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Bucharest
January 26, 2023
EDITORIALOP-EDOPINIONPOINTS OF VIEW

Matei Păun, Black Sea Fund: Romania can not avoid a recession

  • But if it focuses on infrastructure development and workforce education, it can reduce the worst effects of an economic crisis
  • I am pretty pessimistic about the economic forecasts for Europe.
  • So the question that arises is: What are we going to do?

If Europe goes into recession, Romania will also end up in this situation, but it could mitigate the effects if it focuses on infrastructure development and workforce education because these two elements can attract foreign investments  believes Matei Păun, founding partner of Black Sea Fund, an investment fund dedicated to small and medium-sized companies in Romania.

 

Matei Păun’s opinion:

 

„All economic indicators in Western Europe and the US show that we are approaching a recession. There are already evident indications in Germany, the UK and the US that this is the direction. And it can’t be a different situation when the trend is to increase interest rates sharply. A positive factor is that Europe has managed to refill its gas reserves, which gives us hope that we will get through this winter without significant complications. But this only means that we have postponed the energy crisis until next winter.

Many European industrial sectors are suffering, so we observe a re-setting of the European industry. Many companies have moved to the US or are taking this option seriously. Building materials, metals and petrochemicals are sectors that are particularly suffering. Europe is no longer competitive in terms of energy and is losing a great deal of the competitiveness it used to have, especially against countries that have access to cheaper energy.

There is no country in the European energy system that is not suffering. It is hard to imagine a Romanian industry operating at full capacity in a context in which Germany and France suffer. We are very close to these large economies and it is hard to believe that we will not be contaminated given that they are our main customers. We are in a free energy market with some less pleasant aspects. Industry in Romania is suffering as much as other industries, and we still lack infrastructure and need to prepare our workforce. However, there could be some premises to benefit from this repositioning. I’m not very optimistic, but if we’re lucky, we might overcome this crisis.

The lack of energy is the fundamental problem of this possible economic crisis because it directly affects industrial competitiveness on the continent. The energy problem is a fundamental one because it is the reason why entire sectors are no longer able to work properly. Inflation is a major factor in the crisis, but this energy crisis also causes inflation.

And, unfortunately, there are no clear solutions to this problem, there are just solutions that can be implemented in the long term and that will solve the production problem, but not the price problem. Europe, by giving up Russian gas and using liquefied gas, automatically assumes a higher cost. And in a few years, when we will have the infrastructure to use enough liquefied gas, we will have cost problems. Also, the transition to green energy is a medium to a long-term project, so we undoubtedly won’t be enjoying this type of energy in the next years. And green energy feeds the inflationary trend because it is expensive.

Unfortunately, the energy crisis will not be solved any time soon, and may even be solved in the distant future.

Overall, I am pretty pessimistic about the economic forecasts for Europe.

So the question that arises is: What are we going to do? How will we reposition ourselves? What are we going to do with the redundant workers? These are significant issues because, for example, in Germany, the whole chemical sector is in great danger. And the chemical sector feeds several dozen other sectors. We are talking about big problems to which I am still looking for a solution.

Clearly, with the European economy going into recession, Romania can not avoid the same situation. We already see this trend in the way people consume. There are sectors where we observe reluctance, and people think twice when they shop. The real estate sector will suffer quite a lot, especially if lending gets more expensive and the price of building materials continues to increase. Exports are also becoming more complicated, and all these things together don’t represent a good situation for Romania.

A key role in avoiding a possible recession will be Romania’s ability to access and spend the money available from EU funds and The National Recovery and Resilience Plans, representing up to 4% of the country’s GDP. These sums of money are essential as they are primarily for critical areas for Romania, such as transport, regional development, education, environment and health.

Romania lacks adequate infrastructure and this prevents us from being competitive in terms of transport and logistics, so there is no point in having a cheap workforce if we cannot deliver what we produce in a decent manner. The efficient infrastructure is why Poland, Hungary, and the Czech Republic dominate in attracting foreign investments. Geography doesn’t help us, but we could compensate for this with good infrastructure. I’ve been saying for 20 years that we need a strategic, national-interest, fast-track program to improve infrastructure.

We also need to focus on education, especially lifelong learning. To be more competitive in more complex areas, workforce education must be a priority.

So we should focus on infrastructure and workforce education. If we do these things, we will have a good chance of delaying the worst effects of an economic crisis”.

*

Matei Păun is a specialist with more than 20 years of experience in the investment field, having been involved in dozens of transactions so far. Since 2018 he has been the co-founder of Black Sea Fund, an investment fund focused on SME transactions in Romania.

 

About Black Sea Fund (BSF)

 

Black Sea Fund (BSF) is an investment fund created in 2018. The fund has a budget of €43 million and has so far invested in the companies Intermedio General Group SA (Theta), Clinica Dentară SA (DigiRay) and ROOVI (formerly D-Toys). The Black Sea Fund is mainly interested in medium-sized companies and the investment per company is between three and eight million euros. The leading investor of BSF is the European Investment Fund, with resources from the Regional Operational Program co-financed by the European Regional Development Fund.

 

 

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