 in Craiova. In order to support such a production plan, the carmaker started in March to recruit 500 people, mainly production line operators and maintenance specialists. Following this hiring wave, the Craiova plant will reach 4,000 employees.

Overall, Ford has invested more than EUR 675 million in its engine and car manufacturing plant in Craiova.

The Craiova site has attracted several car component manufacturers, including US Johnson Controls, which opened in January a seat plant in the premises of the Ford plant. The plant will assemble customized seats for up to 1,300 cars every day, and the yearly capacity could reach 300,000 cars. The company employed 100 people in Craiova this winter, and plans to create 60 new jobs later this year. Already, Johnson Controls has nine plants in Romania, employing 4,500 people. The company provides car seats for Dacia from its plant in Mioveni, Arges County.

Gas road to independence

Romania is currently pondering the exploitation of shale gas resources, which is done through hydraulic fracturing. The drilling uses a mixture of water, sand and a cocktail of chemicals to open fissures in shale gas rocks to release gas and oil. This procedure has already been banned in France and Bulgaria due to environmental concerns. It has been suspended in the UK and a German region.

The Ponta government has imposed a moratorium on shale gas extractions

until European studies gauge the impact of fracking on the environment. Ponta told Bloomberg earlier this month that a decision on these projects will be made after the November parliamentary elections.

US oil and gas group Chevron began exploration works on shale gas formations in Romania in 2010. The company acquired the Barlad concession in February 2011, which covers 6,350 sqm in the northeast of the country. It plans to drill the first exploration well in the second half of 2012. Chevron also won the concession for three blocks which comprise about 2,700 sqm in southeast Romania.

“The current plan to drill is not exploitation of shale gas. It’s simply drilling holes and finding out if there is any shale gas there. It doesn’t present any environmental problems whatsoever,” said US Ambassador Mark Gitenstein in a televised appearance in late May.

President Traian Basescu said this April shale gas could make Romania less dependent on gas imports from Russia. Currently, Romania imports one third of its consumed gas from Russia, at three times the cost of domestic sources. However, the final price paid by consumers is lower as regulation provides a natural gas basket, which uses 70 percent domestic gas and 30 percent imported gas. The final price paid by consumers is the weighted average of the two.

US oil company ExxonMobil and the Romanian oil and gas producer OMV Petrom found gas in the Black Sea earlier this year, during joint-exploration works offshore Romania. The two companies teamed up in 2008 to explore the Neptun block, which covers 9,900 sqm.

“A natural gas deposit of around 100 bcm (billion cubic meters) has been discovered and there are similar perspectives for other deposits that will be explored next,” said President Traian Basescu in March, quoted by Agerpres newswire. “If the other deposits prove to be gas rich as well, Romania could be a natural gas source not only for itself, but also for other countries in the EU.”

Basescu said these deposits could help Romania become energy independent in 2015-2016 time frame.

Shield partners

Romania and the US signed last September in Washington an agreement on the deployment of the US ballistic missile defense system in Romania. Building works on the military site in Deveselu, Olt County, will start in the spring of 2013 and should be completed in 24 months. US representatives are currently tendering two contracts for the development of the facilities in Deveselu.

The missile defense agreement stipulates that Romanian companies should be used if possible to develop the Deveselu base. However, the domestic companies need to prepare for fierce competition. Around 175 companies from nine countries including Spain and the UK attended and industry day at the Deveselu base earlier this June.

One contract worth USD 100-250 million will be used for the development of the Missile Defense Agency (MDA) facilities that include the launch pad of missile interceptors and critical infrastructure. These units require a US prime contractor that has security clearance. Other facilities such as a fire station and the site infrastructure don’t need a US prime contractor.

A second contract worth USD 25-100 million is available for the setting up of the navy facility, which includes housing and dining facilities and site utilities and infrastructure for 250 people. A US prime contractor will not be needed in his case due to the limited exposure to the MDA facility.  The US will deploy around 150 marines in the Deveselu base, and the number of military personnel and civilians cannot exceed 500.

IT&C loves Romania

US companies in the IT& C business have benefited from the pool of Romanians with technical skills ever since the 1990s. In 2010, the IT sector generated five percent of Romania’s GDP, employing around 116,000, according to government estimates. Microsoft, Oracle and Accenture are some of the US companies with a significant presence in Romania. Chip manufacturer Intel opened an R&D center in Romania this March, employing around 350 people. The center has three divisions that collaborate with 26 similar units across Europe. Intel has a local sales and marketing office in Romania and has acquired two companies on the local market.

Hewlett-Packard Romania employs around 3,600 people in the Global e-Business Operation Centre (GeBOC), which supports HP entities in Europe, the Middle East and Africa.

IBM opened in late 2011 the Bucharest Systems Laboratory that could accommodate around 125 software developers. This will collaborate with the IBM Business Analytics laboratory, which was set up after IBM acquired Clarity Systems in 2010.

Google opened an office in Romania in late 2010 and aims to develop the presence and strategy of the search engine giant locally.

ovidiu.posirca@business-review.ro

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