Marko Walde, General Director Romanian German Chamber of Trade and Industry, urges authorities to lay special emphasis on the full and quick modernization of the educational system through vocational schools.
How do the German investors regard the Romanian market in this period of confusion triggered by recession? Is there confidence in the Romanian economy and opening of the local authorities towards investors?
First, the effects of the crisis conducted in certain cases to a reduction of the staff, most affected being the firms from the car industry and those from constructions. The car components industry was confronted in 2009 for the first time in nine years with a fall of production. The orders began to decrease already at the end of 2008, and many firms were obliged to cut the personnel. But, no other sector was so much affected by the international crisis as the constructions.
As a whole, we can say that investments in Romania fell significantly against the crisis background. But, many investment projects which are still running were planned before the crisis and we are convinced that the interest for Romania will grow again in the near future.
The German exports to Romania also decreased as an effect of the crisis. In January-October 2008, they amounted to EUR 7,466.14 M, while in the same period of the past year their value was EUR 5,483.96 M.
In spite of the negative growth from 2009, a moderate growth (between 0.6 and 2 per cent) is estimated on medium term. The need for investments in the public sector, such as infrastructure, health and education, continues to remain high.
Investors have frequently blamed certain obstacles they meet in the domestic business environment. Have you noticed improvements in this respect?
Romania is on the path to being a modern industrial country, with modern companies. There are many areas with a dynamic economic growth, and most of the foreign companies make good business in Romania. Major flaws we see chiefly in infrastructure, logistics, public administration, and the lack of skilled personnel. Romania must entirely and quickly modernize its educational system; a modern system of vocational schools must become attractive again.
As for the investment conditions, an opinion poll carried out at the beginning of 2009 among German companies from Romania showed that most of the companies are happy with labor potential and the business conditions, while economic policy is criticized in most of the cases. Some of the most urgent matters in many countries in the area are corruption and a lack of transparency in public auctions, but bureaucracy also raises obstacles for entrepreneurs. Moreover, numerous firms have voiced their discontent with taxation.
Many of the foreign capital companies registered with the Trade Registry are SMEs. What do you think about their future situation, considering that they will be taxed this year similarly to any other company, by levying the 16 per cent tax or the minimum tax on the profit, without having the possibility to opt for the 3 per cent profit tax?
The Romanian-German Trade Chamber signed alongside AmCham, the British-Romanian Chamber of Trade and the Foreign Investors Council a letter through which they express their opinion regarding the minimum tax and the lump-sum tax. The minimum tax is a fiscal measure easy to apply in comparison with the lump-sum tax, but has a wide base and is addressed not only to the domains with a low taxation degree. The lump-sum tax can be applied to the economic sectors with a taxation degree identified as low, but would represent a more complex measure more difficult to implement. We consider that both the introduction of the lump-sum tax and the maintenance of the minimum tax prompt major distortions in the market and have a negative impact on the provisions of the Fiscal Code regarding the flat tax. For these reasons we don’t back any of these two taxes.
The most important thing is to further maintain the flat-tax structure. It is difficult to say if this flat tax remains at the same level, but it is necessary to not disappear.
Many investors are interested by public-private partnerships. Are there such ongoing projects launched by German entrepreneurs, or are they planning to do so this year?
Romania has various strategies to approach the highway construction. For the 1,900 kilometres it will build, Romania will resort both to European financing and to public-private partnerships (PPP). Romania contemplates public-private partnerships worth nearly EUR 7 bln. The process of granting the concessions will eventually start the construction of motorways, we hope. Until now, only a few kilometres of motorway have been constructed each year, and part of the few existing kilometres of motorway, like those between Bucharest and Pitesti, already need repairs. To push these projects forward, political will is needed, along with exact regulations and the existence of public authorities’ specialists trained in this specific field.
Years 2003-2004 were the most prolific in terms of foreign investments in Romania. According to your data, what was the volume of German investments in Romania, in 2009, and what activity sectors were – and still are – most interesting for German entrepreneurs?
The German companies present in Romania largely belong to the manufacturing sector, and these firms decided to have a long-term presence in the country, with German investments reaching a total of EUR 2.7 bln. Romania remains an important market, with a high growth potential. a strategic location and the advantage of still low salaries, so German investments will continue. The German capital ranks third in Romania, with some 17,000 German firms investing in the country by the end of last year.
Romania is interesting for many activity sectors. Depending on company objectives, certain points of strong interest may be outlined. German providers of goods and services are most interested by consumer goods and investment. For the machine building and electric appliances sectors, Romania is a prominent source of acquisitions. In the IT sector, Romania is an already well-established and appreciated development center. The machine building sector sees good chances of investment in commerce, the energy sector, the auto and aviation sectors, and the food and packaging industries.
Agriculture too provides interesting business opportunities, the same as environment, water cleaning and renewable energy sectors.
This year’s forecasts are positive enough, with an expected recovery of Romanian export and industry. The building industry remains the economic sector worst hit by crisis. The risk factors are the fiscal policy and a possible overrating of the global economic recovery.
What Romanian regions do German investors prefer?
At first sight, central and western Romania are most attractive, especially for manufacturing firms, also because these regions still have a large German speaking population.
Of late, Craiova has become an interesting place as well, especially for the firms operating in the car industry, since Ford opened a plant there.
Bucharest is attractive especially as a distribution center, and for the financial, consulting and service companies.
As a principle, it very much depends on each investor, its goals, the products and services it provides.