ROMANIA’S CITIES IN FIERCE COMPETITION TO ATTRACT MONEY AND SOULS

Romania’s major cities are developing at a fast pace and they traditionally bet on their historical, urban, and human qualities in order to develop. But the asset that could really help them become relevant at the European level may lie elsewhere: in their ability to attract talents from within the country as well as from abroad through the professional opportunities and quality of life they offer.

By Sorin Melenciuc

just on pure market dynamics,” World Bank experts note.

Romania currently has one metropolis, Bucharest, three major secondary cities – Cluj, Timisoara, and Iasi – and several other tertiary cities that have the potential to become secondary urban centres in the future: Constanta, Brasov, Craiova, Oradea, Galati/Braila, Sibiu, Bacau, Ploiesti, Pitesti, and Arad. KEY DEVELOPMENT FACTOR The future development of these cities is a key factor in the advancement of the whole country, experts say. “Without strong cities, one cannot have strong regions and a strong national economy,” according to the “Magnet Cities: Migration and Commuting in Romania” report recently released by the World Bank, the most comprehensive study of Romania’s urban areas published so far. The study found that the eight largest cities in Romania – Bucharest, Cluj, Timisoara, Iasi, Constanta, Brasov, Craiova, and Ploiesti – amass around 22 percent of the population and generate around 53 percent of the country’s gross domestic product (GDP). Experts point out that these are some of Romania’s main economic growth engines, and Romania in this respect is no different from other EU countries. With the exception of Bucharest, which has a national reach, and maybe with the exception of Cluj-Napoca, Timisoara, and Iasi, which manage to attract people from other urban centres, most functional urban areas in Romania have a limited reach. This means that they primarily attract migrants and commuters from nearby areas, so the qualifications of their migrants and commuters are usually not better than the general qualifications of the people in the region.

“All things being equal, it is likely that Bucharest will remain the most attractive place for migrants in the future. (…) Cluj-Napoca and Timisoara are likely to be runners-up to fill the secondary city gap, so they are likely to become very attractive places for migrants in the future. Whether these two cities manage to keep their leadership positions also depends on how well they are managed, and not The future development of major secondary cities is a key factor in the advancement of the whole country

HISTORICAL AND CULTURAL DIFFERENCES However, the development of Romanian cities depends on historical, urban and political factors – just like it does everywhere else. Despite its huge financial resources and high earnings, Bucharest is affected by poor public management, incompetence, and stunning corruption. In some cities in Transylvania, where urban life emerged earlier and was historically more developed and sophisticated, the quality of life is much higher and the situation improves every year, with the help of EU funds.

Cities like Cluj, Sibiu, Oradea or Timisoara are attracting people and developing, while cities in other parts of the country are offering low quality of life and little hope to their residents. This could be a key factor in development and in attracting more people. “The most dynamic cities have attracted labour force from quite a distance, and localities with a more mobile population have tended to be more developed than those with a less mobile population. In essence, development spills over from the most dynamic cities to the surrounding areas, and this is a core aspect of the development process,” the study indicates.

The key issue of this year’s local elections, which seems more visible than it has been in prior elections, is quality of life. People have been noticing differences and those in cities offering low quality of life tend to start asking for improvements. Meanwhile, people living in large urban areas are seeking good jobs, but they also highly appreciate the better education and health services, decent infrastructure, lower pollution, and large parks and entertainment areas.

COMPETITIVE POTENTIAL KEY TO ROMANIA’S (POST-PANDEMIC) RECOVERY

By Claudiu Vrinceanu

It is hard to talk about economic competitiveness in the context of the global coronavirus pandemic, but it is nonetheless necessary. The most competitive economic areas will be the main pillars of the future recovery from the imminent recession.

To understand the post-COVID-19 economy, we should identify the benchmarks of a competitive environment. How can we measure economic competitiveness? The competitiveness of an economy can be evaluated first and foremost on the quantity and quality of its exports, the dynamics of investments, the quality of infrastructure, and the human resources. Do we want to be more competitive in the context of a future economic recovery in the second half of 2020? Then we need to focus on the added value of our products or services, their market share, as well as on the level of exports in relation to companies’ turnover and profitability.

In order to survive in the international competition of the future, we need higher investments in both the private and the public sectors, based on data from the World Economic Forum’s latest index of Global Competitiveness, which ranked Romania as the 51st most competitive country in the world. Competitiveness is defined as the set of institutions, policies and factors that determine a country’s level of productivity.

Romania has climbed one spot in the ranking compared to the previous year, coming in above Mauritius, Oman, and Uruguay, and below Mexico, Bulgaria, and Indonesia, in a list of 141 countries analysed by the WEF. The WEF’s index looks at 12 pillars of development, all of which contain several sub-topics that each get a score out of 100 – Institutions, Infrastructure, ICT adoption, Macroeconomic stability, Health, Skills, Product market, Labour market, Financial system, Market size, Business dynamism, and Innovation capability.

Romania’s highest rankings were for pillars such as ICT adoption, Market size, Institutions, Infrastructure, and Innovation capability. On the other hand, the country ranked lowest for the following competitiveness pillars: Financial system, Health, Skills, and Business dynamism. As for Romania’s performance in the postCOVID-19 recovery period, several key sectors will adapt to the new conditions. We’ve developed a forecast of opportunities in several industries selected by the Business Review team, which we see as the fields with the greatest growth potential in the medium and long term.

RETAIL POST-COVID-19 On the one hand, online retail, which is already booming these days, will grow even more as consumers spend less time in public areas. We also expect massive gains in e-commerce delivery services. On the other hand, retail as a whole, which had been on a ten year-long growth cycle, will likely show contraction for the first time since the last recession. According to the most positive scenario, we will have an economic recovery in May with 50 percent of the turnover of the period before the crisis. The most pessimistic option involves a restart in August, with 30 percent of the turnover. The evolution of sales will vary depending on the areas. According to estimates by eMag, some commerce categories will experience a drop of 30-50 percent (based on what happened in China): fashion, home appliances, cars. But there will also be areas of high growth in retail, namely IT and care products.

CHEMICAL INDUSTRY MUST ADAPT Reinvention will be the keyword in the chemical field, and this is confirmed by the current economic realities. For example, Chimcomplex, the former Oltchim, has started biocidal production on its Ramnicu Valcea and Onesti platforms. The company has received biocidal approval for sodium hypochlorite concentration 1.25 percent from the Health Ministry. Chimcomplex has modified its industrial production lines in recent weeks in order to be able to produce sodium hypochlorite as a necessary product for public health in the context of the coronavirus pandemic. The first deliveries will be prioritised according to emergencies and institutions that urgently need disinfection of external spaces. The company estimates that it will initially reach a delivery capacity of 1,000 tonnes/county.

HR IN THE NEXT ECONOMIC CYCLE There are many employees who say they would rather be in the office than at home. Co-working spaces in office buildings serve exactly this need for socialising. However, the main lesson will be in the usefulness of a flexible lease contract as opposed to a rigid one, so that you can reduce/increase it your space depending on how many people you have working remotely and how many are at the office.

The evolution of HR will also affect the real estate sector. Even if people will be going back to the office, I think the percentage of time worked from home will increase from 5-10 percent before the crisis to 30-50 percent after the crisis. The office will be flexible and the extra space will be let go.

IT&C: TWO OPPORTUNITIES FOR A COMPETITIVE ECONOMY The two main opportunities in the Romanian IT industry that will bring results in terms of economic competitiveness are private organisations’ need for digital transformation and the digitalization of the public system. Romanian society will depend on digital infrastructure and online communication. The industry’s reaction will have a major impact in maintaining the new normality and future opportunities will be generated by those companies that will be able to adjust themselves and manage to stay relevant. The Romanian IT market was focused on outsourcing resources (low risks, big volumes, low margins) and, more recently, on product startups (high risks, volume volatility, high margins). The country’s public administration has every chance to be digitalized, and the crisis generated by COVID-19 can accelerate this process.

FROM CORONAVIRUS OUTBREAK TO NEW ECONOMY What is there to be done in the economy in the context of the coronavirus pandemic? This is the first time when public policy has faced a stop-and-go paradox: we need to stop mobility and interaction in society and, at the same time, we need to (re)start the economy through various proactive measures and schemes to support employees and entrepreneurs. In order to stop the spread of the pandemic, authorities impose strict measures to isolate people and reduce their mobility.

“However, to hope that liquidity injections will be able to restart the economic system in the current pandemic situation, as has been the case in classic economic crises, might prove unwarranted given the wildly different contexts. The measures that worked 11-12 years ago will not have the same results in the current context of a public health crisis. Currently, the real economy is frozen and decoupled from the financial sector,” said Cosmin Marinescu, Economic Advisor to Romanian President Klaus Iohannis.

In these conditions, economic measures to stimulate demand and production, whether through monetary or fiscal channels, are somewhat in contrast to the “stay home” objective of this emergency situation. In the meantime, there was strong emphasis on the need to prevent the fall of financial systems through liquidity injections. It is a prophylactic measure to ensure financial stability, which will alleviate the population’s feelings of anxiety.

“THE MEASURES THAT

WORKED 11-12 YEARS AGO WILL NOT HAVE THE SAME RESULTS IN THE CURRENT

CONTEXT OF A PUBLIC

HEALTH CRISIS,”

The three crucial factors of economic competitiveness: capital, workforce, productivity

A company’s economic competitiveness depends on its position on the market, the share of exports in its total turnover, and the weight of its revenues in the national

GDP. For a country, competitiveness is based on added value generated in the economy. Added value is a relevant indicator because it reflects the economy’s ability to process raw materials and to retain part of the value that is created in the country.

the processing of information than on the processing of natural resources, a large share of young Romanian people will be functionally illiterate, unable to understand the meaning of a phrase.

Production is the essential element of a country’s development vision and the areas of interest are those sectors which, in line with Romania’s competitiveness strategy, represent the pillars that can significantly contribute to the acceleration of economic growth.

Agriculture is one of these sectors. Currently, over half of Romania’s population lives in the rural area, making the country the most rural and agrarian society in the European Union. Romania has one of the most extensive and fertile agricultural areas. In order to stimulate agriculture, we need to develop our irrigation systems, improve associative structures among farmers and reinvigorate agricultural education. At the same time, niche sectors such as organic farming should be backed as well, as Romania has a good potential for competitive advantage in a branch that is experiencing rapid growth at the international level.

At the same time, in terms of productivity, the information technology and creative industries also play important roles, and they have certainly demonstrated their growth potential in recent years. The objectives for these sectors are to define operating frameworks and stimulate growth by qualifying the workforce and adapting the education system to the market requirements, together with a favourable fiscal framework for development.

Energy is also a critical area for the economy, and through the correct management of resources and investments, Romania can become a provider of stability in the region in the coming years. The structural measures refer only to increasing energy efficiency and minimising losses. Energy objectives should also include increasing renewable energy production, which ensures both better energy independence and security as well as a contribution to reducing greenhouse gas emissions and, consequently, to the fight against climate change. I n economic terms, in order to stimulate the added value of the

Romanian economy, three important factors must be improved: capital, labour force, and productivity.

The capital factor: foreign direct investments (FDI) , an essential component of the capital factor, have decreased from an average of EUR 7.3 billion/year in 2004-2008 to an average of EUR 2.5 billion/ year over the last ten years, and the improved absorption of European funds has only offset this decline to a small extent. But the outlook for FDI in Romania will change in 2020: the coronavirus outbreak will cause foreign direct investments to shrink by 30 percent compared to previous forecasts, resulting in only marginal growth in 2021, with the automotive, hospitality, transports, and energy industries to be the hardest hit.

The labour force factor: the number of people entering the field of work at the age of 18 averaged 365,000 yearly in 2004-2008 (the last generations of the “baby-boomers” born before 1990), while the new labour force of recent years has gone down to 254,000 people yearly on average, as a result of the fall in births after 1990 (a phenomenon that continues and worsens). These developments have influenced the labour factor, the second pillar for a competitive economy. In the near future, the coronavirus outbreak will change many things in the Romanian economy. For example, the labour crisis will be alleviated, as many Romanians will no longer go abroad. Furthermore, greater importance will be given to local production, because, as it has now been confirmed, each country/individual is on their own in times of crisis.

Productivity, the third factor of competitiveness, is overwhelmingly dependent on the quality of the education system. According to the international PISA test, carried out among high school students aged 15-16 in 65 countries, Romania ranks 45th in mathematics, 49th in science, and 50th in reading and understanding of texts, well below the level of Central and Central European states. In other words, in a tech society, where production will be based more on By Claudiu Vrinceanu

Consumers move online in times of crisis

Many global retailers operating both in Romania and abroad have announced temporary store closures in a bid to help stop the spread of the coronavirus. In parallel, they’ve adapted their working policies to the new context.

to that of a job well done,” Pozdarie concludes.

As one of the main engines of the local economy in the last decade, retailers are now more concerned than ever about the safety of their customers and employees and are focusing on maintaining stocks available for the population. From Carrefour to Cora, Kaufland, Lidl, Metro, and Mega Image, all retailers are now focusing on bringing their contribution to stop the spread of coronavirus. “During this difficult time, we as retailers play a crucial role and have a huge responsibility. So we’re making all the possible efforts to remain a safe place for shopping both in stores and online,” says Mircea Moga, CEO at Mega Image. As a result, the company has adjusted its schedule, set up a dedicated shopping timeframe for seniors and disabled people, limited access to its stores to avoid congestion and made adjustments to the self-service aisles and cash register areas. In addition, in order to avoid prolonged human contact, deliveries from its supermarket only allow online card payments.

Kaufland is another example in this regard. Apart from similar standard measures to protect its customers, Kaufland decided to offer a EUR 1.6 million bonus to the teams working in its stores and warehouses and introduced immediate payment for overtime performed during this period. In addition, in an attempt to protect its more vulnerable employees, the company decided that employees aged over 65 and pregnant women who work for the company could choose to take paid leave.

Last but not least, Roland Ruffing, CEO at Metro Cash&Carry Romania, said in March that the company had established a working group that closely cooperates with Romanian authorities and all the Metro stores in the country in order to ensure that all possible preventive measures are taken. A t the international level, in most cases, employees are being paid for lost shifts, and things are quite similar on the local market. For example, Mobexpert Group has decided to close its stores indefinitely and pay 75 percent of the base salary for each of its 2,400 employees until the Covid-19 outbreak passes. “Since we don’t sell a basic necessity product for this situation, the only responsible decision is to suspend our activity,” Dan Sucu, president and co-owner of Mobexpert Group said earlier this month, cited by Hotnews.ro. The company has also decided to take on all the financial loss due to the current crisis in an attempt to protect its customers and employees.

With consumers staying at home and avoiding public places, it is clear that many online retailers will see an upsurge in traffic. Food is the sector that looks set to benefit the most. A recent global Ipsos survey found that in most countries, people are buying food or groceries online no more than they usually would, with Italy being an exception.

Going back to the Romanian market, Catalin Pozdarie, general manager at Hervis Sports & Fashion Romania, says that considering the current context, when it is easier to prevent than to treat, it is obvious that shopping for primary needs is mainly being carried out online. “Apart from consuming food and movies, people need to stay calm and optimistic. Individuals who used to have a healthy and active lifestyle and engaged in physical activity on a daily basis have an advantage. And this can be seen in our latest online orders,” he says.

As for the significant lack of workforce in this field in Romania, he says this problem existed before the Covid-19 outbreak, too. “It is now probably the time for us to realise that we are not alone. We live in a society and we need to rely on respect, starting from self-respect By Anda Sebesi

Romania could play an active role on the global chemical scene

Despite the absence of some significant sub-sectors, the Romanian chemical industry has the potential to become an active player at the international level. Yet Romanian authorities need to take some important measures in order to support this field.

By Anda Sebesi

Currently, the local chemical industry is represented by some of its sub-sectors, such as the processing of salt for sodium chloride-based products, natural gas for chemical fertilisers, oil, plastics and rubber processing, pharmaceuticals, and the paper and chemical pulp sector.

“Romania has all the material and human resources and the knowledge it needs to have a developed chemical industry that could cover all the needs of the national economy and act as an active factor in the international chemical industry. The local chemical scene lacks some of the most significant sub-sectors like chemical rubber synthesis, synthetic fibers manufacturing or chemical pigment production. Unfortunately, some products are scarce on the local market and in their case imports are six times larger than exports,” says Stefan Vuza, the president of Chimcomplex.

The company now operates the largest chemical manufacturing facilities in Romania, with two industrial platforms in Onesti and Ramnicu Valcea. It is also the largest exporter backed by Romanian private capital and provides both on vertical and horizontal levels the salaries of over 15,000 employees (including the employees of Chimcomplex and of other economic sub-sectors). In addition, Chimcomplex is the sole Romanian manufacturer of biocidal active substances based on chlorine, sodium hypochlorite and calcium hypochlorite. These products are used in the chemical treatment and disinfection of surfaces in the fight against the most dangerous viruses and germs, including Covid-19. They are also used in the treatment of drinking water.

Moreover, Chimcomplex recently got approval from the Health Ministry to produce sodium hypochlorite biocide at a 1.25 percent concentration. As such, the company has adjusted its industrial production line in order to prioritise sodium hypochlorite, as the product is essential for public health in the context of the Covid-19 pandemic. Production will start at the Ramnicu Valcea and Onesti industrial platforms, in an effort to slow down and limit the Covid-19 outbreak in Romania. “Our products are being used in Romania and other countries like Moldova, Bulgaria, Hungary, Ukraine, and Serbia, among others. Therefore, we can say that Chimcomplex is a strategic company for the Romanian economy in terms of national security and water-related public

> 15,500

is the number of employees (including the employees of Chimcomplex and of other economic sub-sectors) for which the company provides the salaries

health,” says Vuza. He adds that 2020 started with a major crisis in the European chemical industry, which translated into a drop in sale prices. The situation got worse along with the general economic crisis generated by the coronavirus. “This is why the industry needs the government’s support and refinancing from local banks, in order to carry on with the medium and long term activities in production facilities,” Vuza adds. He warns that a disruption of the chemical industry could have a ripple effect and may lead to the disappearance of some local producers who are crucial for economic well-functioning.

Asked what Romania should do to become an exporter of chemical products, Vuza of Chimcomplex says that the development and implementation of a sovereign guarantees mechanism for high-grade loans used by players in this industry for investments is crucial. “Investments in the chemical industry are very costly and access to such loans is either too expensive or impossible,” adds Vuza. Secondly, he adds that a stabilisation of prices for electricity, heat, natural gas, and other utilities the chemical industry uses is also important. “In addition, there is a need for a special programme to develop the chemical industry, based on available national resources like salt, natural gas, wood, oil, and coal. The programme has to promote the efficient capitalisation of these raw materials, aiming for integration and advanced processing in order to obtain high added value for exports.”

pigments, bio-synthesis products, cosmetics, silicone products, artificial fibers based on carbon, glass, and volcanic slate, special chemical products, and fine chemicals (products manufactured in small quantities with a minimum value of USD 10/kg) are among such sectors. “Highly polluting commodity-based industries have been transferred and developed in Asia, which had easily accessible raw materials, cheap workforce and plenty of consumers,” he says.

Germany – with companies like BASF, the largest chemical manufacturer in the world –, France (with Buyer and Evonik), the Netherlands, and Italy are countries with some of the most competitive chemical industries in the world right now. “These countries allocate significant budgets to research and development activities or postgraduate studies and are suppliers of stateof-the-art technologies, having launched modern development directions like the Circular Economy, the New Chemistry or Industry 4.0. What’s interesting is that these countries’ environmental protection rules are more flexible than Romania’s.”

WHAT’S HAPPENING AT THE EUROPEAN LEVEL? According to Vuza, the European chemical industry is very competitive. However, in the last two years, its profits halved compared to past levels and initial targets. “The European chemical industry performs well due to the fact that between 2000 and 2010 it went through a smart restructuring, re-engineering, and development strategy that essentially aimed at keeping highly scientific and value-adding sub-sectors in Europe,” he adds. Pharmaceuticals,

Covid-19 outbreak to accelerate demand for logistics and office spaces

As one of the main drivers of the local economy, the Romanian real estate sector is highly competitive, showing sustainable development over the long term. Despite the Covid-19 crisis hitting Romania too, specialists say that the current turmoil will not have negative long-term effects on the local real estate market.

those from older buildings, some of which are in very good locations, but were built by inexperienced developers or have not been investing in technical upgrades. The vacancy rate could reach 12-13 percent, up from 10.5 percent in 2019,” says Sebastian Dragomir, Partner & Head of Office Advisory at Colliers.

As a pillar of the local economy, the real estate sector is a significant contributor to what makes Romania a competitive country. According to Eurostat data, BucharestIlfov has a GDP per capita representing 144 percent of the EU average, reaching Berlin or Madrid levels. In terms of population, Bucharest ranks 5th among EU capitals. As Alinso Group CEO Ivan Lokere puts it, future dynamics also look very promising and this will lead to a further increase in demand for offices, residential, industrial and logistics spaces. “International companies, as well as Romanian companies that have become big players, are increasingly looking for quality space. Besides traditional sectors such as industrial, manufacturing, and services, ICT especially is in high demand, now representing almost 6 percent of Romania’s GDP. The roll out of 5G will further support Romania’s technological leadership,” says Lokere.

He adds that it is obvious that demand for qualitative welllocated dwellings will increase further as a result of the growth of the middle class working in the ICT sector and building families and a bigger inflow of people from all over Romania or from abroad T he stock of modern office spaces in Bucharest reached nearly 2.7 million square meters last year, up 12 percent compared to the previous year. An additional 700,000 sqm could be delivered over the next two years, which means a 25 percent increase over the current office stock, which will intensify the competition to attract new tenants, according to the annual report released by Colliers International. Tenants will thus be in a position of strength in negotiations, and vacancy is expected to climb to 12 percent, maybe even to 13 percent by year-end. 2020 is set to be a good year for the Bucharest office market, with Colliers consultants predicting demand for around 320,000 sqm, of which 120,000 sqm of net office space. As in previous years, IT and financial services companies will be the main drivers of demand in 2020. ”The wave of deliveries from 2019 is reduced this year to 200,000 sqm, but with a spectacular return in 2021, when developers anticipate a potential of around 500,000 sqm, a new historical record. Competition is on the rise among developers, but also between them and the owners of existing modern buildings, who just last year lost tenants occupying 140,000 sqm through relocations. Tenants will be the ones to enjoy opportunities, because Bucharest is starting to become a tenant’s market for office buildings. There will be increased competition for attracting new tenants, including By Anda Sebesi

towards the Bucharest area. “In the long term, we do not expect a big net negative impact of the coronavirus crisis, as Romania has everything it needs to come out of this crisis stronger,” says Lokere.

According to data from Colliers International, industrial and logistics overall take-up increased some 40 percent in the first three quarters of 2019, to 306,300 sqm. Private consumption remains quite decent in Romania amid (still) double-digit wage growth in year-on-year terms, meaning that the need for industrial and logistics spaces assigned to the expanding retail sector throughout Romania should remain a driver in 2020; so will the expansion of e-commerce, which is growing quite quickly alongside traditional brick-and-mortar operations. The same source says that industrial and logistics stock will grow considerably by 2023, if infrastructure projects really start to become visible and fiscal policies don’t experience major changes designed to discourage investments in this segment.

As for the future of the office and industriallogistics segments, Lokere says that demand will grow, especially towards high quality buildings and business and industrial parks in general. “Despite the short-term negative effects of the COVID-19 outbreak, this crisis will lead to an increase of the need for logistics space. This will come a result of an accelerated adoption of e-commerce and rising inventory levels, resulting from an increased awareness of supply chain stability following disruptions in transport and production,” says Lokere. In his opinion, this crisis will fast track the trend to diversifying manufacturing locations, reshoring and de-globalisation to mitigate supply chain risks. “These trends will lead to higher needs for warehousing and production facilities. The reshoring will go hand in hand with robotisation and automation, and Romania has strong cards to be a net winner of this trend,” adds the Alinso Group representative.

As for the office segment, Lokere says that the current crisis will accelerate remote working, now that companies have been forced to adapt their modus operandi. In Bucharest, the growth of the ICT sector will continue and so demand will further increase. Especially for modern, recent offices as companies have a greater focus on the health and well-being of their staff.

CEE MORE COMPETITIVE THAN THE WEST The entire Central and Eastern European market recorded transactions worth EUR 14 billion in 2019, an increase of EUR 1 billion compared to the previous year, according to consulting company JLL. Poland accounted for 55 percent of these transactions. In all CEE markets where Skanska operates, including Romania, the market has been dominated by office projects.

“2019 was a very interesting year for the CEE real estate market - and office sector in particular - and very successful for Skanska. Due to the great quality of assets with stable tenants and higher return on investment than in western Europe, the demand for prime office buildings in CEE remains very high among investors. Skanska again attracted newcomers to the market, for example South Koreans who were very active in our region this year. Our strategy of delivering futureproof projects has proven successful over the years,” says Katarzyna Zawodna-Bijoch, President and CEO of Skanska Commercial Development in CEE.

In the CEE region, Skanska, one of the largest office building developers in Europe, operates in Poland, the Czech Republic, Hungary and Romania, while in northern Europe it is present in Sweden, Denmark, Finland, and Norway. At the CEE level, the company’s portfolio will grow this year by almost 220,000 sqm of LEED-certified projects and almost 80,000 sqm of WELL-certified office spaces.

Telecommunications industry keeps economy alive during turbulent period

The telecommunication industry is working at full capacity in this period. With millions working from home, phone and internet services have become more important than ever.

and there were no interruptions or other issues with the infrastructure. All operators stated that there would be no problems and that they were prepared to solve any issues that might appear. “The need to ensure reliable and high quality mobile communication services for Romanians has never been more important,” said Catalin Buliga, Technology Director at Vodafone Romania. “Our commitment to contributing to the Romanian digital society has been reconfirmed by this new Best in Test certification.”

Over half (55 percent) of all mobile data connections in Romania are 4G. This translates into download speeds of up to 100 Mbps or more in most regions. This means that the high-speed mobile infrastructure can cover the requirements of a fixed internet line, a very important aspect for those working or studying from remote places.

According to 2018 data, the four large telecom operators in Romania recorded a total income of EUR 3.6 billion, up 1.7 percent compared to 2017. Orange Romania ended the year with EUR 1.12 billion in revenues, Telekom Romania with EUR 933 million, Vodafone Romania with EUR 720 million, and RCS & RDS (Digi Communications) with EUR 698 million (in Romania alone). “The value of the Romanian telecom sector increased slightly in 2018, by 1 percent, reaching RON 16 billion in revenues obtained by operators. The sector has a share of 1.7 percent in Romania’s GDP,” said ANCOM president Sorin Grindeanu.

Since the beginning of the pandemic, all the operators have announced that they would offer more data to their customers, to make sure that no one has any connection issues. In normal times, the average data consumption reaches 50 GB per month for every customer, but the number may rise during the state of emergency.

The telecommunications infrastructure is today part of the critical services people and companies need, just like power, natural gas, and water. And the importance of this infrastructure will only grow in the coming years. R omania has one of the most advanced and competitive telecommunication industries in Europe. The development of the last 20 years has given us one of the best infrastructures for mobile and fixed data, while the competition among the four big market players has kept prices at minimum levels. The number of mobile internet connections reaches 19.6 million, of which 84 percent are 3G or 4G connections, meaning high-speed data. The number of active users of mobile communications is 22.3 million, according to the National Authority for Administration and Regulation in Communications (ANCOM).

This year, the main operators of mobile communications – Vodafone, Orange, Telekom, and Digi – should focus on developing 5G technology. Unfortunately, since authorities were unable to conduct the auction for the new frequency range in 2019, the development was delayed. ANCOM announced last month that the auction would be postponed for the last quarter of this year for reasons of political instability, and now, due to the COVID-19 pandemic.

This doesn’t mean that Romania is lagging far behind other countries; Vodafone, Digi Communications, and Orange launched the first 5G connections in major cities in 2019. Using the frequencies they already had, the operators managed to install 5G equipment that offered download speeds of up to 600 Mbps and peaked at 1 Gbps. But development is stalling and 5G connections are available only in a few parts of big cities like Bucharest, Cluj, Brasov or Constanta. KEEPING THE ECONOMY GOING The quality of the communications infrastructure was tested last month after the country entered the state of emergency. Millions of employees and students are working from home and they all rely on this infrastructure.

The volume of data through fixed and mobile connections went up by 30 to 50 percent in March compared to the previous month By Aurel Constantin

IT industry breaking the barriers of social distancing

The Romanian IT industry is one of the most competitive sectors in the local economy. The main engines behind the industry’s success are the employees and their advanced skills.

is visible through the funding local startups received in 2019. Companies like FintechOS or Typing DNA got millions of dollars through several investment rounds. The most innovative ideas are coming from industries like FinTech, biometrics, blockchain, robotic process automation, and HR solutions.

The main problem encountered in 2019 in the expansion of the IT industry was the lack of qualified workforce. There are over 120,000 employees working in the software development industry and the need for new people was at 15,000 per year. The COVID-19 crisis may reduce the number of employees needed in the industry, so it may be able to cover its workforce needs in the coming period. OPPORTUNITIES IN CRISIS Looking beyond the COVID-19 crisis, which will take a big toll on all economies, we should be optimistic about the future of the IT industry. Closed borders are not affecting communications, so those who are able to work through the internet infrastructure will come out as winners. Romania is well-positioned inside the European Union and has close relations with the United States, which gives us an edge in front of big players like China or India.

In the business service industry, the outsourcing sector, Romania has 131,000 employees that have also managed to keep operations going as normal even with 98 percent of employees working from home. “At the end of 2019, we estimated a 10 percent increase in revenues for this year. The goal will probably be difficult to achieve in the current context,” said Dragos Stefan, president of Business Service Leaders Association. He points out that services like Shared Service Center, Business Process Outsourcing, and Information Technology Outsourcing will find fewer clients after the crisis. Still, the IT industry will be one of the pillars on which the Romanian economy will start to grow again. In the context of self-isolation, the IT&C businesses are becoming more and more important. T he IT industry is one of the lucky ones in the COVID-19 pandemic, since most of its employees can work from home just as well as they do at the office. With a computer, a good internet connection and a small desk, they can set up an office at home.

A good example is DB Global Technology, part of Deutsche Bank, whose employees have been working from home since the beginning of March and whose operations are still within normal parameters. All 900 employees are keeping in touch through online socialising activities and are using applications for video and audio meetings, e-mails and internal platforms.

“Over the last two weeks we have launched into production over 25 applications integrated into the bank’s mobile banking and trading systems, on which everyone involved worked from home as part of global teams,” said Marian Popa, general manager of DB Global Technology. Global teams working through online apps is one of the things that give a competitive edge to IT companies over those in other industries.

Cities like Bucharest or Cluj are reliant on IT&C activities, pretty much like other European cities, like Paris, Dublin or London. Romania is well integrated in the global IT production chains; companies like Amazon, Deutsche Bank, Oracle, Microsoft or SAP have software developing centers here and they don’t seem to downgrade. DB Global Technology, for example, announced that it has 100 open positions for the Bucharest office and it is looking to hire. ATTRACTIVE MARKET Romania is on the list of the most attractive places for UK and US tech companies in the Global Expansion Tech Index, which takes into consideration factors like skills, regulatory landscape, communication infrastructure, and GDP growth. Romania is ranked 29th out of the 50 best locations for international expansion. Its attractiveness By Aurel Constantin

Coronavirus to take high toll on Romanian economy

Like every other country in the world, Romania is facing one of the biggest crises of the last few decades, lacking the resources it needs to respond to the health emergency. But the toll the coronavirus will take on the country is difficult to predict, as economic forecasting is currently subject to substantial uncertainties ranging from the duration and severity of the SARS-Cov-2 outbreak to the post-corona-crisis developments.

By Sorin Melenciuc

The cost of the coronavirus crisis to the national budget looks to be very high

Historically, almost every generation has experienced a major disruptive event. Our great-grandparents’ generation fought in World War I, our grandfathers spent their best years in the trenches of WW2, while our parents experienced Communism and the fall of the Iron Curtain.

For our generation, the coronavirus, this Black Swan coming from the East, has the potential to change our lives forever. “Humankind is now facing a global crisis. Perhaps the biggest of our generation. The decisions people and governments take in the next few weeks will probably shape the world for years to come. They will shape not just our healthcare systems but also our economy, politics and culture,” famous writer Yuval Noah Harari wrote in the Financial Times on March 20.

UNCERTAIN BUT FRIGHTENING IMPACT Romania had already entered 2020 in a bad economic shape, with huge twin deficits, high financing needs, crippled infrastructure, a workforce crisis, and political turmoil. But the global downturn triggered by the new coronavirus adds a lot of pain to this already tough state of affairs. And the first forecasts indicate a very high impact from the coronavirus crisis.

“While we still don’t have enough data to assess the economic impact, the first estimates we’re getting from confidence surveys and economic players converge towards the same conclusion: in the course of only a few weeks we will experience a contraction that normally would have taken several bad years to materialise. Considering that a -4 percent contraction in Germany has become the most optimistic scenario, and that France is losing roughly the equivalent of 3 percentage points of GDP with every month of lockdown, Romania’s position is unlikely to look any better,” explains Valentin Tataru, economist at ING Bank Romania.

According to the International Monetary Fund (IMF), infectious diseases and the associated mortality remain a significant threat across the world. A recent study estimated the global yearly cost of pandemic influenza at roughly USD 500 billion (or 0.6 percent of global income), including both lost income and the intrinsic cost of the elevated mortality. But the cost of the SARS-CoV-2 outbreak already seems to be much higher. In Romania, as well as in other countries, the biggest impact is estimated to emerge in the second quarter of this year.

“The magnitude and rapidity of current developments is unprecedented. (...) We believe that GDP contraction will begin in 1Q20 and estimate a -1.3 percent drop vs 4Q19 (+1.7 percent vs 1Q19), despite the probably strong first two months. The bulk of the current anti-pandemic measures will be visible in 2Q20, where we see a -19.7 percent contraction vs 1Q20 (-19.1 percent vs 2Q19), with the main drags coming from industry and trade,” Valentin Tataru estimates.

This projection assumes a gradual re-opening of the Romanian economy starting in late May. According to this forecast, by the end of June, conditions to restart growth engines will be met, prompting a third quarter advance by 17 percent vs the second one. “We see GDP contracting by 6.6 percent in 2020, with a second quarter to forget, followed by a less pronounced “V-shaped” recovery than previously expected,” ING Bank analyst said. However, this sharp decline in 2020 could create quite a strong carry-over effect for 2021, when ING Bank sees Romania’s GDP accelerating by 7.1 percent.

The cost of the coronavirus crisis to the national budget also looks to be very high. “We are therefore pinpointing a -7.9 percent budget deficit for 2020, acknowledging that there are many unknowns at this stage,” Valentin Tataru notes. However, analysts warn that economic forecasts have become even less of an exact science in these turbulent times.

“In all fairness, we are facing an unprecedented situation, with a sudden large-scale shutdown of almost all economic sectors, for reasons that go beyond – and in fact have nothing to do with – economics,” Tataru added.

LARGE STRUCTURAL BREAK IN THE ECONOMY Some analysts are betting on a smaller impact, but they also point out that uncertainties are still too significant to make decent predictions. “For the whole year, we estimate a contraction of -4.7 this year to Romania’s GDP. This will deteriorate the already weak public finances, with the budget deficit likely to widen to -7.3 percent of GDP,” Ciprian Dascalu, chief economist at BCR, wrote in a research note. “The lockdown in response to the coronavirus outbreak is likely to lead to major losses in most economic sectors,” he added. However, economists underline that out of all the scenarios they have looked at, the current one seems to have a probThe full recovery will take a few more quarters as some companies will not survive the shock and it could take a while for others to get back to full capacity and go through the rehiring process,” Ciprian Dascalu predicts. Most economists are betting on significant GDP growth in 2021, the year that could mark the starting point of the global economic recovery.

“The recovery is likely to continue in 2021,

ability above 50 percent, though things can change rather quickly and render the forecast obsolete.

RATING RISK But beyond its domestic troubles, Romania is also hit by the collapse of external demand, as BCR’s GDP forecast for the Eurozone – Romania’s main trading partner – is a -3.5 percent contraction this year. Romania also risks being hit by a rating downgrade that will limit its financing options. “Pre-coronavirus crisis, rating agencies were looking beyond the electoral cycle for fiscal consolidation measures aimed at preserving Romania’s investment grade. It remains to be seen if their approach changes after the virus outbreak and the subsequent sharp deterioration in the shortterm growth profile and debt metrics,” the BCR chief economist says. “We believe that the downgrade risk is materially higher due to the COVID-19 crisis. This risk is starting to get priced-in by credit markets,” he added.

THE POST-CORONAVIRUS ECONOMY Most economists are trying to envision the post-COVID-19 world, but the picture is still unclear. “Recovery is likely to be sharp initially given the very supportive fiscal and monetary conditions both domestically and abroad with the aim of limiting the duration of the demand shock as much as possible. which we expect to post a 3.9 percent y/y GDP growth, also benefitting from a favourable statistical base effect and assuming some fiscal consolidation partially offset by accommodative monetary policy stance,” Dascalu indicates.

UNEMPLOYMENT THREAT But BCR economists warn that unemployment in Romania is likely to be sticky and that the full recovery of the lost jobs could take more than a year. According to the Labour Ministry, more than 400,000 Romanian employees temporarily lost their jobs due to the coronavirus outbreak in March, but the total effect on jobs is difficult to predict. However, the global impact of the coronavirus is likely to limit the depreciation of the Romanian currency.

“We maintain our year-end forecast for the EUR/RON at 4.88 and inflation at 2.5 percent. All in all, we believe that the BNR will be able to keep things under control due to its still large foreign exchange reserves, but pressures for something to give in will remain,” ING analysts write. This forecast is consistent with market consensus, which sees the Romanian currency depreciating at a controlled pace this year. BCR analysts estimate EUR/RON at 4.90 by year-end, slightly higher than previous forecast, while other economists expect a slightly higher depreciation.