The German Konfidence

Romania is still very attractive for German companies and is perceived as a good business location, and if asked, the majority of companies would invest in Romania again. The statement is both a commitment as well as an invitation for the local environment's stakeholders not only to keep but to deliver those improvements awaited for so long by foreign investors. The Diplomat-Bucharest talked with the German Diplomatic staff.

2014-10-04 13:14:10 - From the Print Edition

The German Embassy stays in close contact with the Romanian-German Chamber of Commerce and Industry (AHK) and its members, as well as with Germany Trade& Invest, which is the official agency of the Federal Republic of Germany for the promotion of business and trade, besides other foreign missions and foreign investment organizations.

"This is how we gather information about current challenges and opportunities for investors in Romania. My discussions with various interlocutors and a recent study of the business environment in Romania conducted by the AHK show that in general Romania is still very attractive for German companies and is perceived as a good business location. The majority of companies would invest in Romania again. However, some areas, such as infrastructure, fiscal policy, predictability and transparency in decision making, pose real challenges," Ambassador Werner Hans Lauk tells The Diplomat-Bucharest.

The official also underlined that the private sector is still waiting for major improvements in certain fields. "Furthermore, I can say that in the last year the concerns regarding some of the aggravations I just mentioned have not been reduced, but have actually increased in some cases," Ambassador Lauk says.

Bearing the risk

Even if in 2013, Romania achieved impressive economic growth and reached a certain macroeconomic stability, Romania′s macroeconomic landscape didn't let foreign investors enjoy it too much, as it delivered several pieces of not-so-equally-good news: "The recent fuel tax increases for example, and the delay in the implementation of government investments did impact the economic development and thus GDP in the second quarter of 2014. This shows that without further endeavours, Romania will remain vulnerable to economic setbacks just like other European countries. In this respect, it seems absolutely essential for Romania to continue its reform process in justice and administration in order to fully exploit the economic potential the country undoubtedly has," Lauk argues and comments: "If you or your company are about to invest capital, you bear the risk, so it is absolutely understandable that investors want to know under precisely which conditions they will have to conduct their business in the coming years. This means that the stability of investment conditions, that is, a stable legal framework and greater predictability of policies, is a crucial factor for any investor. In turn, this requires an economic policy with strategic perspectives and medium and long-term planning, that is, predictability and reliability of the legal and political environment."

Also as a piece of advice coming from the German official, he thinks that "It would also be wishful that legislative changes were adopted after parliamentary debate and consultation with associations and institutions. Changes of tax legislation on short notice put companies under pressure to adapt quickly to new regulations, thus creating additional costs for the businesses affected. Consequently, there is a danger that investors will choose investment locations where they can expect a higher degree of clarity in procedures and substance with a view to greater predictability." As the Ambassador points out, in order for Romania to attract investments in the long term, it needs-as any other country-to think and act on the basis of a long-term strategy. "By this I mean pursuing political stability and implementation of its strategies and plans irrespective of changes of government, ministers or local authorities," Ambassador Lauk states.

A long-term strategy in terms of fiscal policies, translated into legislation would be something that all investors expected, as Sebastian Metz, general manager of AHK Romania, underlines. "For instance, we appreciated the Labour Code in 2011, due to its positive effects. We can only hope the good changes performed at that time will not suffer alterations but continue to show positive effects-sentiments echoed by representatives of the business environment," Metz states.

Romania recently moved up 17 spots to 59th place in the Global Competitiveness Report 2014 - 2015 thanks to the efficiency of its goods and labour markets, the macroeconomic environment and access to primary education. According to this study, the most problematic factors for doing business in Romania remain access to financing, high tax rates, inadequate infrastructure, and corruption, as data of AHK shows.

Building a long-term relationship

Romania has many advantages in attracting foreign investments on a long-term basis. As the German official and the representatives of the business community also reiterate, "it has one of the largest populations in the region and a highly motivated competent and competitive workforce with solid knowledge of and education in technology, IT and engineering; it also has an attractive location-by being geographically close to Central Europe-and is rich in natural resources, including fertile agricultural land, oil and gas. It is an EU member and has a long tradition of manufacturing and engineering. These advantages will keep Romania attractive in the near future, provided that the general macroeconomic environment remains stable."

Also, as highlighted by Metz, the recently-discussed strategy to lower the social security contributions (CAS) could turn into positive effects in the short term for Romania as investment placement. "Many investors come here due to the advantages related to labour costs. German investors, especially those operating cost-sensitive fields like automotive, would deduct costs from the CAS cut. On the other hand, the long-term effects and the compensation issue should be taken into account seriously," Metz comments.

A major aspect to be improved is the rehabilitation of road infrastructure. With only 645 km of highways, Romania ranks last in Europe, as mentioned by the AHK official. As Metz states, "it is not only about the slow and heavy EU funds absorption in this area, but also how the funds are being used and how the legislation is regulating these aspects."

Regarding German investments, in the past year there were new entries in the IT sector, for example with Deutsche Bank opening a Global Technology Centre in Bucharest. Also in the energy sector, where RWE, one of the biggest utilities groups in Europe, has entered the electricity-supply market. The automotive sector has also been very active in 2014, with Daimler opening a gearbox drive assembly unit in Sebes, Alba county, in January, and Bosch inaugurating its second automotive technology manufacturing plant in Jucu, Cluj county. The German retailers Rewe, Kaufland and Lidl have also continued their expansion in Romania this year.

Invitation to dialogue

As Ambassador Werner Hans Lauk highlights, the dialogue between the private sector and government authorities is generally on the right track. "Both sides are aware of the advantages of constant, open and trustful communication and have the same goal, namely to make Romania more competitive. However, there is always room for improvement, especially as mentioned above regarding the legislative environment, as well as the transparency, predictability and reliability of administrative rules and procedures. In this respect, I can only encourage the government to make dialogue and consultations with the business community more constructive, as I am convinced that a serious and respectful dialogue will be of mutual benefit and lead to an even more prosperous and promising future for the Romanian people."