National Day

GERMANY

Not just a target for textiles

Germany is preparing the ground for further ties with Romania once the country joins the EU.  Corina Mica talks to commercial attache to the German Embassy Roland Herrmann and Romanian Ambassador to Berlin Adrian Vierita

            A strong and sustained partnership has taken place over the last decade, according to Roland Herrmann, commercial attache of the German Embassy in Bucharest.
            At first German firms were only interested in relocating some of their textile production to Romania, but now investments in manufacture from big names like INA Schaeffler and Continental tyres down to small family-owned premium enterprises such as Stirbey wines have ensured Germany has come closer to the impending EU nation.
            The largest European economy stands as Romania's second biggest trading partner with a share of about 15 per cent of Romania's foreign trade (7.2 billion Euro). “Even better results can be expected in 2005, since from January to June the volume of bilateral trade already reached 4.2 billion Euro,” he adds.
            But there is still work to do. “The encouraging development of our bilateral trade relations, however, does not mean that we have already exploited the full potential of our relations,” adds Herrmann.  “German companies stand ready to enhance their presence in Romania, if necessary conditions are provided.” By July 2005, German companies had so far invested 950.3 million Euro. This is not the total figure, as some firms prefer to make investments through branches in other countries.
            “Germany's contribution to enhancing the strength of the Romanian economy thus is substantial,” says Hermann. “While we welcome the volume of foreign investment so far made in Romania, we feel here is still space for further improvement.”

Treaty to be ratified next year, says ambassador

            “I am convinced the German Parliament will ratify Romania's Accession Treaty in 2006, thus confirming the constant support Germany provided along the entire accession process,” Ambassador of Romania to Germany Adrian Vierita tells The Diplomat.
            Such confidence is good news for relations between the two countries. Members of the largest German party, the Christian Democrat Union, have voiced concern that Romania may not be fit for accession on 1 January 2007 and could stop the process if they fail to ratify the treaty. They would be able to do this in or out of Government. But this possibility is looking increasingly uncertain as relations improve.
            “Romanian-German relations have been on a dynamic uptrend lately, characterised through an increased interest to cooperate in the economic field from both parties,” he adds.
            Signing the EU Accession Treaty earlier this year became “a positive sign to foreign investors” says the Ambassador, which confirmed the progress Romania made in economic reforms.
            “German business people's prejudices about Romania, which have been very present in the past, have successfully been fought in the past few years through a coherent economic policy that has turned Romania into a very attractive investment environment for German investors,” he adds.    Fiscal reforms by the Romanian Government have been noticed by German firms, adds the Ambassador, as well as improvements to the legal framework, which he says are meeting investor requirements.
            “Germany, as Europe's main economic power, has been one of the most constant supporters Romania has had on its way to EU integration,” he says. “I am convinced our country will continue to benefit from this support, which is essential also for the post-adhesion period.”

Battling for the budget

Following success in cash-and-carry and DIY, German retailers are now fighting it out for the discount market, reports Anca Pol

            Romanian shopping habits focus on staple foods.
            They eat a lot of bread, seasonal food and are keen on price due to a low purchasing power. They are accustomed to shopping in locations such as open-air markets and kiosks on the ground floor of the blocks of flats.
            But this will change. Romanians will go to small shops less and supermarkets more. Small format stores will disappear as they cannot compete with the buying power of the big boys. Customers may have to travel a fair distance, but they will go where the low prices rule. So runs conventional retail theory.
            This process should be quicker in Romania, as the young and middle class are more willing to accept it. And new and established German retail chains are rushing to invest in Romania to pick up the customers

DISCOUNT STRATEGY

            This month food and non-food retailer Kaufland is due to open in  Bucharest, near Piata Obor. Ramnicu-Valcea and Timisoara will follow this year and Roman, Neamt county is next. Based on the everyday goods concept, stores are planned for the heart of residential areas, including smaller towns of 50,000 to 80,000 inhabitants. This is a different strategy to hypermarkets Cora or Carrefour, which tend to border the big cities. Kaufland aims to be the cheapest on the market, insiders say, with around 10,000 food items, adapted to local eating habits, and bought from regional and local suppliers.
            Its competitors are hypermarkets and cash & carry stores, such as Selgros and Metro, which are established brands in Romania. But they are not alone.
            The Germans are opening fast and selling cheap in neighbourhoods and not just big cities. Plus Discount (from the Tenglemann Group) will star opening in November. Its first 15 locations are Bucharest and Bacau, with three each, Sibiu with two and then Targoviste, Deva, Bistrita, Gherla, Orastie, Mioveni and Ramnicu Valcea.
            Currently Rewe Group has four XXL Megadiscount stores in Romania, in Bucharest, Sibiu, Targoviste and Buzau as well as 11 Penny Markets.
            Only one fifth of shopping Romanians made in 2004 was through modern-style retailers, such as supermarkets, according to a survey quoted by Rainer Exel, MiniMax Discount general manager. Exel says that, compared to Hungary and Poland, where this is over 55 per cent, it is clear Romanian retail is far from mature.
            “There is still enough space for development in all the segments [supermarkets, hypermarkets, cash & carry, DIY, white goods stores, commercial centres and malls],” Exel tells The Diplomat, “and we know that Cora and Carrefour will not reach towns where we will go, because their investments are justified only in towns of over 200,000 inhabitants, while MiniMax goes to 20,000-inhabitant towns, so the penetration rate will be much faster and stronger.”
            MiniMax-Discount has opened in Slatina, Urziceni and Targoviste this year at a cost of 750,000 Euro each. The discounter plans to expand to 100 stores in the next five years. Seven more are due to open by the end of this year and 20 for 2006. Like Kaufland, the discount concept has been applied to the selling of everyday necessities, because “taking into consideration the still modest income level [of the Romanians], the impact of prices is stronger in a discount type network,” adds Exel.

HOME IMPROVEMENT

            When it came to expanding further into central and eastern Europe after Hungary, Praktiker had its heart set on Romania.
            “In Romania there's a strong need for basic refurbishment and home improvement,” Gunter Vosskaemper, Praktiker country manager tells The Diplomat. “It's a boom and it will be sustained in the next years and could maybe become stronger. So there is a strong need for DIY materials.”
            Since 2002 Praktiker has opened nine stores in Romania. The latest is in Constanta, while two are due for Craiova and Arad. The chain intends to maintain the pace of four new stores per year. Iasi, Satu Mare, Baia Mare and Pitesti will expect to see a Praktiker in the future. Since the average cost of a store is seven to eight million Euro and the mid term expansion plan Praktiker has for Romania is 15 stores: over 112 million Euro is the German giant's mid-term investment plan.

CASH AND CARRY

            Attracted to Romania's constant growth potential, Selgros opened its first local store in 2001 in Brasov. Targu-Mures, Constanta, Timisoara, Oradea, Cluj-Napoca and three in Bucharest followed. The latest opened last August in Arad, raising the total investment to around 160 million Euro (one store costs around 15 million Euro to set up). Selgros has a plan to open 20 in total. The next is due by the end of 2005 in Craiova, after which Selgros will focus on the east. Among Romania's advantages is “the level of development [of the Romanian retail market], the relatively low competition in the field and the high attractiveness for our clients,” says Selgros country manager Edith Lenga-Balk.

Eyes on the prize

            Romania's banking and financial sectors have attracted a great deal of interest from German firms, with the first merger with a Romanian bank now finished and a potential purchase of the largest state bank on the cards.
            HVB Bank Romania has just completed a merger with local-based Banca Tiriac. This has slipped in before the German banking group itself joins with Unicredit later this year. The Italian group is making this huge gamble because it sees eastern Europe as an area of massive growth.
            “We have quite ambitious plans with regards to the integration of Banca Tiriac into HVB, which we would like to complete in the Spring of next year,” HVB Bank Romania's deputy chairman, Wolfgang Schoiswohl, tells The Diplomat. “All branches of Banca Tiriac and HVB are going to be working on the same system, as one bank. This is ambitious because looking at a 'rule book of integration' this should take about one year but we want to do it in record time.”
            No change is yet to be done to the top management of the bank, says Schoiswohl. After the completion of the merger, the bank will have more than 700,000 customers, 90 branches and will occupy the fourth position among the local banks.
            “Together we will be competing for the number three place in the local banking market,” he adds. “Maybe it's not enough to beat Raiffeisen, [the current number three].”
            Unicredit Romania has about two per cent market share, so when this second merger goes through, the bank could have a ten per cent share.
            “It's not important what place we're on, it's good to be one of the major banks in the market and the point is to increase quality so we can base our operation on an extensive network,” he adds.
            Schoiswohl says the bank wants to focus on strengthening its market position in the “deluxe corporate field, but the market is very competitive here, and the margins are shrinking, therefore it is important to get in a wider segment.”
            The next big deal involving German banks is the privatisation of Romania's largest bank, Banca Comerciala Romana (BCR). Although HVB some time ago expressed an interest in taking over BCR, Germany's hopes lie with Deutsche Bank, which looks to be in a strong position to take over the (estimated) 1.5 billion Euro state financial institution.
            “I am a bit sad we have to be an outsider in the BCR race, as this is a good opportunity to gain a major market position and a big opportunity to build upon,” says Schoiswohl. “We are relaxed now seeing the contenders, and I have to say not many have experience in Romania that big to get BCR. It is a challenging task for the rest of the banks.”
            He feels that, if Deutsche Bank (DB) were to be the winner, it would be a very interesting step for a bank its size. “Now DB feels the need to re-orientate itself and this is one of the last opportunities in Europe to get into such a big banking environment like Romania. Deutsche Bank has not done something like this anywhere else.”

SMALL FINANCE
           
            With shareholders including German and European investment banks, Pro Credit Bank focuses on providing loans averaging 4,000 Euro to small and medium-sized enterprises. With reported total assets of 104 million Euro at the end of August, the bank has a net profit of around 500,000 Euro so far this year, says general manager Michael Kowalski.
            “We hardly have limitations in giving out loans. Our limits are that we do not provide consumer lending and we don't finance big companies. Apart from that we have no restrictions on the types on activities we finance.”
            Pro Credit is one of the few contenders in the agricultural credit market, a move which Kowalski says has seen very good development over the past nine months and now represents about ten per cent of the bank's lending portfolio.
            “Just looking at the disasters that have hit Romania, we see more reasons to take this type of financing more seriously,” he says. “We want to support Romanian farmers and producers, as the average amount in agricultural loans we give out is just below 3,000 Euro.”
            The bank is currently present in eight cities nationwide, with 16 outlets, which Kowalski says is a limited network compared to neighbouring countries.
            “If we want to cover towns with more than 100,000 inhabitants we're going to have to branch out,” he says. “At this moment we cover an area of up to 100 kilometres from the cities we're based in.”
            Plans for this year also include tackling the e-banking niche, as well as ATMs and card businesses and launching a local bond issue at the end of the year.

EASY LEASING

            Scandal hit the leasing market this summer when German-based MTS Leasing collapsed, scamming hundreds of Romanians out of more than 700 million Euro. Now under observation by German lawyers, the 'MTS case' hopefully does not define the credibility of other German leasing endeavours.
            Set up back in 1997, Rom Aval now enjoys a fair success, with general manager Heike Meier telling The Diplomat one of its latest projects is an involvement in an almost 165 million Euro private-public project to provide computer laboratories to all Romanian schools, run by the Ministry of Education and Research and provided by Siveco
            “The project includes not only delivering computers but also a complete IT system for electronic learning. It is one of the best in the whole Europe,” says Meier. “We were the leasing partner since the beginning, in cooperation with another German leasing company AGV, which is under development since 2001. We lease equipment and intangible assets.”
            She adds the company is also involved in leasing activities for transport, in cooperation with West LB, such as rolling stock for railway activities. “There are pilot projects underway in the country, totalling between 50 and 60 million Euro,” she says.
            Meier feels Romania has finally came out of the valley. “Banks were 'sleeping', in the sense that they were profitable without doing a credit business; fees were high compared to other countries,” she adds. “Now there are no big problems in the credit business and basically everyone can receive a credit, but many people have wrong expectations.”
            Another significant player in the local leasing market is HVB Leasing, with managing director Andreas Obrist saying the company set up shop locally due to international activities of multinational clients. 
            “We were the first leasing company to offer real estate leasing in Romania,” says Obrist, adding the infamous MTS Leasing example “is the typical fraud example. This is why we always advise our clients to check carefully who they're doing business with.”
            Despite sound expertise in real estate leasing, Obrist says his company's portfolio is made up of about 45 per cent of car leasing and the rest in real estate and equipment.
            Obrist's dream is to be able to finance not only private surgeries but also state hospitals, seeing further opportunities in private-public schemes.
            HVB Leasing Romania is currently present in Timisoara, Oradea, Cluj-Napoca, Constanta, Iasi and Brasov, besides its Bucharest headquarters, and plans to open in Craiova, Pitesti, Sibiu, Bacau and Galati in 2006.
            “We are now ranking in the area of number seven to five nationally, but the truth is that nobody knows. There is no overall reporting unit in this industry.”

Turning on to the network

            Investors, speculators and entrepreneurs would be nowhere without networking.
            To help this along the German Business Club was set up as a platform and forum for business people from Germany, at a time when a proper Chamber of Commerce was still absent in Romania.
            “The Club was kicked off following the suggestion of Dr. Anna Printz, the former commercial attache of the German Embassy in 1994,” the club's president Peter Simon tells The Diplomat. “She said we needed to have an organised way of meeting. So, the idea to set up the club came from a diplomat.”
            The club organises gatherings at Mica Elvetia restaurant on the first Monday of every month. “We have seen that diplomats have problems in getting in contact with other German business people and this has proven to be a good idea to bring them together,” says the president. The club also has the role of lobbyist. “We are all running businesses and we have developed connections. It's first of all a network of knowledge,”he  says. “We have had relations with the past Government and now with the present one, and also when investors come we advise them to go straight to the Government. You don't need an intermediary.”
            The German-Romanian Chamber of Commerce and Industry, just like the club, organises monthly events where members can meet.
            “To these meetings we invite high level politicians, lawyers and tax advisers to explain what's going on in this country. It helps members build up networks and exchange information by finding out the latest news,” says its general manager Dirk Ruetze.
            In consultancy, the chamber helps find business partners, an area which has seen a rise in demand over the last three years. He says companies from Germany have started to trust this country to deliver intelligent products.
            “When we set up shop, only people in the textile industry were looking at Romania,” says Reutze. “The first big investment was Continental in Timisoara and then HeidelbergCement. After that Metro came. Since then, more German companies have taken a closer look at this country.” Timisoara, Sibiu and Bucharest are, Ruetze believes, the three cities in this country that are doing an excellent job in attracting new investors. Sibiu itself has a very popular German mayor.
            “All these cities have very open-minded mayors and very often we find out that in other cities there is a situation where it is not always clear if they are interested in attracting new investors,” he adds. “We even have the impression some cities are a club.” Reutze says some recent nice surprises are towns such as Satu Mare and Baia Mare.
            Speaking about the upcoming EU integration of Romania, both Simon and Ruetze share the same view: the sooner the better. Ruetze says: “The main point is that Romania is a good partner for the EU and I believe the EU is a good partner for Romania… As an economy, as companies outside Germany, we believe it doesn't matter if the country joins in 2007 or 2008, but it's necessary and it makes a lot of sense to build up the trust and the relations and go ahead. If in the end we lose one year, it is a loss for all.”

Driving ambition

            “Romanians prefer quality and reliable cars,” says Brent Valmar, director general Porsche Romania and president of the Association of Car Importers and Manufacturers (APIA). “To put it shortly, German cars.”
            Importing and selling brands such as Volkswagen, Audi, Porsche, Seat and Skoda on the local market, Valmar says this year's boom has overtaken his expectations, with the small and medium car and the SUV segments performing well. “The same increase in the automotive market is not going to be recorded next year nor in the near future,” he adds. “Moreover, we should be cautious and even expect a slight decrease of automotive sales in Romania during the next years.”
            Second hand sales, he says, will rise soon after Romania joins the EU.
            On Volkswagen Group's own ambitions for Romania and eastern Europe, Valmar says there are “no such plans” to produce a cheap car in competition with the Logan. “Volkswagen has its well-established price and competitors' strategy all over the world.”
            Allegations of bribery between company managers and suppliers have surrounded the German carmaker, but Valmar says he knows of no Romanian suppliers involved in the investigation.

Infrastructure: setting the scene

            HeidelbergCement is one of the most important German investors in Romania, pouring in more than 240 million Euro from 1998 till now.
            Present on this market in the production of cement, concrete and aggregates, through its three companies Carpatcement Holding, Carpat Beton and Carpat Agregate, the company has three cement plants Moldocim Bicaz, Casial Deva and Romcif Fieni. The three cement plants and Carpatcement Romania last year merged under the name Carpatcement Holding.
            In 2004 HeidelbergCement Romania posted a 156 million Euro turnover, over 30 per cent higher than the figure for 2003.
            Carpatcement general manager Mihai Rohan says the company now wants to consolidate its position.
            “We worked to become the market leader and to build up our position through vertical integration. We will continue to develop the concrete plants network. Since the beginning of 2005 we opened three new modern concrete plants operating to European standards,” says Rohan. “We will continue investments for the use of alternative fuels and materials in the cement production process.”
            Rohan feels the introduction of European environment standards in Romania is an important challenge for the cement industry. In environmental protection since 1998 HeidelbergCement has invested over 16 million Euro.
            With Romania severely hit by floods this year, the cement market is likely to see increased demands to help reconstruction. Rohan says: “For the first part of the year the market was almost at the same level as last year. Even decreasing a bit due to weather conditions. For 2005 we estimate the market will increase by four to five per cent compared to last year,” he says.

          Tech future

            Siemens has been present on the local market for almost a century and is now active in a wide range of sectors, including telecommunications, IT, medical, transports and energy.
            Last month Siemens Romania opened a new regional office in Cluj-Napoca, the company's second such facility in the last two years, after Timisoara. The new office will address areas such as medical equipment and solutions, automation and fixed telecommunications, while in the future other divisions of Siemens Romania group will also find representation there.
            “In telecommunications, we cover a wide area, including landline communication, landline infrastructure, mobile phones and mobile phones infrastructure,” Siemens general manager, Adrian Baicusi, tells The Diplomat. “The total investment by the group so far in Romania is up to ten million Euro.”
            Other important projects Siemens is involved in include a delivery of 120 auto motors and 37 locomotives for state rail firm CFR Calatori, diagnostics equipment for the Ministry of Transport as well as a major project won by its Power Transmission and Distribution division for the 400kV station in Oradea, for the national power grid company, Transelectrica.
            Also in the telecommunications field, antenna firm Kathrein Romkatel has developed successfully its local expertise, boasting a turnover of seven million Euro and 43 employees. At the start, the company ran its local activities from a rented office in Bucharest, but now owns its headquarters in the capital, from where it operates most of its commercial activities, as well as warehousing facilities in Bucharest and Timisoaras and 1,000 sqm of offices, administrative spaces and schooling halls.
            The company is mainly active in producing antennas and boasts a portfolio of clients that include: MobiFon, Orange Romania, Telemobil, Cosmorom, Radiocom, Pro TV and firms from Bulgaria, Serbia, Ukraine and the Republic of Moldova.

            Utilities: electric storm

            One of the latest German newcomers on the local market is utility group E.ON Energie, which has gained a strong foothold locally through taking over one power and one gas distributor: Electrica Moldova and Distrigaz Nord respectively.
            Regional utility Electrica Moldova supplies electricity to some 1.3 million customers and represents an 11 per cent share of the Romanian distribution market.
            Johannes Teyssen, chairman of E.ON Energie board of management says: “The company's service territory overlaps with that of the Distrigaz Nord gas distribution company, of which our sister group E.ON Ruhrgas has become a shareholder. This will create a real opportunity to progress our electricity-gas convergence strategy.”
            The first foreign company to successfully drill for gas in Romania was Germany's Wintershall, which, back in 2002, started operations in Sighisoara. The group is also tackling the gas distribution market locally. Recently officials from Distrigaz Sud and Wintershall opened the gas distribution network in Alexandria, southern Romania, in a joint investment of two million Euro.

Law: getting good advice

            With the legal system struggling between reform and stability and laws changing every day, investors need advice or they could end up stuck in a bureaucratic quagmire or, worse, breaking the law when they had no intention of doing so.
            German consultancy firms active in Romania include Haarmann Hemmelrath, which employs 50 people of which 40 are professionals in legal, tax and financial services. Haarmann Hemmelrath specialises in legal services, tax and finance advice and audit.
            Secondary privatisations will be the next wave of business interest, with big multinationals looking to buy up efficient and profitable local operations. 
            “When the big wave of privatisations will end, the private-to-private transactions will take over and we'll be a part of it,” says Haarmann Hemmelrath partner Catalin Grigorescu. Examples of such deals include the Siemens-Forte deal, as well as the takeover of TotalSoft by Global Finance investment fund and Dufa by Advent International. Haarmann Hemmelrath also provided consultancy for Porsche Bank when it set up locally. The firm's portfolio of clients is significantly made of German, Austrian and Swiss companies, but not exclusively, and it also has some Romanian firms on its books.
            The consultancy partnership is currently involved in two projects for the privatisations of Electrica Muntenia Sud  and of Romgaz.
            Legislative instability, especially fiscal, is one of the biggest impediments to any investor heading this way. “The changes are not predictable anymore,” says Grigorescu. “The level of the fiscality is debatable, the stability is more important.”
            Norr Stiefenhofer Lutz (NSL) was set up locally in 1998 and seven years later can definitely say it was the right decision. It is a full service provider, offering legal, tax and auditing competencies. The firm has 20 lawyers and four tax advisors.
            “We're proud of all our projects, that include INA Schaeffler in Brasov and Kaufland,” attorney at law NSL, Joerg Menzer, tells The Diplomat.
            As an interface between foreign investors and the local business environment, Menzer explains: “There is a lot of misunderstanding from the part of many investors coming here. They believe the country is underdeveloped, that there are legal loops, a bad influence of authorities and an extensive use of networks. They come with prejudices in aspects that concern law, tax and public authorities, but that is so wrong, because Romania is working pretty well for a country that is still in transition.” In addition, he feels, Romanians “are not that proud of their own country, they don't elaborate on it and it's hard to form a balanced view on Romania.”
            Menzer thinks that, when Romania will join the European Union, it will be one of the countries with the closest culture to western Europe.
            “Romania can be either the Portugal or the Spain of eastern Europe,” says Menzer. “Portugal started to develop very well once in the EU, but now it has some problems, whereas Spain has seen a very good development and has caught up with the EU. It depends only on Romania to be the Spain of eastern Europe.”

            Wine: bringing the organic to fruit

            Later this year the first bottles of ecological wine from Carl Reh Winery could begin to appear on the local market. After three years of nurturing organic, GM-free stock without synthetic substances in its fertilisation and protection, the vineyard is the first Romanian grape-growing region to win 'ECO' status.
            “There is a good market in Scandinavia and Great Britain for ecological wine, but not yet in Romania, it is too early for that here,” says Ana Rodica Capatina, general manager Carl Reh Winery Romania.
            The firm's signature brand, La Cetate - Tezaur, which is a premium, older wine fermented in oak, will be one of the new organic brands.
            Operational on the market since 1994, Carl Reh bought an old state winery in 1999 in Oprisor, Mehedinti county to produce its own stock. Now the firm owns 320 hectares of land, 150 hectares of which is planted with vines.
            The UK is the main foreign market. So much so that the firm is looking to target women commuters taking the long train journey home. Soon they will be able to buy white and red versions of dry wine Val Duna with a screw cap to drink on the train after a long work day.
            “The Romanian market is growing,” says Capatina. “But it does not have a structure, it develops its own ideas. At the moment there is not a lot of competition.”
            As president of the Association of Wine Exporters, Capatina is working with her colleagues and competitors on trying to improve the image of Romanian wine. In the past consistency in quality was a problem with Romanian wine and the products had the stigma of cheapness. Now a new marketing strategy needs to exist to push its image abroad, using a history of wine traditions and a quality symbol mark, which has helped enliven the exports of Spain and Italy.

            Royal venture

            After honeymooning in Romania in 1997, Baron Jakob and Baronin Ileana Kripp decided to settle in her former family home in Dragasani and rebuild its vineyards and wine business. 
            In the 20 hectare property, Prince Stirbey's family had produced wine since the 18th century. But in 1949 the state acquisitioned the land and members of the Stirbey family were thrown out of their home and forced to renounce all their possessions. Afterwards the state transformed the property into a winery for mass-produced white wine, while the main building housed a restaurant for Communist VIPs.
            Lawyer Baron Kripp and Ileana, the grand-daughter of Princess Maria Stirbey, began restitution procedures in 1998 and, since 2001, have replanted indigenous and imported vines. Now employing ten people, the family have a bottling line and sell quality products for the domestic and foreign markets.
            “Our intention was to run the firm like a traditional family-owned wine estate,” says Baron Kripp. Around 50 per cent of their local trade is in Bucharest, while Romanians in Transylvania prefer dry varieties. Baron Kripp has found southern Romania tend to opt for semi-sweet wines.
            In white the dry Cramposie Selectionata, with apple and pear aromas, has proven very popular.
            “We were told before it was a name that was hard to pronounce and no one knew it. That it would be hard to sell abroad. But people are always looking for something new,” says Baron Kripp.
            Now the wine constitutes around half the firm's exports, a rare feat for a Romanian white.
            In reds a local variety of Cabernet Sauvignon is on the market, while an Austrian Merlot and two new local varieties should appear next year.
            “In the end we should be producing around 50/50 red and white,” says Baron Kripp.

In Romania Stirbey's wines are targeted at the premium range. The company supplies restaurants, hotels and vinoteques with a sale price of around 20-40 RON (six to ten Euro), and for the same price abroad, where the wines are in the mid-price segment.

HUNGARY

Exchange mate

Hungary is making bold steps to assist its neighbour in gaining readiness for European Union accession, Anca Pol and Corina Mica report

            With visits from Prime Minister Tariceanu and top level politicians to Budapest, coupled with a new joint Governmental meeting this month, relations are improving between Romania and, arguably, its closest neighbour.
            “The Hungarian Government appreciated as an important gesture that the Prime Minister made his first visit abroad to the neighbouring Hungary, handling the event accordingly on a much higher level than courtesy visits of introduction are usual in diplomacy,” Janos Terenyi, Ambassador of Hungary to Romania tells The Diplomat.
            This Governmental meeting  Terenyi calls an “unprecedented” event of this kind in the relations of the two countries and a “rare event in the history of diplomacy”.
            The agenda will include mainly Hungarian assistance at political and professional levels regarding Romania's preparation for EU membership and the harmonisation of the two countries' national development plans.
            Terenyi adds that “bilateral relations are evolving in the right direction as, on the part of both countries, we sense resolute political will to proceed.”
            Besides larger investors such as oil firm Mol, OTP Bank and pharmaceutical manufacturers Gedeon Richter, there are 7,000 Hungarian small and medium-sized enterprises present in Romania, a figure less than China.
            According to the Romanian Institute of Statistics, Hungary is the sixth most important destination for exports from Romania, while Hungary has dropped from eighth to eleventh place for imports to Romania. It has been overtaken by Austria and Great Britain.
            As far as the Hungarian-Romanian bilateral commercial exchanges are concerned, after 1990, a lower activity period was registered until 1997. But since then trade has intensified. Investment in Romania has helped. 68 per cent of the capital invested by Hungary here is in industry, from medicine to textiles, packaging, ceramics, construction and food. Investments in tourism are also growing.
            After its initial bid for the largest state-owned bank Banca Comerciala Romana (BCR) in a consortium with HVB back in 2002, OTP Bank entered the Romanian market last year and now has its sights on the state national savings bank CEC, due to be sold later this Autumn, with stiff competition from Societe Generale, Raiffeisen and Erste Bank.
            “An argument in the favour of the OTP Bank is its 19 billion Euro worth of banking assets, almost as much as the total banking assets on the Romanian banking market,” says Janos Halasz, commercial counsellor, Embassy of Hungary.
            This could be an ideal fit, as OTP itself was the Hungarian version of CEC.
            “It's a success story about the transformation of a CEC into a modern bank, expanding in the area,” Halasz says. “OTP Bank has bought banks in Slovakia, Croatia and Bulgaria, plus RoBank, which is a smaller acquisition in Romania, after the failure at the BCR privatisation,” he adds. In the counsellor's opinion, this will be an advantage in OTP's favour.
            After purchasing state banks similar to CEC in Slovakia and Bulgaria, the counsellor says that OTP saw a rise in profits right from the first year after privatisation.
            The Counsellor sees potential in the telecom sector, hoping Magyar Telekom, part of Deutsche Telecom, will come on the market.
            While EU integration has had a positive effect on the increase in Hungary's investments abroad, the signing of Romania's Accession Treaty earlier this year has triggered an increase in Hungarian investments in Romania. Although official investment stands at 443.5 million USD (over 365 million Euro), estimates from the Hungarian Embassy to Romania place the real amount of capital invested by Hungary in Romania as between 900 million and one billion USD (740 and 822 million Euro).
            Modern highways in Romania would also aid trade and investment. With the Transylvanian Highway on ice and the Constanta-Bucharest-Arad-Nadlac motorway not yet in advanced stages of development, this is still an area where Romanian needs to speed up.
            “Economic needs shout out for such fast communication routes,” says Halasz. “Much more investors would come if the infrastructure would be more developed, as this is still a problem. We are not succeeding in convincing investors to come closer to the interior of Romania. They do not want to go too far from the border, because they have products which need to be immediately taken back to the European Union,” adds Halasz.
            Also the route of European corridors crossing the two countries is vital. “Hungary's interests are very clear, that is the Pan European Corridors IV and IX [which cross Romania from west to east and south to north respectively] to remain as established,” adds the counsellor.

SPAIN

Talking a similar language

Thousands moving abroad to find jobs and then sending money back home? Sounds familiar? Spain has been there before and, as the Ambassador to Romania Juan Pablo Garcia-Berdoy explains, this can be a tool for domestic development.

            Spain is now a major destination for Romanians who desire to work abroad for a better life. From working on a fruit-picking farm up to starting their own businesses, Romanians have become a second community in Spain, with hundreds of thousands of workers now living or semi-resident in Iberia.
            “Romanians have been tremendously successful in Spain,” says Juan Pablo Garcia-Berdoy  Spanish Ambassador to Romania.
            Popular areas for Romanians include those close to Madrid, in Guadalajara, but also in the Spanish eastern coast of Valencia, Alicante and Castellon. The community now clocks up 100,000 workers with full-rights. The embassy estimates the figure for actual workers in Spain should be over 200,000, while Romanian Unions have given a figure closer to half a million.
            The migration process that Romania now faces was experienced by Spain in the 1960s, when workers moved mainly to Germany, France and Switzerland.
            “I think it is a fantastic thing and very healthy process for Romania,” he says. “Our people learned how to work in a more developed society, learned how to work using European Union rules, which they adapted to their own country on their return and the money they sent back in Spain was a very useful tool for development.” After a while Spanish migrants came back, and he believes Romanians will do the same.

FOLLOWING THE SPANISH LEAD

            Tourism is an area in which Spain has blossomed, while critics argue Romania is not taking full advantage of its potential in this sector.
            “You have the most beautiful country in Europe in terms of nature,” Garcia-Berdoy says.
            Hunting in the forests attracts Spanish tourists to Romania and, he believes that, in tourism, Romania has to follow Spain's lead in renovating classic buildings to protect the nation's cultural heritage, but with an eye on transforming them for the tourist dollar.
            Born in 1961 in Spain, Garcia-Berdoy took up, his first post as an ambassador, earlier this year. Starting his diplomatic career in 1986, he has worked mainly in the European Affairs field. Before coming to Romania, he advised the Spanish Government on EU enlargement into central and eastern Europe. Then for five years he was head of the Spanish state secretary's cabinet for European Affairs, before becoming general director of EU affairs.
            Bilateral trade between Spain and Romania is increasing although he says this is “very small” compared to what it should be.
            Last year it was one billion USD (around 840 million Euro), 35 per cent higher then 2003 and this year he estimates this will increase. Cars, machinery and appliances are the most traded products. In 2004 the balance of exports was three fifths from Spain compared to two fifths imports from Romania.
            Foreign direct investment is small. However in car parts, ACE is building a new 5,040 electrical component plant in Dej, Cluj county, while wood processing firm Diana Forest and meat company Campofrio have also made long term investments.
            “Investments depend on big operations,” says Garcia-Berdoy. “I still believe that this will increase substantially in the future. We've been quite under our standard in the last few years.”
            A change of pace has been noticed in the last couple of months. Spanish security firm Prosegur bought out local firm Dragon Star and NH Hoteles is opening two hotels, one in Timisoara and another, already doing business, in Bucharest.
            Fields in which Spain is strong, such as utilities, banking and telecommunications are still absent from this market.
            However this is because there time is exhausted with other developing countries.
            “Spain is the first or second investor in Latin America and that is keeping us away from Romania and central Europe,” he adds. “It is a huge effort which has concentrated our energy.”
            Culturally, Romanians and the Spanish share the same language root and Garcia-Berdoy is enthusiastic about capitalising in this area. In Bucharest, the Cervantes Institute is always active in promoting Spain and now Romania will have its own cultural institute in Madrid.
            “This is essential,” says Garcia-Berdoy. “My argument is that the Spanish along with English will be the language of the 21st century. The Spanish language should be an investment for the youth of Romania. It will be the bridge between cultures, that belong to you as a Latin country and the opportunities that are about to be open in this enlarged Europe. It is an asset you have to use.”

TURKEY

Base to expand

Turkish business people have high ambitions for Romania, as many choose to settle in the country and use it as a base for ambitious expansion plans. 'The Diplomat' offers a special report on Turkey's local progress 

            For centuries Turkey and Romania were rivals on the battle field; today they are strong business partners. Thousands of Turks are operating over 9,000 enterprises in Romania, busy working in fields as diverse as infrastructure and chocolate bars. Many of these are high-growth networks of businesses that adapt easily to a changing environment. These firms often move between sectors, such as taking a leap from technology supply to residential development, keeping an eye out for the margins.
            “Turkish investors have courageously invested in Romania, even during the fragile circumstances that followed the 1989 Revolution, thereby becoming the pioneer in many sectors,” Ambassador Ahmet Rifat Okcun tells The Diplomat.
            “The most satisfying development in Turkish-Romanian relations has been witnessed in commercial and economic fields.”
            Foreign direct investment is estimated to be over 1.3 million Euro, although many Turkish companies choose to invest through an EU nation, as this is a cheaper route for tax reasons.
            Okcun is looking for more “spectacular achievements” in economic co-operation. He mentions the construction field, in which Turkish firms have been involved in many important projects, including Eurohouse, America House and the Bucharest-Constanta highway. “We will continue to encourage our businessmen to take part in big construction projects,” he adds.
            In privatisations, Turkey has been active in heavy industry and, despite the fact that most of the major privatisations have been completed, Okcun says he believes some “large scale contracts” will be concluded between Turkish companies and the state.
            But it is the sector of agriculture where Okcun says there is “big potential” for bilateral cooperation. “Agricultural products constitute a major item in our exports to Romania,” he says.
            Around 70 per cent of investments made in Romania by the Turkish investors were mediated by TIAD (Turkish Business people's Association), a non-profit and apolitical association established in 1993 to raise social, cultural and economic relation between the two countries. With branches in Bucharest, Dobrogea and Transylvania, the association clocks up around 220 members all over the country.
            President of TIAD Ismet Ismail Bayindir says the first Turkish business people in Romania were active before the revolution, in the fruit, vegetable and metallurgy sectors, but now they are present in electronics, home appliance, production, forestry, furniture, plastics, chemical, transportation and the food industry.
            In agriculture there is still a lack, and the situation has been changing only in the last two years, Guven Gungor general secretary, TIAD told The Diplomat.
            But trade relations are reasonably well-balanced.
            At the end of this year the Embassy expects bilateral trade to reach four billion Euro, a massive leap from just over 2.5 billion Euro in 2004.
            Being on the ground has helped Turkey to reach this figure. “Trade relations are carried out by the Turkish community here in Romania,” says Bayindir.
            There are now over 15,000 Turkish business people in Romania and 9,500 enterprises.
            Companies such as Finansbank, Garanti Bank, Azomures and Arctic are registered as investment of another country, although they are Turkish.
            To help and promote the business environment in Romania and also to attract more investors, TIAD is publishing a guide which includes information about Romania and Turkish business here to distribute to Turkey and countries such as Germany, Bulgaria, Hungary, Poland and Great Britain, where Turks have businesses.            .
            One of the biggest groups in Turkey, industrial and financial conglomerate Sabanci Holding is interested in investing in Romania. The company's president is honorary president of TIAD.

Metal detectors

Local metal and aluminium industries have offered Turkish manufacturing firms the chance for large expansion and export

            Romania is fast becoming a regional centre for metal product manufacture and this year and 2006 will see Turkish firms boost their investment in preparation for an EU windfall of both massive export potential and heavy regulation.
            Electrical steel band and strip producer Erdemir started activity in Romania in January 2002 in Targoviste, Dambovita county, where it has since invested 13 million Euro and plans to invest 30 million Euro gradually until 2009 in modernising its factory and increasing its capacity.
            The company's products are used for electrical motors, generators, ballasts, regulators and similar electromagnetic applications. Around 60 per cent of these products are exported to countries such as Poland, Hungary, Bulgaria, Turkey, Italy, Slovakia, China and USA.
            “We believe that Romania is a centre for electrical steel in eastern Europe and is getting more powerful in that region day by day,” says Serafettin Oner, president of Erdemir Romania.
            The turnover of the company for 2004 was about 42 million USD (around 34.5 million Euro) and it expects to increase this to 50 million USD (around 41 million Euro) by the end of 2005.
            Before the end of the year the firm will make an investment in technology recycling sulphuric acid, by changing it into hydrochloric acid in an initial 3.5 million Euro 'acid regeneration' investment. Erdemir Romania has also received some inquires from their electrical steel clients, asking for different types of steel. Oner adds: “According to our observations, Romania and its close regions have a growing market for other types of steel, such as galvanized and tin plate.”
            Therefore next yearthe company plans to become a steel service centre offering a large portfolio of different steel products.

BEARING FRUIT

            Taking a risk on a privatisation, Turkish firm Kombassan bought out bearing manufacturer Rulmenti Barlad in 2000 and this year boosted its investment with 26.4 million USD (22 million Euro).
            Around a third of this is targeted for environmental concerns, which Harun Adiguzel, vice president of adminis-trative board of Rulmenti Barlad, says will include a “Co-generation project” that will help the firm decrease the cost of energy by producing electricity from natural gas.
            “We keep on investing both technologically and environmentally every year,” says Adiguzel. “Our company's investment program for 2006 is ten million USD (8.3 million Euro).” The firm also esti-mates to meet its turnover forecast of around 54 million Euro for this year.
            Last year Eymak Ltd, a closely related company to  Rulmenti applied to buy the abrasive wheels producer Abrom Barlad.
            “However, the debt problem of Abrom Barlad could not be solved therefore auctioning by the privatisation authority AVAS was can-celled,” says Adiguzel. “As far as we know, bankruptcy proceedings have already started in Abrom.”
            However there are threats. Bearing consumption in Romania has dropped in value from around 83 million Euro to 25 million Euro.
            “Because low quality Chinese and Indian bearings can be imported easily, this affects the Romanian industry negatively,” says Adiguzel. “This problem must be solved urgently.”
            In Turkey, low quality bearings cannot be imported due to industry standards. “Therefore, Turkish markets are very attractive for high quality producers, like us,” he adds. And the firm is looking back to Turkey. A joint venture involving the com-pany will finish construction at the end of this month, with test production booked for January.

WILLING ALLOY

            Aluminium is a fast growing market and there is huge demand for producers inside the country. Turkish businessmen have seen this as a challenge.
            “We have a lack of competitors here in Ro-mania,” says Sedat Enis chairman of the board of aluminium producer and mixed interest company Biat. “We are the first and only foreign producer of alu-minium in Romania. Our competitors are importing from Greece and Turkey.”
            Starting locally in 1998, the firm tested the market by importing aluminium profiles from Turkey for sale in Constanta and Bucharest. The next step was to buy a factory. In 2000 the company began production at Popesti Leordeni, near the capital, producing 5,000 tonnes of aluminium per year. Added to this is another factory in Filipesti (near Ploiesti), which produces aluminium acces-sories.
            “We will build another factory for aluminium produc-tion in which we will invest around six million Euro,” adds Enis. Biat says it already has 35 per cent share of the local market.
            To produce window-frames and doors, three pro-ducts are needed: aluminium, PVC and wood. So to corner this market, Biat has also become the distributor of PVC frames in Romania. Adds Enis: “We are on the aluminium side, this is the most expensive, but plastic (PVC) is a little bit cheaper, so we have a partnership with a Turkish firm.” This is Shun Line, a PVC producer, which Enis says could open a factory in Romania in 2007.
            Biat is also an investor in the construction market and aims to enlarge its projects in this field, particularly in the residential sector. So far this includes a small residential project near Baneasa Airport and involvement in a planned project worth 150 million Euro to start next year.
            With construction comes concrete and with homes come furniture. Biat already has a concrete factory and has invested in a furniture factory in Turda, Cluj county, which plans to start production at the beginning of 2006.
            Biat Group has invested in all these business around 20 million USD (approximately 16.4 million Euro). The turnover for 2004 was 35 million Euro and this year, Enis estimates the turnover will double.

MAKING WOOD WORK

            Taking advantage of the vast natural resources in the nation's forests, door and timber product manufacturer Prolemn is one of the largest Turkish investors, with 50 million Euro invested so far in its Reghin factory in Mures county and a new doorskin facility due on the same site in the next three months. 
            “Because our capacity was already full last year, we decided to invest 15 million Euro in a second factory,” says Dogan Gures, president of Prolemn. “We have three months more to start up the second doorskin factory. We have a full feeling of enthusiasm about this development.”
            Today attention is concentrated on shuttering plywood because both sales and capacity have doubled compared to last year. “We want to continue our capacity increase, therefore we are installing a new press line and new peeling machinery,” says the president.
            Announced earlier this year, Prolemn's owner Kastamonu Entegre is planning to start investing in two wood processing factories. The location of one of these factories will be different from Reghin. 
            “We are very near to signing the contract with the main machinery supplier. We are talking about a project of 120 million USD budget (around 100 million Euro),” says Gures.
            The company's plan is to become one of the most important players in the development of the Romanian furniture industry.

COOL RUNNINGS

            Bought by the Arcelik Group in 2002, home appliance brand Arctic has managed to become the number one player on the Romanian white goods market, with 30 per cent market share, and one of the biggest manufacturing facilities in the region, company officials say.
            “Arcelik found in Arctic a company with a good reputation, an experienced and dedicated team, healthy from a financial point of view and with a good distribution system,” says Ugur Kayali, general manager of Arctic.
            The Arctic factory has the capacity to produce 750,000 units and some of its products are exported, mainly to France, Germany, Poland and Spain.
            In 2004 Arctic posted a final turnover of 132 million Euro and has two main future objectives: to become the biggest refrigerator producer in central and eastern Europe, as well as strengthening its position on the domestic market.

CONSTRUCTION TIME AGAIN

            Turkish construction company Summa has built up a reputation for building top of the range office blocks and this February will tackle the residential market.
            While entering into Romania in 2003 as general constructor for the Anchor Grup's Plaza Romania project, the firm analysed the market to see whether it was worth staying as a constructor or investor. Deciding it would be profitable in both these sectors, the firm remained and, at first, focused on the office market.
            “We made money as a constructor, with this money we invested in construction and are trying to grow as big as we can,” says Salih Saginda, general manager of the company.
            First up is the Bucharest Corporate Center (BCC) a Class A office building which will be ready soon, as well as logistics center Rom Tas and the Millennium Business Center on Strada Armeneasca. At the beginning of September Summa signed a contract to build another Class A office building, 'North Gate' in Pipera.
            “In February we will start our biggest investment in the residential field, a 20 million Euro investment,” says Saginda, without giving any further details.
            As constructor, Summa last year had a 50 million Euro turnover in Romania and is expecting an increase this year. In 2004 the Turkish firm invested seven million Euro and this year plans to increase this to 20 million Euro. “If there are opportunities we will invest up to 50 million Euro,” says Saginda.
            “A construction company feels very lucky if at the end of the year it has ten per cent profit. We end-up with six to seven per cent,” says Saginda. “Profit in investment is like a dream. Everyone wants to invest an amount and wants to take back double… As long as you don't lose money everything is okay.”
            In two years time the company aims to be one of country's largest construction firms, while in five years the ambition is to be one of the leading companies in  eastern Europe. In a decade comes the rest of the continent.
            “Call me a dreamer but I believe that Romania will be the biggest power in eastern Europe. At the moment the gate is not open yet, but everybody is waiting there,” Saginda says.
            Meanwhile Synergy Construct was set up in Romania in 2001 and has since clocked up 20 million Euro contracts in 2005, company officials say.
            The company provides in-house installation design and execution. Companies such as Anchor Grup, Garanti Bank International, Telemobil (Zapp), Daewoo Bank, JW Marriott and Concordia Romania are among its customers.