High-level executives, entrepreneurs, officials and investors from the strongest foreign investment communities will gather for 3 days in Bucharest to talk about Romania’s economic outlook and the ways in which the country can attract valuable investments in the next years, while supporting the development of the private sector. Here are the main statements from the second day of the fourth Foreign Investors Summit, the exclusive event organized by Business Review.
Alexandra Predeanu – Country Manager, ICAP Romania
The study surveyed 500 best companies. Out of them, the first 100, gather 60 percent of the EBITDA. The profitability of the 500 biggest companies varied little. Automotive industry and the adjacent ones increased, as well as the real estate sector, which increased by 42 percent, as well as the tobacco industry, which grew by 60 percent.
Bucharest and the Ilfov region, followed by Timis, Prahova and more. Coca-Cola, Monsanto, Porsche, and more, located in Voluntari, have seen a spectacular growth. Cluj-Napoca companies have a 20 percent rate increase of profitability.
76 percent have a low risk, while 8 percent have a high risk. One in four are very likely to enter insolvency or go bankrupt. Almost 60 percent are locked in the same risk area. We recommend that, even profitable companies, be evaluated from the point of view of risk. OMV and Orange are topping the ranking of most profitable companies. The profit is – 1 percent year-on-year. The profitability of the top 10 companies increased slightly.
The healthiest sector, according to ICAP, is telecom, followed by car accessories sector, then retail, with entries from Lidl and the beer sector, represented by Heineken. An example of a company with Romanian capital is Fan Curier. The study shows that companies with foreign capital increased more than those with Romanian capital. The biggest share of healthiest companies come from Germany, followed by the Netherlands, which grew year-on-year.
Martina Scheidleder, managing director Voestalpine Romania: We didn’t enter the Romanian market due to low costs, but because of the opportunity to grow and export. I do not see in my field the
digitalisation as a threat. Although it is not an easy thing to explain, our clients should see as a partner to succeed with in the global market.
We hire people based not only on the skills they already have, we also value ability to learn and attitude. If I look at the demand, we have to compensate this as a company by investing as a company. The attitude of the people is surprising, people are open and willing to learn. We have 400 employees, spread over the country.
We have to be flexible in production, because we have to change the programs to compensate for the lack of flexibility of transport. We are also investing in developing the infrastructure. We are building in Giurgiu a logistic hub. And hope that the infrastructure will improve soon.
We grew by 50 percent in terms of turnover. As a challenge, I would single out the need to convince clients that innovation is a driving force. Slowly but surely, I see a change here. There are companies coming to Romania and investing this is a chance for Romania in the future.
Bogdan Stanciu, general manager, Timken: What can Romania do to attract more investments? We do not see automation as a danger, but as an opportunity. People coming out of the education system should have more soft skills. Romania also needs to understand that it is competing with the neighbouring countries, and to continue to be a stable economy and business environment.
We started collaborating with neighbourhood schools but I would go on and stress again the need for soft skills. We must work with the public sector in order to prepare for the future.
Transportation is a sore point for us. We have to assure a level an automation that will allow us to be here for the next 20 years.
Anca Vlad, AOAR vice president: Romania is attractive at this moment for foreign investment. The share of foreign and Romanian investment is pretty much equal. We have 200,000 youngsters coming out of high school coming out eager to learn and join the workforce. But they have a lot of knowledge and less skills, practical set of skills that they can use on the labour force. Plus, Romania is a stable place that an attract investments.We do consider training on the job an important element.
Because of the two year maternity leave, we have 400,000 women of good age that are not on the market. Keeping the positions open for two years is another logistic challenge. The gain for women and the state would be enormous. This is not improving the development of the Romanian economy. I am convinced that if the Romanians had their full salary and an allowance, they would come back to the labour market quicker and not miss out on years of their career.
We have incredible survival skills. That is one main objective of the business sector in Romania, to convince the public sector that they have to invest in infrastructure.
If we look at the distribution of capital, Vaslui for instance has 80 percent Romanian investment. By contrast, Timisoara has a 50/50 ratio. The latter is doing much better. So we must do everything possible to reduce inequality between the regions, and attract investment to less developed counties.
Focus on Transport & Infrastructure
Adrian Borotea – Group strategy and EU agenda Director, CEZ Romania:
We are focusing on promoting green solutions. We have several initiatives complementary or close to smart cities in Craiova, we have two charging stations for cars in Craiova and Pitesti, we aim to install 40 additional charging stations on EU funds and Romanian funds through Rabla Plus program – we applied for financing.
E-mobility will have an exponential development in the next 2 years.
Pricing is the main reason at this moment why Romanians don’t adopt hybrid and electric cars. Another obstacle would be the network of charging stations and we are looking to change this.
Until we reach smart cities there are more steps. In Oltenia we kicked off a program to make our company more smart – smart meters, tele-transmission, modernizing the grid to accommodate charging points in more locations from parking charging units and home charge solutions.
On cities, the smart traffic lighting solutions could cut crowding, there are electrical bikes, electrical cars.
On production of electricity, we have seen a promotion of solar panels, about prosumers – consumers that can generate electricity and heating on their own.
“We have an ambitious program to install smart meters everywhere, and this will be implemented in partnership with local authorities,” said Borotea.
“The distribution of electricity is critical infrastructure. Since 2005, we have tripled our investment plan. We have invested over EUR 2.5 billion in Romania, mainly in the infrastructure in Oltenia where the results have improved yearly,” said the CEZ Romania representative.
“In 10 years we will fully replace the distribution infrastructure, including the development of smart meters,” said Borotea.
We want our customers to enjoy the advantages of electricity – so to handle everything that the customer needs.
We have a lot of PPPs in Turkey, there are a lot of projects on electricity.
Mihai Teodorescu, general manager, ICT Logistics: 75 percent of Romania’s foreign trade is with the EU, so the priority is to link the eastern and western parts of Romania.
Arad, Timisoara have developed a lot.
Probably there is some labor pool present in the eastern part of Romania and if we had a good road link in Moldova region, we could see more investments here.
Almost all freight comes to Bucharest and it gets distributed from here across the country because this is how the road network is.
Around 65 percent of what’s transported right now is on road. There needs to be a focus on the development of all roads, not just motorways. We need to finish the east-west connection, alongside the north-south routes. On the long term, we can talk about railways and ports.
Romanian firms are on equal footing on pay for drivers with the rest of the EU, suggested Teodorescu. “It’s a bad time from the employment perspective”. A lot of good drivers have left, said the general manager.
Some firms want to import drivers from other countries, or convince Romanians to return from abroad through higher wages, explained the GM.
Loredana Van de Waart, partner, Gruia Dufaut Law Office: The issue of infrastructure projects in Romania is the poor management. PPPs could help but even if here we will have a bad management from the public side on this initiative (…) today it is very important for public partners to train staff so as to handle this better.
Today we have a PPP law that answers market demands, but up to date there is no project that has kicked off.
The leaders of PPPs are the UK, France and The Netherlands. Most projects are in infrastructure, healthcare and digital connections.
The financing of PPPs should not be a problem in Romania, said the partner, citing the funding opportunities from international financial institutions.
Today there is an investment blockage due to lack of labor force, which is also due to the healthcare system issues, the problems in education and infrastructure, said Van de Waart who suggested that PPPs could contribute to the improvement of these systems.
“The simple adoption of a government ordinance will not automatically lead to the initiation or conclusion of PPPs in a successful manner,” said the partner.
“For years, some significant steps have been made (in Romania – e.n.) for the construction of hospitals through PPPs. Meanwhile, in Turkey some 5 hospitals have been built through PPPs,” said the lawyer.
“The sovereign fund is not a bad thing it itself, but the fund will have to invest so good as to afford projects because it is not a bank,” said Van de Waart.
She suggested that the sovereign fund could work but it would need a private administrator.
Focus on Environment
Raul Pop, senior manager, climate change and sustainability services, EY Romania:
Institutional investors, investors in general, are focusing more on other risk factors versus traditional ones such as market share, yearly growth.
Climate change and human rights policies are being rolled out from the EC to Romania in the government area towards other partners, including the private sector, mainly the business environment.
Talking about risks and opportunities, this risks and benefits regarding a more sustainable development of the business. Some companies are starting to become the first movers.
We still have a significant natural capital and can become a competitive advantage for Romania at a bigger scale. On economic activity, we are before the start of discussion on circular economy, which can become a gold mine for Romania.
On recycling, Romania has to grow from 13 percent to 70 percent by 2030. Growing six fold means business opportunities, creation of jobs and the need for the system that creates this labor force has to provide the required labor and infrastructure for this industry to develop.
On risks, on sustainability I would refer on environment: Licensing activities for environment do not fully reflect the purpose for which they are deployed.
A second category of risks relates to environment taxes which have been visible on the valuing of packages. In the past two years, they have been growing.
A third category of risk is related to the relation with stakeholders, talking about the community and the government and political decision makers. In Romania, it can be done a lot more on the dialogue with the government.
We have two systemic issues: at regulation level we are not capable to simplify and the competence to create competences
Ionut Georgescu, president, administration board, Fepra: The risk management remains a priority for companies.
“In the past 2 years, in the packaging sector the responsible companies have seen higher costs on meeting the legal obligations,” said Georgescu.
Georgescu said the authorities should focus on investments in the recycling infrastructure.
Robert Uzuna, corporate affairs director, Ursus Breweries: Once with the start of the crisis in the packaging waste industry in 2015, the business sector realized that the need for investments needs to happen at another level.
The business environment needs an updated legal framework and allow the checks and balances system, with a share of responsibility shared by all the parties involved. Few people understand what the environment friendly concept translates into the business sector.
“We have a very big gap between the performance at EU level and what happens in Romania, and one of the reasons is that at this moment we don’t have a well structured dialogue with the authorities,” said Uzuna, referring to the management of packaging waste.
We are discussing about a lack of competences. We want as a business environment to have a dialogue partner at the level of local authorities.
During Untold festival, we organized points of collection for waste packaging and we addressed a target audience which is the most open on recycling topics and environment protection.
Andrei Orban, president, ENVIRON: The area of compliance, on environment, which is linked to climate change at European level, shift of paradigms – smart cities, the challenges that the business environment has to face are more complex.
After close to 12 years in the field of environment, recycling some things continue to remain unclear. The environment area, we weren’t able to transfer the European acquis 100 percent in Romania, and there is still legislation from the pre-accession in the EU with European legislation.
Investments in environment, smart cities, e-mobility represent areas with high growth potential, said Orban.
Focus on Real Estate
Silviana Petre Badea, managing director&head of capital markets, JLL Romania:
The market is dominated by investors from South Africa (NEPI, Globalworth), we also have Chinese money, said Badea on the acquisitions trends. She added that the amount of Romanian investors in the real estate market has remained limited, citing among other reasons the access to finance.
Volumes in Romania are stabilizing around EUR 1 billion per year starting 2014, well below potential, said Badea on the investment environment.
Yields, versus the rest of the region, Romania stands at 7.5 percent for offices.
We expect volumes of EUR 1 billion in 2017 on the investment market, similar to last year. The average transaction value stands at EUR 21 million.
Bucharest accounted for just over 25 percent of the total investment volume, said Badea.
We have seen an improvement of the financing environment in the last 18 months, said the representative of JLL Romania.
Antoniu Panait, managing director, Vastint:
We are seeing that companies focus on the recycling segment inside the team. (…) We are also implementing some of these measures. Our tenants generate a lot of recyclable material, and at Timpuri Noi Square offices we have allocated space for this field.
Panait said that the overall leasable surface at Timpuri Noi will stand at 100,000 sqm.
The big cities, university centers are areas that will generate a demand for offices. It remains to be seen when we will go there. Right now we are focusing on Bucharest, adding that at group level the portfolio of projects stands at 800,000 sqm.
In Romania, we had the opportunity to find the 48 hectares of land in the District 1, with a very good infrastructure, subway line and parking. This contributed to the decision on entering in the residential segment. At Timpuri Noi Square we plan to have 50,000 sqm of residential projects so as to create a community.
“Maybe it’s an idea to make this at Timpuri Noi Square and have one-two buildings for rent,” explained Panait.
He said that he got questions from IT managers interested in the residential component of the project, because companies might rent homes for their employees.
There are a tenants that three months after signing deals with us they moved to double their rent surface, said Panait. The head of Vastint Romania said that rent prices will grow on the office market in Bucharest because there isn’t enough space for large scale companies looking to relocate their operations, for instance.
Orange has a sub-rented office at Impact Hub within Timpuri Noi Square, said Panait.
Geo Margescu, co-founder & CEO, Forte Partners: “We are very careful how we develop. An expansion out of Bucharest would see us go out of focus. Right now we will not go to secondary cities.”
This gap between interest rates and yields is still very big. All the buildings we have here are similar to the rest of Europe, the tenants are the same. (…) In order to see more deals and more projects for sale, a compression of the yields is expected.
“Banks are still cautious on financing real estate projects,” said Margescu.
We have seen that in the residential market, there isn’t a contingency of developers with international standards. To replicate what we did on offices is a great opportunity for us, said Margescu, adding that 40 percent of the firm’s residential project in Aviatiei has already been sold. He said that the expansion in residential was a strategic decision.
There is big interest in the office market, some tenants are expanding, new firms coming to Romania. We have consolidations and extensions for our current clients. I don’t see for the moment an oversupply on the office market and the space will be covered with a sustainable demand on the long term.
There is a big pressure on construction costs due to the insufficient labor force. In our projects, we didn’t see an increase year-on-year. (…) There are fears of a bubble, of a new crisis, we don’t know when it comes, but for now we are creating our own opportunities.
Mirela Radulescu, sales & marketing manager, ICCO: We have a built area of 100,000 sqm in Brasov. We have room for growth. We hope next Q2 to have another 30,000 sqm delivered. She said the company will have two new tenants starting next year. Our industrial park in Brasov currently hosts 4,000 employees. Three of our customers have 1,000 each and all have growth plans.
Vlad Tanase, partner, NNDKP: We have clients constantly asking about Romania. The issue we see is that at this moment there are few projects that can be acquired.
We have clients interested in buying commercial centers and realized there are few projects on sale. On offices, some projects are for sale, but the opportunities for investments are few – either too expensive or of small value.
He said that investors did not find mid-projects with values between EUR 30 – EUR 70 million.
Until the gap in yields will not be reduced based on the rest of the region, we will not see many deals, suggested Tanase.
Legal challenges are more visible in the areas of permitting, said the partner.
There are a lot of investors looking at student housing, but the moment is not right for Romania at this moment, said the lawyer, citing the overall cost that would have to be paid by tenants.
Flavian Cristea, digital strategist, Grapefruit. People spend three hours chatting on messenger. So we have a lot of people who are willing to communicate via text. Chatbots are an opportunity for companies to talk to 1.2 billion users. What are the opportunities? 24 hours service, because chatbots don’t sleep. Their answers are almost instant, depending on the processing speed. It can provide quick answers to complex questions. Moreover, it provides instant gratification, an important thing for the younger generations who want instant answers.
Chatbots are active in the sales sector, in marketing, in the customer service area and can be a strategy or tactic in companies’ marketing arsenal.
Teodor Blidarus, ANIS president. Turnover and growth rate of the IT sector. It was estimated at 6 percent. We would like the sector to reach 10 percent. Some said it can increase up to 12 percent. EUR 4.1 billion, with a massive share of export. It has a 20 percent growth rate and will grow by 15 percent in the coming years. It could grow to EUR 6 billion, meaning there is money on the market and the investments are paying off.
A relevant question is : what productivity does the sector have? Average EUR 40,000 per employee. How could it grow beyond the EUR 6 billion? First, you could increase the number of employees active in the sector, which currently has 100,000 employees in the software field only. The chances for the Romanian sector to reach the 1,000,000 figure that is often talked about is unrealistic. The number of developers in Silicon Valley is comparable to the 100,000 figure or around that. however, their productivity is much higher.
In order to boost productivity, we must acknowledge that this is the only way to stir growth, at least on the short term, between 2020 -2025. The state could help a lot here, by doing and especially by not doing things. The IT sector has a very high growth rate. However, the state has decided to increase the costs of the industry by 10 percent, by transferring the social contribution from the employer to the employee. We need investors and we need to give them space to grow. We also need to create a healthy domestic market. The CEE market has certain particularities that do not necessarily attracts investors. They are poorly regulated and it is very difficult to conduct transparent business there. Therefore, those who come from other markets in the West must go to a market they do not know. It is not an unsurpassable handicap, but it is an obstacle they do not encounter on other markets.
The domestic market for purchases decreased in 2017, which is shocking. Romanian software and IT services did not grow, while in other parts of the world it is increasing very much.
Ion Sturza, managing director, Fribourg Capital. It is a big challenge as there are a lot of things happening. if we are honest, Romania has a shot at things but that will depend on its reaction speed. The digital market is a global one, not confined by borders. If we are not fast enough, a youngster somewhere in Vietnam or Bosnia will do it while we only think about doing it. The digitalisation index in Romania is vey low. This means that the digital services market has a constant number of customers, it is not growing. One trend is that a lot of companies are moving here their big service centres.
Romanis is not the place where money meets innovation, that is Silicon Valley and London, and more. I am not that optimistic when it comes to projects that are currently seeking financing. Also because there is a culture of arrogance among the youth that believes they can obtain funds easily for investments. 9 out of 10 failed not because the idea was bad, but the implementation was poor.
We need more exits and for those who will have the money to invest their knowledge too in new products, to create an ecosystem for investment.It would be great if young people who acquire knowledge abroad to come back and create an ecosystem here. We don’t need to make global businesses, they can also address local problems.
Razvan Copoiu, industry vice president, South & Eastern Europe, Schneider Electric: Our company connects the user to the information without having to take courses in the field. We make the connection between yesterday’s technology, present and the future, where the bots can perform activities.
It is important for municipalities to invest in having smart activities. Private companies are ready to partner with companies that provide solutions. There is a problem when the funds for technology are available but they are not spent.
Diana Rusu, executive director, Spherik Accelerator: Our program is in its fourth edition and we see it as an environment that provides opportunities. Fortune helps those who prepare, so it it important to show interest and to have the discipline to develop your business. If you fail, do it fast so you can reinvest. We look for those who have failed and show commitment. We connect them to information, help them to validate their idea and then to move to regional or global market. We wanted to create a microsystem inside Spherik, which includes universities, companies and more.
We provide that not only to Romanian companies but also foreign ones. It is important to look outside your market when you want to make a hub.
Florin Spataru, digital marketing manager, Orange: Digitalization is not an option, it is here already. In Romania a lot of people do not have the skills to navigate this reality. In the new digital world, things are moving faster. Corporations too must adapt. The next tech giant could grow after than Facebook – two years or Google – 8 years. The company needs to be very open to what clients are saying.
Cosmina Simion, partner, NNDKP. Education is needed in the field of intellectual property. It can happen that the same time is created by different people in different places. We say that Traian Vuia was the first to fly, and Paulescu created insulin but in other parts of the world others are credited for it. In the US, intellectual property is protected by patents. The patent shows who the inventor is. The copyright shows who was the first to record the technology, and this can be contested. Romania has a good legislation in terms of patents, but it should be applied.
Vlad Nistor, CEO, Coinflux. We provide a digital coins exchange and started in 2015. We started in Cluj with a business model that we validated. We started from B2C and moved on to B2B and grew, gathered customers and this week we had 800 transactions. There is a lot of interest in the digital coins sector, stirred by prices increase. Bitcoin allows you to connect with someone without needing to trust them, The block chain model allows you to bypass third parties. We started in Romania and provide the service in Europe but we don’t market it as such yet. We will start with a country by country approach and we will market there.