BBW Article on romanian economy

Austrians see good prospects in Romania

With over ten billion Euro invested in various sectors of the Romanian economy, the Austrian business community is determined to consolidate its position on the local market. On this note, Walter Friedl, senior economic counselor with the Austrian Embassy, pointed out that Romania remains an incredibly important country for more than 5,000 Austrian-owned companies that are currently operating on this market. Their contribution to Romania's economy was intensely debated at the Austrian Roundtable and Business Conference 2009, organized by BBW, in partnership with BCR, Red Bull, Raiffeisen Bank, Asirom, Julius Meinl and Baumit. Gathered under the same roof, in the elegant atmosphere of the JW Marriott Bucharest Grand Hotel, representatives of the authorities together with bankers, investors and business people tackled some of the most pressing issues regarding the evolution of the economic climate in Romania and the development of Austrian businesses here.

Emphasizing the Austrian interest in this part of Europe, Walter Friedl said that Romania remained a top destination for Austrian investments, in spite of the various pessimistic predictions regarding the economic developments in the region. "Investors have had a hard time over the last few months and all of us know that. But the companies that have decided to continue to invest here realized just how important it is for them to stay focused on the opportunities in this market. I am sure that by 2010 - 2011 the whole situation will change and companies will identify fresh opportunities." He added: "First of all, the infrastructure will have to be modernized. Whether we talk about highways, railways, the Danube River, airports or the Constanta harbor, they all need investments." Even so he admitted that business delegations these days no longer attract the same number of participants as they used to before the crisis. However, the Embassy received some positive reactions from Austrian companies willing to invest in Romania, Friedl said. Speaking about the effects of the financial crisis, Friedl also said that: "Austria will recover from this crisis later then Romania and much later, I believe, than the USA. So, I am confident that Romania will recover from the crisis, with positive growth rates, at the end of the year." Emphasizing the need for closer cooperation, Tobias Waldemar Seiferth, head of International Clients Department, Large Corporate Division, BCR, said: "During these difficult times, banks and their clients must stick together and communicate closely." BCR recently published its first quarter results, which, according to Seiferth, are above expectations. "We have reached a 22 per cent market share on the lending side and we have a net profit, after taxes, of 330 million lei. The figure is comparable to the level recorded in the same period of last year and 25 per cent above the result recorded in the last quarter of 2008." Seiferth also said that the bank was very well capitalized, receiving a strong support from Erste Bank Holding AG. "After Erste Bank's acquisition of BCR, they have focused on the quality of the portfolio and this has had effects on cost efficiency and provisioning level. We are now one of the banks that can lend without restrictions to businesses in all industries. Nevertheless, banks also have to deal with non-performing loans which emerge as a direct result of the macroeconomic environment. But we are also very flexible in this respect and we support our partners." The BCR official said the bank was also interested in expanding its reach in a number of sectors with potential for growth. "We are still looking into opportunities to invest in key industries, which hold great potential. Agriculture is one of the sectors that we have been considering; apart from the wide areas of unused farm land, there is also a direct relation between agriculture and the energy sector. Romania has a big potential in agriculture, biomass and bioenergy sectors." He also explained that the infrastructure offered great potential, much of the EU funds being allocated for its development. BCR has already signed a framework cooperation agreement with the Economy Ministry and with the Ministry of Transport in April this year. Under the agreement, BCR will finance the projects in this sector."

In turn, Reinhard Zeitlberger, department manager, Austrian Corporate Customers and International Desk, Corporate Banking Division, Raiffeisen Bank, said the IMF agreement had had positive effects, reflected in the volume of liquidity in Romania and in the interest rates level. "After the agreement with the IMF, the central bank succeeded in substantially cutting down the leu interest rates and it did that by injecting a lot of money into the market. Subsequently, the inter-bank market rates have come down from around 15 per cent to around ten per cent." He added: "In the wake of the agreement with IMF, the risk perception of Romania has improved, which means that we may see lower interest rates for foreign currency financing. Even so, we believe that lending in lei will become cheaper before the same can be said about foreign currency lending." Zeitlberger specified that Raiffeisen Bank would focus on cash management quality and on the needs of its clients this year. "Banks must keep their policies flexible, because we are face an environment which is full of uncertainties.

First of all, we have to focus on a management that has an eye on costs and efficiency within the organization. Secondly, every bank must attract deposits and look for a good level of liquidity. They must also be careful with the lending operations." Still, the Raiffeisen Bank official expressed optimism regarding Romania's economic prospects. "Basically, Romania did a very good job so far. We have the agreement with the IMF and we will also receive funds from the EU. Romania posted a six per cent decline in GDP in the first quarter, but we are on the right track, even if we still cannot see the end of the crisis. Nevertheless, 2010 will again bring solid growth to Romania." A staunch supporter of investors in Romania, the Foreign Investors Council (FIC) focuses on promoting dialogue with Romanian decision makers, according to FIC's executive director, Doina Ciomag. "FIC's objective is to improve the business environment at large, in the benefit of both national and foreign investors," she said. One tool in this dialogue with the Government is the White Book, Doina Ciomag said. "The White Book is an analysis of the Romanian economy, which is compiled with the help of our members every two years. We had the opportunity to launch the 2009 edition last month, in the presence of the President of Romania. Basically, the content of the White Book is a summary of the main issues of concern to our members. These issues are always accompanied by recommendations, which are meant to support decision makers in their effort to improve the legislation." As Ciomag specified, one of the issues that the FIC members have constantly raised refers to the VAT refunding system, "which represents a problem for most companies, due to the high delays recorded in the process. Our members also suggested that tax grouping should be allowed. So the losses at one company in the group could be balanced with the profits of another." Doina Ciomag added that the White Book also looks at aspects such as labor market flexibility, environment, the rule of law, corporate governance, energy, agriculture, EU funds and investment legislation.

Offering details about investment levels in Romania, Sorin Vasilescu, director of the Romanian Foreign Investments Agency (ARIS), indicated that Austria ranks third in terms of subscribed share capital in Romania. However, in terms of real investment value, Austria is the number one investor. "Austrian investors are involved in key sectors in Romania, such as banking, insurance and energy. ARIS' portfolio includes 12 projects from Austria, with a total value of 600 million Euro. These projects have created 5,800 new jobs," said Vasilescu. Voest Alpine's planned six billion Euro investment in a new steel production facility is one of the major projects in which ARIS has been involved. "I can say that our competitors, Ukraine, Turkey and Bulgaria, were behind us in Voest Alpine's preferences, but because of the financial crisis, the project has been postponed. Everyone knows that their location in Linz, where they have produced about 4,5 million tonnes of steel, will no longer offer conditions for growth after the crisis, so they need to expand somewhere in the East. I still hope that they will come back to Romania, of course, based on the assumption that the land is still available. We are talking about a plot of land with direct access to the Black Sea, because their import needs reach around 30 million tones per year," said Vasilescu. ARIS's portfolio also includes other major Austrian investments, especially in the wood processing industry. "Egger plans to invest about 210 million Euro, while Schweighofer has earmarked 170 million Euro for investment; both of them are interested in investing in the north-eastern part of Romania, because of the availability of raw materials."

Announcing the imminent launch of the Romanian-Austrian Chamber of Commerce, Dan Pavel, deputy director with the Public Relations Direction, the Romanian Chamber of Commerce and Industry, spoke about the need to promote foreign investments. "Even if we have seen this incredible amount of energy, money and business from Austria, a Romanian - Austrian Chamber of Commerce has not been created until recently; I can say that the new chamber of commerce will start operating in June. It will be a member of the Romanian Chamber of Commerce, focusing lobbying activities and promoting its members and clients". Announcing new projects in all the infrastructure sectors, Rasvan Toader, counselor with the Ministry of Transportation, is optimistic about the new Government's approach on infrastructure development in the near future. "We have presented a 168 million Euro project aimed at building a new jetty in the Constanta harbor. We have also devised a project for the Agigea harbor, as we plan to build a new bridge across the Danube - Black Sea canal. Toader also gave details about the modernization project of the Bucuresti - Baneasa - Fundulea railway and about the 200 million Euro modernizing project, which will be implemented at the harbors in Drobeta Turnu Severin, Calafar, Giurgiu, Oltenita, Calarasi and Cernavoda. Speaking about Petrom's projects, Razvan Eugen Nicolescu, head of Public Affairs, Corporate Communication Department, said the company would build a new gas power plant at Petrobrazi, near Ploiesti. The Petrom representative also said the company hoped to develop projects in the wind energy segment. "We will do all our best and press ahead with these projects, even if it is not easy," said Nicolescu.

Referring to the main activities that his company has developed in this market, Marcello Nicoloso, general manager of ReManagement, said: "We provide services for turnaround candidates, meaning mainly industrial companies or corporates, who are in trouble. Our services revolve around restructuring and around management performance improvement. So we work together with our clients' management teams for a period of 12 to 18 months and guide the companies, which are in trouble, out of crisis". He added: "Larger companies now face downturns and a decrease in turnover, leading them to operational losses and a negative cash flow, which has an effect on their financing situation."

The difficulty of getting fair prices in the construction sector, has forced Porsche Romania to slow down their development projects, according to Gunther Seifert, general manager, of the company. However, Seifert said the situation was changing: "When the economy recovers it will be cheaper to buy land." Another project that has been postponed, this time in the car sector, was the Lamborghini project. "We originally wanted to start this year in October, but I think we will launch it in the summer of 2010", Seifert added. Tackling a subject related to the real estate market, namely the residential segment, Ciprian Glodeanu, attorney-at-law with Wolf Theiss, expressed his concern over the difficult situation of real estate investors, as banks have implemented tighter lending strategies. "We organized a conference on May 12 and we had some talks with the banks, real estate developers and investors. Hopefully, we'll come together and find some solutions to move the market forward, because there is a huge demand on the market, especially in the residential area. We believe that, if we all work together, this market will recover before the end of the year."

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