WHAT SHAPE WILL ROMANIA’S ECONOMIC RECOVERY TAKE?

Economists and policy makers have been trying to predict the way the economic recovery might look. Will the recovery from the coronavirus recession be V-shaped or U-shaped?

By Claudiu Vrinceanu

Government representatives have constantly said that Romania’s economy will see a V-shaped recovery and have brought several arguments to support their statements. According to Finance minister Florin Citu, the economy has the potential to return to the growth levels seen in the beginning of 2020 in the second half of the year.

This optimistic forecast - the V-shaped recovery - is embraced by many analysts, with 7 out of 10 economists surveyed expecting a comparable resurgence after what may be a strong economic downturn. “A V-shaped rebound scenario is very possible for Romania, but up to a lower level than we had before the crisis,” said Ionut Dumitru, chief economist at Raiffeisen Bank.

The idea of an economic rebound in the shape of the letter V is also in line with the 2020 Convergence Programme. A severe reduction in economic activity is expected in the second quarter (-14.4 percent), with the quarterly profile highlighting a predominantly “V” shape, but not returning to the situation presented in the winter scenario (in the absence of coronavirus), with a proper recovery in the fourth quarter of 2020,” according to the 2020 Convergence Programme. The scenario is based on a time-limited negative economic impact of around 4 months (March-June), followed by a partial growth in July-September, based on China’s experience, which is showing signs of recovery after 4 months.

Most Romanian economists believe that the scenario of a V-shaped recovery is plausible, provided that the current declining trend in the number of coronavirus infections is maintained and the disease does not return.

A severe reduction in economic activity is expected in the second quarter

And the speed of the economic recovery will be influenced by the performance of several industries that have been severely affected by the lockdown: the manufacturing industry saw a decline of about 18 percent in MarchMay compared to the corresponding period of 2019, and the textiles, clothing, leather, and automotive industries have experienced even sharper declines of over 35 percent.

People and companies’ perception of the Romanian economy improved in May, after a sharp decline in the previous month. According to BCR, Romania has overcome the lowest point of the crisis and is heading for a rapid V-shaped recovery. “The hard part seems to have passed for the Romanian economy and, in the absence of a second wave of infections, confidence will continue to improve, given that more of the restrictive measures will soon be lifted,” said BCR analyst Eugen Sinca.

On the other hand, some entrepreneurs are more pessimistic. “Taking into account the way things are evolving so far, we can structure the crisis in three stages: the first is the shock stage, and it can take between 6 and 18 months. Afterwards comes the recovery stage. Finally we’ll go into the ‘new normal’ - the growth stage,” said Radu Negulescu, the founder of Trencadis.

Globally, estimates are not very optimistic either. Economist Nouriel Roubini hopes that although long, the economic recovery will be in the shape of the letter U, but he fears that we will actually have to deal with an L-type recession.

Moreover, a Bank of America survey of 223 fund managers found that just 10 percent expected a V-shaped rebound from the COVID-19 recession, and 75 percent predict a slower U- or W-shaped comeback.

EU funds lend opportunity to Romanian companies in post-COVID new normal

Hundreds of millions of euros will be available for startups, SMEs, and large companies in the coming period, and this could be the safest source of funding for companies in the post-COVID-19 world.

By Claudiu Vrinceanu

Given that financing companies from the state budget will be almost impossible in the coming year, as the budget deficit grows, European funds become a secure source of financing for the private sector. The biggest opportunities are in the startup creation area, especially for young people, but also for scaleup companies looking for investment funds. Companies operating in the construction, warehousing and logistics, hotel or manufacturing industries have two more months to access European funds of up to EUR 6 million through Financing Axis 2.2, part of the 2014-2020 Regional Operational Program (ROP).

“The recent period has been a real challenge for the Romanian business environment, but there are solutions to overcome it, through investments carried out with EU support. These are the last months when projects can be submitted for the 2.2 Financing Axis, part of the 2014-2020 ROP, as financing contracts will be signed by the end of 2020 at the latest, as it is a lightning session, using a very simplified procedure compared to the previous one,” said Roxana Mircea, founder and partner of consulting company REI Finance Advisors. Eligible applicants are companies with at least one full fiscal year of activity and profit registered in 2019, seeking to make investments in both urban and rural areas. In the case of investments for the rural environment, funds can be requested only by medium-sized companies, with an average of over 50 employees over the last two fiscal years.

At the EU-27 level, a total of EUR 50 billion in new European funds will be distributed for the 2020-2023 period

At the EU-27 level, a total of EUR 50 billion in new European funds will be distributed for the 2020-2023 period. Romania’s allocation is still unknown at this time, but it will mainly be used to support small and medium enterprises (SMEs).

GRANTS FOR NEW STUDENT-FOUNDED

STARTUPS The Innotech Student programme, which helps students obtain European funds between EUR 40,000 - 100,000 each for small businesses, will be launched this summer. According to the European Funds Ministry, this is a very useful programme for students. The government is finalising the Applicant’s Guide, and the total budget is EUR 30 million in the first stage alone. Through this programme, a series of grant administrators will be selected in the first phase, and will carry out larger projects that will include both undergraduate and postgraduate students as target groups. These final beneficiaries will take a series of entrepreneurship courses, take part in simulated business programmes, receive mentoring sessions and support for business plans, so that in the end some of them will receive grants with maximum values of EUR 40,000 for companies with 2 employees, and EUR 100,000 for those hiring 5 people.

Stock markets see speedy recovery from COVID-19 losses

Companies listed on the Bucharest Stock Exchange (BVB) recorded increases in April, despite the fact that it was the first full month of a voluntary shutdown of the economic system due to the state of emergency, a measure adopted in mid-March as a strategy to defend collective health amid the COVID-19 pandemic.

By Aurel Constantin

The companies included in the BET index, which includes the 17 most traded companies listed on the BVB, recorded a 4.63 percent increase compared to March. This has been the highest monthly growth rate so far this year, and it was possible after investors positively reassessed the Romanian companies listed on the BVB in the context of the coronavirus pandemic. For the January-April period, the BET index shows a 20 percent decrease, after the crash in March.

“There are opportunities in any crisis, and they become more obvious and are easier to track on the stock exchange. Companies that had high valuations just a few months ago have become even more attractive to investors. On top of that, the dividend yields paid by Romanian companies are still appealing to investors,” said Radu Hanga, the president of the Bucharest Stock Exchange.

Data for May 2020 showed an additional increase for the BET, which was up 9 percent towards the end of the month. The May recovery pushes back the loss recorded in the year-to-date to about 13 percent, generating hopes that the market could close the gap before the last quarter of 2020.

The BET Total Return (BET-TR) index, which includes dividends paid by companies to shareholders, recorded a growth of 4.63 percent in April and of about 10 percent in May, which means that the loss recorded in the first 5 months of 2020 stands around 11 percent.

BET and BET-TR were the worst-hit indexes on the Romanian stock exchange market. Other indexes, like BETPlus, BET-FI or BET

The stock market’s capitalisation reached RON 138.29 billion at the end of May

NG, are showing better numbers, with losses below 10 percent for the first five months.

RESUMING ECONOMIC ACTIVITY As social restrictions are easing, the economy is slowly re-opening. Factories are resuming production, people are going back to their offices. But the economic strategy of restarting activity – even partially - in the sectors that have been shut down should be centred around the stock market. “Reopening the economy and resuming economic activity without taking the stock market into account can considerably hinder the chances of success. There is no significant project that cannot be launched on the local stock exchange at this point. Any serious strategy to relaunch the economy has to derive from here,” said Adrian Tanase, the CEO of the BVB.

The role of the stock market in such a

context has become synonymous with ensuring access to vital capital for companies’ survival. “The stock exchange can support economic recovery and can be used to meet the financing demand coming from the state. Our goal is to consolidate the stock exchange’s image as the go-to financing platform for the Romanian state, which can issue bonds to target local investors or bring companies in its portfolio to market, as well as for Romanian companies that need to raise capital. All these instruments are available, they just need to be used,” added Radu Hanga.

“The best way to support Romanian companies is to invest in them. Supporting Romanian companies does not have to be a slogan, but a reality that can emerge from using the stock exchange. Any Romanian citizen who buys shares or bonds in local companies listed on the BVB contributes to the rejuvenation of the national economy. Do we want to support Romanian products and services? This is the question we should start with and invest in the companies that provide the transparency required by their publicly listed status,” said Adrian Tanase.

In the first five months of the year, the Bucharest Stock Exchange saw the total traded value for all financial instruments come close to EUR 1 billion or 34 percent up compared to the same period of 2019, while the average daily trading volume amounted to almost EUR 11 million, a 30 percent growth. The stock market’s capitalisation reached RON 138.29 billion at the end of May, from RON 180 billion at the beginning of the year – a 23 percent decline.

FINANCIAL SECTOR AT THE TOP OF INVESTORS’ PREFERENCES Banca Transilvania (TLV) was the investors’ “sweetheart” in May, with a total trading value of over RON 200 million, in almost 12,000 trades. TLV shares ended May at RON 2.04, down from RON 2.59 at the end of 2019, meaning a drop of 21 percent. Still, the lowest price recorded this year was in March, at RON 1.58, which points to a good recovery in the last two months.

The second among investors’ favourites in May was Fondul Proprietatea (FP) with a total trade value of RON 96 million in 2,160 trades.

FP shares were also on a roller coaster this year, but it has recovered the loses recorded in March and April. At the end of May, the share price was at RON 1.24, up 2.5 percent from the end of 2019. The lowest quotation this year was registered in March, at RON 0.998.

OMV Petrom (SNP) was the third most traded company in the BVB main segment in May with a total value of RON 85.5 million in almost 6,000 trades. But the oil and gas giant world, which drove the oil price to less than USD 20 per barrel. Now it has recovered to over USD 30 per barrel, but the quotation will not go back to the pre-crisis values of USD 60-70 per barrel anytime soon.

has been among the worst hit by the crisis, with a total price loss of 23 percent in the first five months of 2020. The price went from RON 0.447 at the end of 2019 to 0.344 at the end of May, with the lowest at RON 0.279 in March. OMV Petrom was hit not only by the COVID-19 crisis, but also by the divergence between the biggest oil producers in the recovery that many are hoping to see this year. At the global level, concerns are coming from the potential second wave of COVID-19 cases, which may derail the rebound and send the economic recovery into a W shape. But there is some hope, as the World Health Organisation states that the second wave of COVID-19 looks decreasingly likely.

REBOUND MAY NOT LAST The state of the economy is a concern for all markets, especially in Europe and the US. The US stock exchange has recovered more than 35 percent since its March 23 low, as the S&P 500 index shows. Now, S&P 500 is traded at just 10 percent below its all-time high. But the recovery may not last if protests against the police continue. Combined with the COVID-19 crisis and the trade war with China, the US stock exchange market may experience another downturn in the coming months.

So far, the Federal Reserve and other central banks have been spending trillions on aid packages and this has pushed up stock exchange markets. Even more, the low interest rates, recently cut by many central banks (including the National Bank of Romania), have boosted investors’ interest in highyielding stocks. But in the medium-term, the value will depend on the V-shaped economic

The best business laptops on the market in 2020

IT spending during the COVID-19 pandemic is projected to fall by less than 7 percent. This year, global spending will reach USD 426 billion, down from USD 458 billion in 2019, the first drop in more than a decade.

By Aurel Constantin

Lenovo, HP, Dell, and Apple are the most renowned for business laptops

All the enterprise software and apps that comprise global spending need machinery in order to be used, and this mainly means PCs and smartphones. During the pandemic, when remote work was carried out by any employee that could move their job outside the office, demand for laptops grew, while smartphone sales declined. More specifically, laptop sales went up 30 percent around the world, while smartphone sales dropped by 20 percent.

All the major laptop manufacturers managed to keep up with new launches in 2020, even during the lockdown. The good thing is that the offer in stores, both offline and online, covers all budgets with good machines which are able to handle 2020 hardware requirements. The most popular operating system in the world is still Windows, covering 87 percent of the PC market in April 2020. Microsoft recently announced that the Windows 10 version of the OS had reached 1 billion active devices. Customers are using Windows PCs to stay productive, connect, and learn during this time. In fact, over 4 trillion minutes are being spent on Windows 10 each month, a 75 percent increase year on year,” wrote Panos Panay, Microsoft’s chief product officer, in a blog post.

Before we take a look at what the PC market has to offer today, it is important to stress the minimum requirements in terms of power. A random access memory (RAM) of 4GB is mandatory, but a good system should have at least 8GB. As we tend to have several apps open at once, 8GB are needed to have an instant response from our computer. A processor equivalent to the Intel i3 or AMD A6 provides the minimum power needed today. Sure, there are many school notebooks that use less powerful processors in order to keep prices as low as possible, but they should not be the first choice when buying a new computer. A storage capacity of 128GB SSD is also a minimum, but 256GB or more would be best. Of course, it’s important to choose an SSD (solid state drive) for storage instead of an HDD (hard disk drive). Finally, the screen should be full HD for good viewing. A 4K screen is best, but it is usually more expensive.

BUSINESS LAPTOPS Lenovo, HP, Dell, and Apple are the most renowned for business laptops. The ThinkPad series from Lenovo has been known to have the best business laptops for many years now. While the ThinkPad X1 Carbon (at a price of over EUR 2,000) is the best in terms of per

formance, Lenovo has also released models for lower budgets, like the L14 or L15 (starting price of USD 650) up to T14 and T15 (over USD 1,000). Lenovo also launched a new business line at the end of 2019: ThinkBook. Model 13s has a starting price of around EUR 700 and, after testing it thoroughly, I can say that it is the best business laptop for its price, from performance and screen to battery life and connectors.

The HP Spectre x360 2-in-1 is a premium business laptop, launched this year with a boost in specs. With 10th generation Intel Core processors and Intel Iris Plus graphics along with impeccable design, Spectre is one of the best laptops you can buy. Although pricey, at around EUR 1,500 for top performance systems, you will get an excellent machine. The Dell XPS 13 or 15 is another high-end laptop for business. It has a stunning screen, top processors from Intel and can include graphics like NVIDIA GeForce GTX 150 (for the 15.6 inch version). It also has a higher price tag than its rivals (over EUR 2,000), but if money is not an issue, Dell XPS is one of the best laptops you can buy.

Next to Dell in terms of prices is Apple, with its MacBook Pro 13 or 16, the alternative for Windows laptops. Apple decided to launch machines with best available specs, including models where you can have 64GB of RAM or storage on an 8TB SSD. The top model goes for over EUR 2,500, but that is not a big surprise since MacBooks have always been at

the high end of the price range.

Huawei is one of the latest producers to enter the global market, but it’s making a good impression. The MateBook X Pro has gained a place among the best business laptops, with a sleek design, good specs, and a great screen. And it comes with good prices for a high-end ultrabook, around EUR 1,100. It does lack some connectors, like an SD card slot, but comes with a USB-C port for battery charging, which is great in terms of standardisation and allows charging from a portable power station. Hopefully, we will see USB-C charging ports become a standard in the future.

ASUS recently launched its ExpertBook B9450 in Romania, a 14-inch business laptop that weighs under 1 kg. It has top specs, a USB-C port for charging and all the connectors needed for a business port. It also has a NumberPad 2.0, which is a numeric keyboard integrated in the illuminated TouchPad. The technology comes at a price of over EUR 1,500, so it is not cheap.

Acer is usually seen as a manufacturer of budget laptops, but it has high-end machines that can compete against any other producer. The Acer Swift 7 is one of the thinnest computers on the market, with great specs and display. It is not a cheap machine at EUR 1,500, but it covers all the needs of a business user.

BUDGET LAPTOPS There is a wide range of laptops under EUR 500, from Chromebooks made for web browsing to good computers for working from home. All the manufacturers above have models that can be cheap and still do the job, whether for the office or for school. The latest AMD processors have brought the prices down and have forced Intel to cut prices for its chips as well.

The Romanian market has one “feature” that is found in many cheap laptops: the absence of an operating system. While there are cheap license keys for Windows 10 in online shops, those are usually not entirely legal. And for someone who is not really into tech, installing an operating system may not be so easy. The best choice in this case is to buy the PC with an operating system already installed, since it is the easiest way to use a computer.

There is a lot of talk in our country about the way students are learning online. And many say that a tablet is enough to communicate with the class and the teachers. Although it may be enough for a video call (just like a phone), a tablet is not really the best choice for students. It is better than nothing, but if there is a choice, a laptop is far better in terms of productivity. Nevertheless, a good tablet costs more than RON 1,500 (over EUR 300), which is the price of a budget laptop. It would be better if those who are trying to help children in need, including the government, went for laptops instead of tablets.

Local startups facing

conservative funding outlook

While securing funding for your startup might seem like a moving target right now, mostly due to the disruptive economic effects of the coronavirus crisis, investors are still on the hunt for young firms that have the potential to grow exponentially in the future, especially in the tech field. Crowdfunding is gaining prominence on the local market, as conventional venture capital and bank funding turn more conservative.

By Ovidiu Posirca

Funding volumes had already started to go down in the first quarter of 2020, as key global startup hubs were starting to enforce strict containment measures against the virus. For instance, projected seed & angel investment in Q1 was set to fall by 8 percent to USD 3.3 billion compared to the same period of last year, according to Crunchbase News. And early-stage investments are not doing any better, with an annualized drop of 15 percent to USD 22.3 billion in Q1 2020.

Meanwhile, some of the largest startups in the world have announced layoffs as lockdown measures have crippled demand, especially in the transport and hospitality industries. On the other hand, the role of digital transformation in companies has gained prominence in this period, and some changes such as remote work and increased online shopping are here to stay for the long term.

“In a macroeconomic sense, the current medical and economic events will have effects lasting for at least 18 or 24 months. There are no clear winners, but at the same time these events have forced an accelerated adoption of digital solutions and will continue to push for increased efficiencies and support for social distancing,” Alexandru Bogdan, the CEO of startup investment fund Roca X, told BR.

Startups that could come out on top after the crisis could be tech firms that can provide solutions to the new ways in which we work, shop, and live.

“If they are favoured by these events and their adoption is accelerated, they should ride the wave, invest in gaining market share, and with consistent data, go collect additional funding. As we can see from the number of investments over the last 2-3 months, a good story/case will get investors’ attention. If they feel close to the mainstream but are not there in terms of real adoption, they should carefully pivot and adapt to future demands and behaviours. Cutting costs starts to be an important action that needs to be taken to preserve future opportunities after the storm passes,” says the CEO. Bogdan suggests that even startups that take advantage of the current situation might need to shift or delay capital placement.

“To survive the scarcity of resources and preserve their budgets, the best measure for startups is returning to their own channels to monetise the existing customer base, while maintaining the communication with their target audiences open, but at a low cost,” he argues.

THE FUNDING AND COST-CUTTING CONUNDRUM Startups can finance themselves by generating revenues or by raising funds from investors. For early stage firms, the path to growing sales and profitability could be years away, and these entrepreneurs could be forced to make deep cuts now in other to save the business.

Re

ducing cash burn could be the priority for most startup founders in the short term.

Cristian Munteanu, managing partner at Early Game Ventures, says that a startup owner could opt for the European way of gradually cutting costs and hoping that the situation will improve down the road.

“I prefer the hard way, the American way: cut all that may be cut from day one, contain the damage, stop the leaks, and brace for impact,” Munteanu told BR. This could mean re-negotiating all contracts with suppliers, landlords, cutting marketing spend, eliminating travel budgets (where possible), and cutting salaries. In some cases, layoffs could prove inevitable.

“I advise startups founders to consider offering their employees options in exchange for a reduced salary; in other words, ask the team to take on a part of the risk and get a share of future rewards,” says the managing partner of Early Game Ventures.

Startups that are currently looking to secure funding could attempt to borrow from banks – if their financial figures are strong enough – or entrepreneurs could sell equity in the firm to private investors.

“Unfortunately, banks in Romania have never been willing to finance the typical SMB (small and midsize business – e.n.) as the typical SMB is poorly managed, has no governance, and is not creditworthy. Private investors, on the other hand, are in small numbers and always choose the best investments. Their impact at the national level is limited by their capital and their bandwidth,” Munteanu explains.

The government could step in and provide grants to firms, but the question is whether public funds should target all companies in trouble or just those with good fundamentals that are currently facing a crisis.

The Romanian state has already stepped in to cover costs for employees who were temporarily laid off due to the coronavirus. At the same time, banks were analysing loan requests from small and medium-sized companies (SMEs) through the governmentbacked IMM Invest programme.

The state would provide guarantees for loans taken out by small business to finance new investments or secure their cash flows. The threshold for these bank loans was set at slightly more than EUR 2 million for each firm, and dozens of requests were approved in the first weeks.

Crowdfunding for startups is another concept that is currently being developed by a team of Romanian investors. They founded Seedblink, a platform for equity crowdfunding that has already attracted over 1,000 investors who have provided funding worth EUR 2.28 million in five months to nine startups.

The team behind Seedblink wants to bring tech startups, local venture capital funds, and angel investors to the same table. In the next three years, the platform aims to reach a community of 30,000 investors and 175 startups.