June
2008
COUNTRY FOCUS - UK
 
Vol. 4 No.5  
 

UK becomes destination of choice

White collar work and the medical sector in Great Britain are witnessing a boost from Romanian workers as the country’s popularity increases
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Despite ongoing restrictions on Romanians entering the UK workplace, white collar sectors such as business, financial services and research, as well as food processing and leisure, are seeing an influx from Romanian labour.
But for the first three months of 2008, the greatest number of work permits for Romanians were distributed for the health and medical services.
The Romanian young, educated and high income demographics favour the UK as the number one destination of choice to work, according to a survey by the National Association of Offices for Counselling Citizens last November. Even though Italy and Spain remain the top destinations overall, more Romanians are preferring Great Britain to Germany.
Countries such as Spain have benefited from 10,000s of Romanians in their fruit-picking businesses, but the British authorities released last year only 7,295 ‘permits’ to Romanians and Bulgarians for seasonal agricultural labour.
“There are opportunities available to Romanian and to Bulgarian nationals to work in the seasonal agricultural sector,” says British Ambassador to Bucharest Robin Barnett.
But The Independent newspaper reported last month that British fruit-growers are seeing reluctance from Romanian and Bulgarian workers to come to the UK in significant numbers for the harvesting months.
The UK Government is still “evaluating” the impact of 2004’s eu accession wave on the British labour market, which saw 100,000s of Polish enter Britain for work purposes. This is the reason why the country has decided to maintain restrictions for Romanian workers at least until the end of this year.
“The policy of restricting access to the UK’s labour market is helping to ensure that the sudden arrival of many people to one or another part of the country does not pose too much pressure on local public services such as schools, hospitals and police,” says the Ambassador.
However the market must be completely open by 2014, so this is only a temporary measure.
Bestselling UK media such as The Sun reports that crime by Romanians has increased by 700 per cent since the UK dropped its visa system for Romania, blaming “gipsy child pickpocket gangs”. This is contributing towards a biased perception on Romanians in Britain.
“Occasional negative media stories appear in both countries, but do not detract from our strong bilateral relationship,” says Barnett. “I think the real problem is that perceptions in both directions are often out of date. When asked about Romania, people in the UK still tend to think of Dracula or the former Communist era. Romanians often mention Big Ben, red telephone boxes and London fog when discussing their image of the UK. Increased travel and tourism in both directions is the best way of modernising our respective images.”

Axis powers

Romanian President Traian Basescu opened his mandate in 2005 with a fanfare celebrating an axis between Bucharest, London and Washington DC. All three countries continue to have a strong military presence in Iraq and Afghanistan. In the EU, the UK and Romania are working together on climate change, energy security, economic liberalisation and “delivering a powerful EU impetus” towards achieving the UN’s Millennium Development Goals against global poverty, argues Barnett.
The Ambassador is also full of praise for the country’s attempt to play a leading role in the issue of Black Sea security. “President Basescu has done a tremendous job in increasing international awareness of the Black Sea region,” says Barnett. “Romania is also very active in the fight against people trafficking, drug smuggling and terrorism.”
But from a political perspective, he says the key challenge is for the country to continue increasing the “capacity and transparency” of public administration at both central and local levels. “This will also assist the effective disbursement of EU funding,” adds Barnett.

First UK bank
enters market

Historically, British banks have been reluctant to open branches in Continental Europe, but this will change with the Royal Bank of Scotland (RBS) takeover of ABN Amro, the rebranding of which is set to happen in the near future.
“There will be a British bank in the heart of every major Romanian city, and that is an important development,” says Barnett. “We can talk about a correlation between the entry of RBS and a growing business confidence in general, but I would say that Romania is fast becoming an attractive destination for investment. The presence of such a large British bank will have a significant impact on British investors, particularly small and medium-sized enterprises (SMEs) already using this bank’s services.”
The Ambassador still sees opportunities for UK Tier 2 and Tier 3 component suppliers locating in Romania. These tend to be SMEs which supply assembly plants with vehicle parts. With Ford opening its factory in Craiova and Daimler looking for a factory site in Romania, this region will see further potential as a site for vehicle parts.
“In a recent meeting between Prime Minister Tariceanu and UK Minister for Trade and Investment Lord Digby Jones, Tariceanu was keen to highlight opportunities he sees specifically in the agriculture and automotive sectors,” Barnett says.

UK chamber: Romanian retail market to boom

Retailer Marks and Spencer has recently taken over its franchises in Romania and is set to continue opening stores in the country, but big box global names such as Tesco, Dixons Store Group and DIY chain B&Q remain outside the country.
“Retailing is likely to be the next big thing in Romania,” says Anne-Marie Martin, CEO of the British-Romanian Chamber of Commerce (BRCC). This is due to the large internal and cross-border consumer market for retailers, particularly with the Balkans, Republic of Moldova and Ukraine. With salaries rising, retail is also growing.
“Romanians will look first to known brands and identifiable names in the middle market, and I think there is a place for British companies to get into this market,” she says.
But Martin believes the economic slowdown could have an effect on the Romanian market, including in outsourcing. “A major area for outsourcing in and export from Romania is clothing,” she says. “This may well take a downturn as consumers in the UK curb their spending to minimise the impact of increased costs of mortgages, food, petrol and the general living costs. The same would apply to many goods whose production is outsourced in Romania, including furniture.”
When consumers limit unnecessary spending, they also think twice about buying property abroad or risking to buy-to-let. This could also effect the hype directed at small UK investors advertising so-called opportunities for high returns in the Romanian real estate market.
There are areas in Romania which remain buoyant despite the uncertain times. Energy, transport, agriculture and infrastructure will require large investments and are attracting EU funds.
Serious concerns of BRCC members are the shortage of labour, especially skilled work. But this is a factor difficult for the Government to change in the short-term.
There are also issues that the Government can adjust to attract more investment. One is the high taxes for employers against the relatively low net salary received by the employee, says Martin. This is not the income tax, which is a low flat rate of 16 per cent, but the additional contributions employers have to make to social services. This is a massive burden for a new investor.
“The perception is that there is limited support for industry,” says Martin. “This is further compounded by the fact the latest draft of the Investment Law is yet to be completed, which transmits the wrong signals to both existing and potential investors.”

Vodafone Romania: telecom growth
fuelled by mobile Internet and broadband

Vodafone is evaluating the opportunity on whether to participate in the auction for a WiMax license which would give the company greater space for its customers to download data. This offers a complementary spectrum in a similar bandwidth to the one the brand already operates.
“The Romanian telecom market still has growth potential,” says Liliana Solomon, CEO of Vodafone Romania. “This growth will be mainly driven by the uptake of mobile Internet and broadband services, as technology becomes more advanced and affordable to a larger customer base.”
The number of Simcards on the Romanian market accounts for about 108 per cent of the population. This is one of the most dynamic European telecom markets and is fast accelerating to the 150 per cent rates of some western markets.
Now Romanian users benefit from a new technology or a new product shortly after their launch on the large markets. The technology gap between the west is narrowing, while Romania can also act as a country for pioneering new services.
“There were situations in which products developed in Romania were innovative even for the European market standards and one example is Vodafone’s integrated communications solutions,” says Solomon. “Romanians have a great appetite for new technologies and the country had an accelerated development in the last years. If we keep this development pace in the future, I expect we will recover this gap in the next three to five years.”

Vodafone Romania
■ Customers: 8.8 million [Dec 2007]
■ 3G customers [Dec 2007]: 604,000
■ Service revenue up 18.8 per cent in quarter ending Dec 2007 [compared to quarter ending Dec 2006]

Aviva: private pensions boost customers sixfold

Last year financial services group Aviva Romania moved from being a medium-sized company to become the fourth largest player on the private pension market.
The launch of compulsory private pensions in Romania has transformed Aviva from 125 employees, 825 agents and 60,000 customers to 220 employees, 20,600 agents and more than 350,000 customers. This required an investment of 40 million Euro.
“Paradoxically the more successful we become, the bigger losses we will have,” says Shah Rouf, CEO Aviva Group Romania. “We haven’t had a profit in the last three years and we have spent a lot of money in attracting these customers, but we do not expect payback in less than ten to 15 years. In pensions we have very low margins over a long period of time and in the meantime we have to invest in infrastructure, people and developing the business.”
Aviva’s main objective for 2008 is to grow by ten per cent over the 25 per cent average of the insurance market.
“The total value of Romanian life insurance market is about 400 million Euro, which is low compared to Poland or Hungary,” says Rouf. “This means the market has huge potential.”
The exit from the market of some private pension funds which failed to attract large number of customers, such as Marfin or Zepter, was no surprise.
“It is natural selection,” Rouf says. “Private pension is fund management and taking into consideration that Romania has set the lowest charges [for customers] in Europe, it is not difficult to see that a fund with less than 50,000 customers is struggling,” says Rouf.
Aviva it is not looking to buy small funds with 1,000 to 2,000 customers.

Aviva Romania
Financial services

■ Branches: 23
■ Market share: Eight per cent in private pension [ranks fourth]
Five per cent in insurance [ranks seventh]

Provident Financial: predicting to break even in 2010

Small cash loan provider Provident Financial Romania has signed up more than 50,000 customers in the last two years of operations, while the value of loans issued last year rose to 12 million Euro.
The company remains in an expansion strategy and posted losses of 5.4 million Euro for 2007. “We expect to break even as of 2010,” says Steve Rice, general manager of Provident Financial Romania.
For 2008 Provident Financial Romania plans to invest 11 million Euro in the expansion of its network in cities such as Arad, Timisoara and Cluj-Napoca.
The company currently employs nearly 300 people in its Bucharest-based Head Office, ten branches and more than 20 working points. “We expect to have over 450 employees and some 2,000 representatives by the end of 2008 and to cover the main areas of population by the end of 2009,” says Rice. “The expansion will be made gradually, so as to make sure we maintain a very strong control over the business and that we have the necessary trained personnel that can help grow the company in a professional manner.”

Provident Financial
Part of UK-based International Personal Finance

■ Value of loans 2007: 12 million Euro
■ Employees: around 300 and 800 independent representatives
■ Customers: over 50,000
■ Branches: Bucharest, Brasov, Galati, Pitesti, Constanta, Bacau, Sibiu, Targu Mures, Ploiesti

Atrium Centers: four
mall projects announced
for country

Many shopping centres built in Romania will fail because the developers construct a box for shopping units, without taking into account criteria such as a central location, the right tenant mix and professional management.
But neither the number of inhabitants nor the purchasing power should limit the number of shopping centres that can be built in a city, argues Adina Calinescu, country manager of Atrium Centers Management.
In cities with fewer than 300,000 people, such as Arad and Ploiesti, up to six mall projects have been announced.
“Developers with different mall concepts, if they gather ingredients that can attract customers, are able to build retail developments in the same location,” Calinescu adds.
Atrium Centers will start this year to work on two of the four shopping centres developed in joint venture with British developer Dawnay Day.
Atrium Center Cluj, located in the northwestern city’s centre with 120 shops, office facilities and a four star hotel with 180 rooms, will be delivered in 2009. In Arad city centre the chain has 150 shops for a date of delivery in 2009. Both projects will have anchor tenants of Austrian chain Billa and a ten-screen Cinema City.
“We are interested in developing projects in all cities of Romania, such as [eastern cities] Bacau and Galati,” says Calinescu. “The inhabitants of eastern Romania are the most numerous and faithful customers of shopping centres, but we do not rule out Bucharest, as long as we can find a good investment opportunity.”
Although located in the west of Baia Mare, far from the centre, Atrium Shopping Center Baia Mare will be developed with 120 shops by 2010. Also in the northwest for a delivery in 2010, Atrium Center Satu Mare will comprise a hotel and 135 shops.

Atrium Centers Management
■ Shopping centres: Atrium Center Cluj and Atrium Center Arad to be delivered in 2009, Atrium Center Satu Mare and Atrium Center Baia Mare due for completion by 2010.

Coffeeheaven: making gradual entry on market

London-listed coffee and sandwich bar chain Coffeeheaven has entered the Romanian market with a store opening in Baneasa Shopping City, a mall north of Bucharest on the road towards Henri Coanda Airport.
Testing the Romanian market, CEO Richard Worthington says the firm will start by gradually expanding with five or six stores and then increase its acceleration of openings.
In Poland the company has 53 stores in all the major cities. “It is likely that Coffeeheaven will follow a similar pattern in Romania,” says Worthington.
The company is looking to open branches in malls, high streets and other types of location, such as offices. In Poland there is even a Coffeeheaven inside a university library.
The company targets potential acquisitions of existing coffee bars and chains. But Worthington says he will not offer up the brand for franchise in any of the central and east European locations.
One major issue for coffee chain owners looking for a location in the centre of the city is the high prices of rents for high street units. But Worthington sees some similarities to the situation of Poland in the late 1990s. “The high streets were very expensive, but once the new malls come on line, the prices of rents for the high street will fall,” he argues.

Coffeeheaven
Coffee and sandwich bar chain

Listed on the London Stock Exhange’s AIM
■ Stores: Baneasa Shopping City
■ Target: Bucharest and other city locations

Ozone: building pharma business through contract manufacture

Pharma company Ozone Laboratories produces in Romania through its local-based partners, including Europharm and Fabiol Bucuresti, in a system of contract manufacturing.
“We are always paying attention to market opportunities, but in the short and medium term we are not focusing on having our own production facility here,” says Christopher Henwood, CEO of Ozone Laboratories Group. “We are professionals in sales and marketing and our partners are specialised in drugs manufacturing.”
Ozone Laboratories Romania keeps a 50/50 balance between over-the-counter products and prescription products. The company intends to maintain this ratio.

Ozone Laboratories Romania
Pharma company

■ Turnover 2007: 29.5 million Euro
■ Turnover Q1 of 2008: nine million Euro
■ Best sold products: Paracetamol Ozone, Algozone, Ceclozone, Biotics, generic antibiotics

British Airways: upgrading aircraft on London route

Airline operator British Airways will add Cluj-Napoca-London to its three daily flights from Bucharest to the UK capital. The airline is also planning to upgrade its aircraft from an Airbus 319 to a larger Airbus 320.
In 2007, the number of passengers that flew on this route increased by over 15 per cent on the previous year.
“Apart from the lifting of visas to the UK for Romanians, the existing three daily flights, the growing attractiveness for Romania as an investment destination has played a role as well,” says Emil Delibashev, country commercial manager for Romania, Bulgaria and Moldova.
The US West Coast, New York, Miami, Hong-Kong and Canada were the preferred destinations of Romanian passengers travelling with British Airways in the past year.

British Airways Romania
Airline company

■ Operates three flights daily to London Heathrow airport
2007: 15 per cent passenger increase on 2006

King Sturge: advising Brits building malls

British real estate consultancy King Sturge will be providing this year assistance for the development of several office, retail and logistic projects throughout the country.
In Bucharest King Sturge is involved in the development of Colosseum Centre, a retail project with a total area of 19,000 sqm, constructed by British developer Modus Properties on Soseaua Chitila in Bucharest’s northwest.
The company is also providing consultancy to British developer Westhill, which has an ongoing shopping centre projects in Dambovita county’s Targoviste, and another mall in Ploiesti, Prahova county.
“The location of Crizantema Mall in Targoviste is ideal, with the new university development on the doorstep and a new residential complex of 300 units in close proximity,” says Eugen Stonescu, head of property management.

King Sturge
Real estate consultancy

■ Services: agency sales, leasing and acquisition, tenant advisory services, valuation and research, property management, project management and building surveying
■ Employees: 20

by Corina Ilie, Alexandra Pehlivan.
Ana Maria Nitoi and Michael Bird


 
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