FDI to play pivotal

FDI TO PLAY PIVOTAL ROLE IN ROMANIA’S RECOVERY

Due to its close links to the global economy, Romania was hit hard by the coronavirus pandemic. The health crisis was doubled by an economic one, as well as by uncertainties regarding short to medium term developments, which put many investment plans on hold and made investors more cautious when it came to injecting money in the economy. Although 2018 and 2019 were good years for Romania in terms of foreign investments, 2020 brought a significant downturn. What should Romania do to attract more foreign investors? What sectors should it bank on to drive the economy and what should it expect from them? These are the pressing questions we will try to answer below.

By Anda Sebesi

According to the September 2020 edition of the Foreign Investors’ Council’s “Foreign Direct Investment in Romania” study, global FDI flows will be significantly impacted by the pandemic. For the 2020-2021 period, the United Nations Conference on Trade and Development (UNCTAD) estimates a reduction in FDI flows of up to 40 percent.

The study highlights that Romania’s FDI flows had a negative net value of EUR –338 million in the first five months of 2020. Even though this trend is expected to reverse in the coming months, the initial signal provided by the direction of FDI in the first half of 2020 was a reflection of the relatively high risk that foreign investors see in the Romanian economy and their lack of confidence in the business environment’s short-term prospects. Last year, Romania attracted EUR 5.17 billion in FDIs and posted a total balance of EUR 88.3 billion, according to data provided by the National Bank of Romania (BNR). 2019 was the second year in a row when Romania exceeded the level of EUR 5 billion in FDIs (it had reached EUR 5.26 billion in 2018).

The same study shows that relocating manufacturing facilities near the main consuming countries (especially those currently operating in China) gives Romania the opportunity to position itself as an attractive FDI target. However, Romania is competing with other states in the region and given the reduced competitiveness of its regions compared to those of neighbouring states and the lack of coherent public policy measures to attract high value-added FDI, there is a high chance that the country will continue to attract mainly low value-adding activities with low technological intensity.

It would be beneficial for Romania to have a more significant presence on international markets, especially during this period, with the help of government agencies dedicated to attracting investments and promoting exports, such as Invest Romania. The services sector has the largest share of FDI stocks in Romania right now, accounting for about 47 percent of the total. By contrast, in the hightech sector, FDI stocks as a share of the total in the manufacturing industry are only at 5 percent, the lowest level in the region.

Romania's competitiveness deficiencies are also reflected by the regional competitiveness index. None of Romania’s eight development regions match the average performance level of the European Union (EU) – not even the Bucharest-Ilfov region. Public policy measures could focus on encouraging FDI with the highest possible added value and on facilitating the reorientation of FDI to high-tech and knowledge-intensive industries in service-related fields. GOOD NEWS ON THE HORIZON Recently, the Fitch rating agency announced that it had maintained Romania’s country rating. “Although Fitch expects the economy to recover starting with 2021, the uncertainty about political developments along with the increase of the coronavirus outbreak both globally and on the local market will continue to affect the economic and fiscal perspectives. According to our base scenario, Romania’s economy will post an average increase of 4 percent between 2021-2022, supported by the recovery of the domestic and external demand. Yet, there are some uncertainties about the medium-term impact of the pandemic on Romania’s economy, because some sectors like IT and communications could see benefits while small companies from the manufacturing sector could suffer permanent losses,” Fitch analysts said. Currently, Romania has an investment grade from all three rating agencies, but it ranks on the lowest level in this category, with a negative perspective. A potential downgrade could take the country’s rating to the junk category, which means Romania will no longer be recommended to investors.

WHAT DO C-LEVEL MANAGERS THINK? According to the first edition of Confidex, a study conducted by Impetum Group on more than 500 C-level managers from Romanian companies, the average turnover of firms in Romania will decrease by 20 percent this year. “For companies with a turnover of less than EUR 1 million, the drop will reach 23 percent, while for medium-sized companies with turnovers between EUR 1-5 million will experience an average drop of 17 percent. Large companies will be less affected, posting a 12 percent decrease in turnover. The most affected sectors will be hospitality (43 percent turnover drop), services (23 percent), and transportation (20 percent),” says Andrei Cionca, CEO and co-founder of Impetum Group. He adds that the study also asked managers what they thought about the measures the Romanian government took during the lockdown. “55 percent said that the measures were adequate, 26 percent found them excessive, and 17 percent thought they were insufficient. In addition, the absence of a plan to finance large companies was a problem that respondents identified,” Cionca adds. The study, which covered the first three months of the pandemic, found that respondents expected the economy to experience a V-shaped recovery, over various periods, as follows: 13 months in case of their company, 15 months for the sector they operated in, 22 months for the European economy, and 26 months for the Romanian economy.

High potential for local office building segment

Companies occupying office space need to account for several types of work arrangements, including full-time remote, part-time remote, and full-time on-site. They also need to increase technological investments in order to support remote working, according to a survey carried out by real estate firm CBRE.

By Anda Sebesi While remote working has been on companies’ minds since the By comparison, the total office stock in Romania stood at more than 4 million sqm in Bucharest beginning of the health crisis, and the main regional cities last the aftermath of the pandemic year. “Bucharest has good prosmight bring a shift towards the pects because the volume of office fluid workplace and improved spaces delivered on the market office wellness facilities. On the so far is still low compared to the Romanian market, companies may city’s population and the market’s choose to keep their current spaces potential. While the Bucharest and ask their employees to come office stock reaches 3 million sqm, back into the office in shifts. “For Warsaw’s exceeds 5 million sqm. people working inside the office, In addition, a large share of the physical distance will be ensured Romanian capital’s office stock according to the safety standards is represented by class B offices imposed by local authorities, but which cannot provide a safe workcompanies will still encourage ing environment in the context of face-to-face collaboration and the pandemic,” says Antoniu Pacommunication,” says Marius nait, managing director at Vastint Scuta, head of the office department & tenant representation at real Romania. While 2019 was by far the best year for Vastint Romania, estate consultancy firm JLL Romania. as it delivered 63,000 square meters which are now fully operational

Along similar lines, Fulga Dinu, country manager at Immofinanz and equipped with the latest technologies – Timpuri Noi Square is Romania, says that flexible working and home offices will be in even 95 percent leased and Business Garden Bucharest stands at over 75 greater demand, but that home offices will never completely replace percent – the company is focusing on existing projects and tenants the office workstation. “We are convinced that the social aspect and and on leasing vacant premises. “In a normal context, we would the personal interaction are crucial for innovation and productivity have started a new phase of the Timpuri Noi project. If the market in companies. We will therefore continue to see demand for high- has the capacity to absorb new office deliveries, we can continue the quality office spaces with benefits. In the medium to long term, there development,” adds Panait. may of course be changes in individual tenants’ space requirements,” Last but not least, Dinu of Immofinanz Romania says that the Dinu explains. company has eight operational office properties and two office build-

In the meantime, developers are continuing to work on large of- ings currently undergoing a modernisation process in Bucharest and fice projects on the local market. Between mid-2020 and the end of Voluntari, with a 91 percent overall occupancy rate. “Despite the 2021, a total of 325,000 sqm of modern office spaces are expected in pandemic, we signed contracts for more than 40,000 sqm during Bucharest and some 206,000 sqm will be completed in large regional the first nine months of 2020. These included contract extensions cities (Cluj-Napoca, Timisoara, Iasi, and Brasov). and expansions as well as new tenants joining our office buildings,”

The market for coworking and flexible spaces could see a re- Dinu notes. In her opinion, office buildings nowadays must offer surgence as companies are exploring different work arrangements much more than just workspaces; they’re more like living spaces, that don’t raise any health risks for their employees. However, the with employees’ wellbeing becoming a top priority. “This will be the development of more flexible office spaces has been rather limited, essence of the office experience and we expect this trend to continue and this segment had only 84,000 sqm of operational spaces spread in the future as office landlords pay more attention to the needs of across 106 venues at the end of 2019. their modern customers,” she adds.

Speedwell aims developing new large scale projects in Romania

Didier Balcaen, the CEO of Speedweel highlights the main projects of the company on the local market and the way it adapted to the new context generated by the pandemic.

In what regards the office market, the current situation of many employees working from home has made an impact. There has been a decrease in office spaces leasing request and we are adapting to this new reality by doing what a true partner of the tenants does: being open to their requests and offering more flexible conditions. It’s important to collaborate and see tenants as more than just a client. They are also our partners.

What are your main projects developed in Romania so far? We currently have several projects in different cities of Romania, in various development stages. In Bucharest, we are developing three projects, one A-class office project – MIRO, and two residential projects – THE IVY and TRIAMA Residence. Located in Northern Bucharest – Băneasa, MIRO, our office project, and THE IVY, the residential one, combine as a mixed-use set-up for a better work-life balance. MIRO offers 23,000 sqm of leasable office spaces, is 60% pre-leased to date and will be delivered at the end of 2021. THE IVY, located within walking distance from MIRO, features over 800 dwellings. For the first phase consisting of 228 units, construction works will start before the end of this year.

The second residential project we are developing in Bucharest, TRIAMA Residence, is close to delivering its first phase comprising of 66 apartments. After reaching the “sold out” milestone for Phase 1, we have launched sales for next phase which includes 68 units deliverable at the end of 2022.

In Cluj, we are finalizing our mixed-use regeneration project, RECORD PARK. Through it, we are adding to the market a total of 236 apartments and approximately 15,000 sqm of commercial spaces, mainly office and part retail, including a stand-alone WorldClass with a unique pool with retractable roof. Following RECORD PARK’s model, we are developing another mixed-use project, PALTIM, located in Timisoara. It includes 15,000 sqm of A-class offices, approximately 300 residential units and a refurbished historical villa, all in a central location. For PALTIM, we are finalizing the PUZ stage and plan to start commercializing early 2021. In Ramnicu Valcea, we manage a land development of 10 ha for which we obtained the PUZ and are currently selling allotments to other developers, for a potential of up to 50 houses, 1,100 apartments and retail spaces.

What can you tell us about the residential and office segments in Romania in the current context generated by the pandemic? With every crisis there comes an opportunity for development, and we are noticing that in the current context as well. When it comes to the residential market, the positive impact of the pandemic represents a shift in the users’ perspective. Home buyers are looking to improve their quality of life since they are spending more time indoors. Although we have seen an increased demand for houses compared to the one for apartments, the vast majority of demand will remain for the latter category. Buyers are more interested in larger surface apartments, with at least a terrace and more efficiency when it comes to the way every square meter is used. These are a few details that we have always given importance to in all our projects, even before the pandemic. Our aim is to offer a better standard of living and this can be noticed in the attention to detail and the design concept. What are your plans on the local market? We are planning to continue with the projects we are currently working on, through their delivery. Apart from this, our plan is to purchase at least 2 new plots in the next year, focusing on Bucharest, but also on the major regional cities of Romania, following our strategy of increasing our pipeline of new large scale developments in the local market.

How did you adapt to the current context? Over the past 8 months, we have adapted to this new way of working by implementing new tools, being on-guard for any delays which might appear and putting the wellbeing of our employees and collaborators first by taking preventive measures. Even so, the pandemic didn’t have a big impact on our projects, and we didn’t have to pause the construction sites. The permitting process continued to function well, with no significant delays. A special thanks to our amazing team, that has remained in positive spirit and has shown to react extremely agile to the current fast-changing circumstances.

PropTech is obviously another matter we were already implementing, but now we have stepped up even more the application of technology at the service of our buyers and tenant. This is materializing through the Capacity (Cegeka) smart parking system, the next step is the integration of BringMe Boxes for easy online deliveries in both residential and offices compounds.

Scalable products could increase Romania’s competitiveness abroad

While e-payments could lead to a significant shrinkage of the grey economy, the lack of financing is not Romanian companies’ only problem right now. The country needs to make a shift towards partnerships and create its “middle class of companies.”

By Anda Sebesi According to Rudolf Vizental, CEO and co-founder of ROCA Investments, the ond budget that takes into account a negative cashflow and plans the decisions that need to be made in current crisis has brought a change that context. “This repositioning to the concept of globalisation as of the global economy could mean well as an acceleration of digita- that the Romanian economy might lization and a widening of some be better positioned than it was gaps between countries or sectors. at the beginning of the crisis, but What is there to be done? “Our best on one condition: making scalable bet is to focus on things that will products that can penetrate other not change during these times, markets,” he concludes. such as a nation’s need for education, healthcare, culture, and food ELECTRONIC PAYMENTS GAIN processing. A company should GROUND build its pillars on elements that E-payments make up a significant will maintain their relevance in the part of both the financial sector and medium and long term,” says Vizental. the local economy, and they help reduce the size of the grey econo-

In Vizental’s opinion, there is currently a lack of so-called “middle my, for example. According to Bogdan Patru, Public Policy Director class players” in Romania’s business environment, meaning that we at Mastercard, e-payments saw constant growth in Romania over the have only a few large companies at the top (about 3,000) and many past few years. The upward trend has been generated by two factors: more small companies at the bottom. “This is one of the reasons why consumers’ appetite for technology and tools that allow them to Romania has low levels of FDI: because there aren’t many opportuni- make payments in a safe, simple, and quick manner and the multiple ties here.” initiatives which have been implemented in order to increase access

Regarding the specifics of the Romanian market, Vizental to e-payments. “But many things still need to be done in order for highlights three major aspects: the structure of the economy, the Romania to reach its maximum potential for e-payments,” the Masentrepreneurial culture, and a wide range of problems companies tercard executive argues. face – from management to networking, corporate organisation, According to Patru, following a study conducted by Mastercard and process digitalization. “The local economy is still young, but its and PricewaterhouseCoopers in 2014 to measure the impact of entrepreneurial class is getting old. Many of those who started busi- e-payments on the economy, Mastercard developed ten measures nesses in the ’90s are close to retirement, and many of them haven’t aimed at shrinking the grey economy by 9.9 percent of GDP and consolved their succession problem,” he points out. tributing to the collection of EUR 14 billion in the state budget over

In addition, the communist period had the effect of generating a seven-year period. The measures included: reducing cash limits, scepticism among Romanians regarding partnerships. “When you strengthening fiscal discipline, easing budget collections, increasing have more than 30 employees, you can’t do it all by yourself, and the number of POSs and cards, connecting cash registries with inteif don’t set up any partnerships your company risks not being able grated POSs to the internet, reporting card transactions, organising to rise above a certain limit. This culture should move on from the a fiscal lottery, offering social aid through pre-paid cards, limiting individualistic perspective and start embracing the concept of part- salary payments in cash, and encouraging e-payments through fiscal nerships.” facilities. “Unfortunately, of the ten measures proposed at the time,

As for the coming year, Vizental thinks that companies should only the fiscal lottery has been implemented, six others have been draw up two budgets: a realistic and balanced one, based on a sce- implemented only partially, while no moves have been made on the nario where things are stable and comparable to this year, and a sec- remaining three,” Patru explains.

Romania’s automotive market braces for paradigm shift

Both the global and the local automotive industries have been hit hard by the pandemic, which has affected all three pillars of the GDP: consumption, production, and incomes. But despite this complex and difficult situation, Romania marked two significant firsts: one coming from Ford and the other from Dacia.

By Anda Sebesi In October, Renault Group launched Dacia Spring, its first fully electric car, which will be Lier, CEO at BASF. Unlike its more developed European peers, Romania has a massive infrastructure produced by the Romanian brand, deficit doubled by a low level of while Ford Puma, the SUV manu- predictability to its legal framefactured in Craiova, sold 42,000 work. Mihai Blodijar, the general units in Q3, ranking third behind director of Robert Bosch and the the Fiesta and Focus models. It representative of the Bosch Group was the first time when a model In Romania, says that “despite the manufactured at the Romanian fact that it will be difficult to keep plant came close to the American the Romanian automotive industry automaker’s two best sellers on the on a sustainable, competitive level, European market. developing new technologies for

Furthermore, according to future mobility systems – in terms Sebastian Popescu, counsel and state aid advisor at Noerr, the au- of both engineering and manufacturing – such as electrical vehicles, tomotive industry is one of the biggest recipients of state aid funds. plug-in hybrids, fuel cells or autonomous driving systems might just “Hence, an automotive player can develop a project to finance its as- be the answer and the opportunity we have been looking for. In my sets or, in case it is looking towards an R&D project, it can get money view, the sector’s biggest challenge will be preparing the local autofor salaries.” motive industry for a stepwise reduction of its CO2 footprint in order

Apart from the launch of Dacia Spring, Christophe Dridi, manag- to achieve carbon neutrality by 2030.” ing director at Groupe Renault Romania and CEO of Automobile Dacia, says that his company has many solutions to reduce its carbon WHAT’S NEXT emissions. “For us, the quickest solution was LPG. In 2019, LPG Lier of BASF says that the future of mobility will definitely look difrepresented 5 percent of production at our plant in Mioveni and now ferent – new players and new technologies are gaining ground and it has reached 40 percent, which means that this represents a real we are witnessing a real paradigm shift. “Nearshoring or transitionanswer for our customers. Dacia has always had an out of the box ap- ing production from western EU countries to Romania for cost savproach in order to respond to the real needs of its customers and pro- ings, will continue to represent a big opportunity. The excellent local pose alternative solutions,” Dridi noted. On similar lines, Popescu of product portfolio with new and improved models from Dacia and Noerr says that auto technology is ahead of many other sectors. “Our Ford is also a great present and future opportunity, as we’re seeing environmental protection ambitions can sometimes be a bit too opti- consumer preferences shifting towards cars with an excellent value mistic, but it’s a proactive approach and investments are highly sup- for money, which both brands offer in Romania,” he says. He adds portive of it.” As a result of the pandemic, people tend to think twice that signs of recovery are noticeable worldwide, yet they remain before making a decision to purchase expensive consumer goods like fragile due to the danger of new lockdowns and customers hesitatcars. “In April and May we experienced a shutdown of almost the ing to buy cars due to the overall uncertainty. “But I believe the car entire automotive industry across the world – a real collapse due to industry is strong here, and the government has taken the right meaCOVID-19 lockdowns and weak demand. Original equipment manu- sures. One positive decision was to introduce Kurzarbeit for the local facturers like Dacia and Ford stopped production, and consequently automotive industry,” Lier adds. Moreover, Boldijar says that a much so did almost all the tire suppliers in Romania and Europe. Fortu- more flexible labour legislation combined with a rapid digitalization nately, the situation improved in August, and September was a good of the public administration would be enormously helpful for both month for BASF’s Automotive Business in Romania,” says Andreas employers and employees, regardless of their industry.

Hundreds of thousands of jobs will be created as technology takes centre stage

In the next five years, over 400,000 new jobs will be created in Romania’s IT&C industry, doubling the current number. The development of technical and digital skills must accelerate to meet the demand for specialists and to sustain the country’s economic development, but neither universities nor companies have the capacity to respond to the needs of the future, said Daniel Rusen, Marketing and Operations Director at Microsoft Romania, at Business Review’s Foreign Investors Summit in late October.

By Aurel Constantin Rusen noted that a global study conducted by Microsoft and LinkedIn just between people. “Traffic is booming anyway, it’s not only because of the pandemic. In this summer found that in the recent years it has grown by 50 next five years, around 150 percent each year and it is estimillion new jobs will appear as mated to increase fourfold over a result of accelerated digitali- the next five years,” Rebegea zation. Of these, 1 million will noted. “This means that we will be in the area of data privacy, need more storage infrastruc6 million in cybersecurity, ture, as well as more secure 20 million in data analysis, and faster connectivity. These machine learning, and artificial are the challenges faced by intelligence, 23 million in cloud network service and equipment and data roles, and 98 million providers,” he explained. in software development. New jobs are emerging in

“This is good news, but technology development, inthe bad news is that we need cluding at Ericsson, a company qualified people to fill these that only made hardware for jobs. For Romania specifically, 120 years and recently started this means around 645,000 making software as well. The jobs will be created around special situation generated by new technology. If you think about the Romanian workforce, we the pandemic has shown that the solutions offered by connectivhave around 200-250,000 people who are currently qualified to hold ity, in terms of both hardware and software applications, are the advanced technical jobs – developers, data analysts, cybersecurity most appreciated and most desired by people working from home. experts, and others - within the next five years this number will Moreover, people are willing to invest in better connectivity when reach 1 million,” Rusen said. they need it.

“This pandemic has shown connectivity to be one of the most As data traffic continues to increase, investments will be needed important aspects of economic continuity. The period has highlight- to maintain networks at capacity. A lesser known fact about Ericsed the strengths and weaknesses of networks, which have proven son is that it has a factory in Timisoara that produces 5G network resilient to the migration of employees from company offices to equipment, in a unit with 1,400 people. “That's why Romania is very working from home. Romania has very good broadband and mobile important for us. The resilience of the supply chain is also important networks,” said Dragos Mircea Rebegea, Country Manager at Ericsson in order to no longer be dependent on a certain geographical region,” Romania and Head of Sales for Romania and Moldova, adding that Rebegea said. In the second quarter of 2020, 16 countries in the EU the future will bring networks with even better speeds. launched their 5G commercial networks. Currently, 5G population

All the members of this telecommunication ecosystem are start- coverage reaches an average of 27 percent in the EU, with Romania’s ing to discuss the implementation of software that goes beyond clas- at 33 percent. “It may be a surprise, but Romania is doing very well, sic functionalities, reaching industrial, B2B or B2B2C applications. even if we are now very late with the implementation of 5G technolThere is also a need for communication between remote devices, not ogy,” the Ericsson manager explained.

Mihnea Radulescu: We have an opportunity to move digitalization forward quickly

The importance of digital infrastructure and the investments needed to maintain it at a high level have never been as obvious as they are now. Mihnea Radulescu, Enterprise Business Unit Director at Vodafone Romania, talked about the critical role of digital infrastructure and the impact of technology on businesses continuity at Business Review’s Foreign Investors Summit in late October.

By Aurel Constantin

Technology and digitalization are playing important roles in our lives all the time, but even more so amid pandemic-related restrictions. “Technology is mostly seen as support for remote working these days, but it has many more uses and connotations. First of all, technology is pan-industrial; it is not invented for a single purpose. Today there are technologies such as the Internet of Things, that can cover any industry, any economic sector, from hospitality to industrial manufacturing,” said Mihnea Radulescu.

The crisis generated by COVID-19 is also creating opportunities and we should look at them with optimism. “In the life of a society there are moments when some steps can be skipped to move forward quickly. We often talk about our infrastructure, about roads, railways, utilities, and so on. But now we have an opportunity, a moment when there are extra EU funds that can be used to develop digital infrastructure. In Germany, for example, a lot of money is being spent on digitizing infrastructure. We have the chance to do this from scratch and it should be a very important area of development for Romania,” Radulescu explained. A second important area is represented by SMEs. “Small companies account for over 50 percent of the economy, which is a huge figure. In addition, SMEs employ more than 65 percent of the workforce, so we need to help this sector. Small and medium-sized companies will have to do business in a modern, digital environment. And we come back to European funds, because SMEs do not have much money on hand for investments in digitalization, especially during this time. But there is a large amount of money available at the European Commission – billions of euros – which will have to be spent in this sector,” the Vodafone executive added.

“As a solutions integrator, Vodafone needs to help companies understand the need for digitalization and how they can attract this money, as it will be an important opportunity in the coming years. It’s a chance for us to jump over certain stages, as we did when we launched mobile telephony in the late 1990s. Within two years, the number of mobile connections had surpassed the number of landlines,” he noted.

Digitalization doesn’t only mean finding solutions to various problems; it also brings on a lot of processes that must be integrated into a company’s activity. It can help create an ecosystem that keeps everything in check.

LIFE DURING THE PANDEMIC Technology helps us communicate and continue our work and there are many employees who have been working from home for months, since the beginning of the pandemic. And their behaviour, just like that of companies, is changing.

“Almost half of firms expect working from home to last for at least another year from now. We will be in this situation for a while and we must ask ourselves how to better adapt, since many employees miss the social interaction they had at the office. Productivity has increased since working from home started, but let’s not forget that people who spend all this time at home are affected both socially and physically. As providers of digital solutions, we must adapt to create the best solutions for companies and their employees,” Radulescu argued. Romania is ahead of many states in terms of the speed and resilience of its telecommunications infrastructure. “But investments in these networks must carry on despite the pandemic; we have a commitment to continue investing in order to maintain the quality of the network,” he concluded.

FIS speakers on Romania’s potential to attract valuable FDI

The pandemic has taken a toll on economies all around the world. According to multiple studies, the global volume of foreign direct investment (FDI) will drop by 30 to 40 percent in 2020. During the 7th edition of the Foreign Investors Summit, speakers from key economic sectors pointed to the fact that Romania could begin attracting higher value-added FDI.

By Anda Sebesi

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1. Lara Tassan Zanin, Head of the European Investment Bank’s Group Representation in Romania “A vision for a modern and competitive Romania has to be digital and green. Over the next two or three years, the country has to take advantage of the exceptional measures being deployed by the European Union – the Modernisation Fund and the Just Transition Fund – promoting a mix of public and private investments.”

2. Antoniu Panait, Manging Director at Vastint Romania

“Life must go on because we, as humans, are not trained to be locked into our homes. The pandemic has affected the business sector and the inertia that has worked so far is about to end. As long as businesses are restrained, jobs and salaries will be cut. As for us, we offer a framework which is as safe as possible for employers and together with them we can take additional measures to improve the safety of the employees in our office buildings.”

3. Ramona Jurubita, President of the Foreign Investors Council

“We’re seeing a lot of focus on public investments. We believe that public and private investments should go hand in hand, especially when talking about key sectors that we need to consider for further investments like infrastructure, digital infrastructure, education, and health.” 4. Andrei Cionca, CEO and co-founder of Impetum Group "Romanian managers expect the local economy to recover in a V shape and at the beginning of this crisis they estimated that this recovery would take 13 months for their companies, 15 months for the sector in which they operate, 22 months for the European economy, and 26 months for the national economy.”

5. Daniel Rusen, Director of Marketing and Operations at Microsoft

“Digital transformation is not just about technology. It is closely connected to people and to business leaders’ ability to plan the transformation of some business processes within a company. You need a vision and an organisational culture to adopt technology and you need to build digital skills so that people are able to use the new processes you are trying to implement.”

6. Dragos Mircea Rebegea, Romania Country Manager and Romania & Moldova Head of Sales at Ericsson

“The times we’re living in now have proven that connectivity is a key element of economic survival. Digitalization cannot be carried out without a strong backbone of reliable connectivity which works at very high parameters. Digitalization goes hand in hand with connectivity.”

7. Rudolf Vizental, CEO and co-founder of ROCA Investments

cept of globalization. And when something changes, it opens up a good opportunity to foresee the next trends. We’ve witnessed an acceleration of digitalization while gaps between some countries or sectors have deepened. It is time for us all to be courageous and make decisions. Most wrong steps are taken when standing still.”

8. Bogdan Patru, Public Policy Director at Mastercard

“We are seeing a real interest in implementing measures to accelerate digitalization in Romania. We’ve had a spectacular increase in electronic payments in Romania over the last nine months but it doesn’t have to be looked at only in light of the current context. However, the percentage of electronic payments in Romania’s GDP is still the lowest in Europe.”

9. Andreas Lier, CEO at BASF

“With its strong original equipment manufacturers (OEMs), automotive supplier footprint, and IT talent, Romania can and should have a much more prominent role in shaping and participating in the mobility trends of the future.

10. Mihai Boldijar, General Director at Robert Bosch and representative of the Bosch Group in Romania

“Romania may benefit less from the opportunities on the automotive market because of its lack of infrastructure and legal predictability, but these aspects do not make it impossible for our market to create high value-added products and services.”

11. Rusandra Sandu, Moderator, Partner and Head of the Corporate/M&A Department at Noerr

“The challenge of attracting FDI and the importance of promoting and supporting Romania as a safe investment destination are tremendous nowadays. The new reality should be seen as an opportunity to work on this more intensely and to highlight the fact that we offer plenty of advantages.”

Local insurance market mounts robust response to pandemic crisis

François Coste, General Director of Groupama Asigurari, highlights the way the coronavirus pandemic has challenged the local insurance market and outlines the main changes we will see in the coming period as a result of this complex crisis.

By Anda Sebesi

The current pandemic has caused a lot of problems for many industries and sectors, but the local financial sector is stronger than it was in 2008. While it was the very source of the crisis 12 years ago, the financial sector can now be one of the solutions to the economic downturn, as it has sound capitalisation and liquidity rates, which may serve as solid support for all other affected sectors. The European Solvency 2 rules, which were introduced in Romania in 2016 and include a yearly assessment of risks and their impact on each company as well as stress tests to ensure that companies can tackle most shocks, have been especially helpful.

However, the economic crisis caused by the pandemic is without precedent because it is generating a double shock: one in terms of demand and the other on the supply side. As for the Romanian insurance market, the COVID-19 pandemic has affected gross subscribed premiums, with a decrease of 1.9 percent recorded for Q2 2020 compared to the same period of last year, but overall the pandemic has not had a drastic negative impact on the market.

A positive change the COVID-19 pandemic has brought on the local insurance market has been an increased awareness of the risks to which people are exposed, as they have become more concerned about health, whether their own or their loved ones’, so they have started to understand the need for insurance. To this we can add the whole two months we all spent inside our homes during the lockdown, which showed each and every one of us how important our home is and how much we need to protect it. These perceptions will certainly have an impact on life and property insurance rates. However, it is impossible to pinpoint the pandemic’s long-term effects on any market or sector, simply because of the level of uncertainty that we are dealing with as the health crisis is still developing. It will be years before any of us will be able to assess

What impact has the pandemic had on the Romanian financial and insurance sectors?

the real impact of this crisis. Challenges also bring about opportunities. In your opinion, what opportunities are there for the Romanian financial sector, including insurance, during the pandemic? In my opinion, the acceleration of digitalization is the biggest opportunity for both the Romanian financial sector and the insurance market. The financial sector in particular has made great progress in its digitalization rates, as the restrictive measures imposed by the government led to a significant increase in the use of digital financial services. The pandemic has thus opened the door to endless digital possibilities and a total transformation of the financial sector.

Digitalization also represents an opportunity for Romanian insurers. At Groupama, we already had several digitalized services, which have helped us provide clients with what they needed in a safe and fast environment.

Another opportunity for the Romanian insurance market is the increased risk awareness. I also think that we will see changes in consumer behaviour. They will demand quicker transactions and will prefer direct contact with insurance providers through apps or other digital means. Also, given the changes caused by the pandemic, new vulnerabilities that are worth an insurance have appeared, for instance those related to cybersecurity, losing business data, and so on. Starting from here, insurance companies’ portfolios will diversify in the coming period to adapt to a new context.

How do you envision the future of the financial sector, considering that the current period is one of profound changes (in terms of both business and consumer behaviour)? In the future, I see a highly digitalized financial sector that provides its clients with personalised products that respond appropriately to their needs. Moreover, as we learn from experience, the financial sector of the future will be even more robust and able to face potential challenges and crises even better. Furthermore, the insurance sector will be better prepared to deal with unforeseeable catastrophic events and react accordingly. A pandemic was probably last on our list of likely risks, but Groupama reacted immediately and was the first insurance company to cover risks associated with COVID-19.

How prepared is the Romanian financial sector to cope with these challenges and what should it do to meet its clients’ ever-changing needs? Until now, it has been a real support for other sectors in the Romanian economy and will continue to be a pillar in the country’s economic recovery. Insurance companies are important contributors to the stability of the financial system, mainly because they support the continuity of individuals and companies impacted by the pandemic and also because they are major investors in the financial markets, which fund the state debt and public companies. They also safeguard the financial stability of individuals and companies by helping mitigate their risks. As consumer behaviour is fickle and changes regularly, it is important to always listen to what consumers have to say and respond with tailored offers.

How has the local market adapted to the new context? Are you seeing any consolidation on the market? The local insurance market quickly adapted to the context created by the COVID-19 pandemic, with insurers taking measures to protect their clients and employees alike. The Romanian insurance market’s results for the first half of 2020 were good, with gross premiums amounting to RON 5.6 billion in the first six months of this year, 3.4 percent above the same period of 2019, in spite of the 1.9 percent market contraction in Q2.

What we did at Groupama after the pandemic started, apart from protecting both our clients and our employees through a massive work from home programme, was to adapt our products to what our customers needed in the current context, by deciding to cover risks related to COVID-19 infections, breaking with the common practice of the global industry. Moreover, given that we had reached a high level of digitalization even before the pandemic, we were able to quickly adapt our operations without compromising on the need for social distancing or causing any inconvenience to our clients. For example, claims could be submitted and premiums could be paid online, and risk inspections for all non-life products were performed online, through an app installed on the client’s phone. How has Groupama performed in this context? Can you provide some figures posted by your company in 2020? 2020 saw Groupama keeping close to its clients, in a time of uncertainty and fear. Consequently, we managed to come up with tailored offers that responded well to our customers’ needs. As such, the biggest milestone for us this year was the introduction of COVID-19 coverage into our life, health, and travel insurance policies, which increased people’s trust in our ability to be there for them during difficult times. Moreover, we added domestic travel insurance to our portfolio in order to better serve our clients as domestic travel rates increased, which also enabled us to support local tourism. Groupama Asigurari also recorded a 33 percent increase in its gross subscribed premiums on the life insurance segment in the first half of the year compared to the value recorded in the same period of 2019. Last, the Groupama Group Head Office granted its subsidiary in Romania a 10-year subordinated loan of EUR 24 million. This is a prudent measure that enables us to navigate through the crisis regardless of its overall

impact on the industry. With this support, we have a solvency rate of 142 percent, which allows us to continue to invest in our offers, our technology and operational processes, and our team. This demonstrates our trust in the Romanian insurance market and its potential.

What are your plans for the future in Romania? We will continue to stay close to our clients and adapt to their needs through tailored offers and digitalized services. The next period will be governed by uncertainties for the whinole world until the health crisis is resolved, so the best leaders will be defined by two words: agility and adaptability. Business perspectives will be revived for many sectors when better treatment options are developed for the coronavirus, and especially when the vaccine appears, but that will take months to be produced and distributed globally. In the meantime, we will continue to anticipate trends and adapt to them in order to embrace our clients’ needs.

Apa Nova looking to reduce its impact on the environment

Andrei Hostiuc, deputy general director at Apa Nova, tells Business Review about the ways in which the company contributes to the circular economy in Romania and its main investments targets on the local market.

By Anda Sebesi

Upon signing the Concession Agreement with the City Hall of Bucharest 20 years ago, in 2000, Apa Nova became the concessionaire of the public water supply and sewerage services of the Bucharest Municipality. This year, the agreement was extended for a further 12 years, until 2037.

Two decades ago, Apa Nova committed itself to offering essential high-quality services to the inhabitants of Bucharest and its outskirts, under conditions of maximum safety. Moreover, the company’s daily performance is thoroughly evaluated based on the 23 service criteria stipulated in the Concession Agreement, which include technical and commercial performance indicators.

Apa Nova currently manages 2,508 kilometres of water pipes, a 2,380-kilometre long sewerage network, three drinking water production stations (Rosu, Crivina, Arcuda), 7 pumping stations, 37 re-pumping stations, and a treatment plant at Glina. At the same time, we monitor the quality of drinking water 24 hours a day and take daily samples from 54 fixed testing points which are distributed throughout Bucharest, each year performing over 6,000 tests through which

What services does Apa Nova currently offer?

we monitor 120,000 indicators. How do Apa Nova’s business practices reflect the principles of sustainability and the circular economy? Follow-on investments and upgrading the water and sewerage system are strongly based on Apa Nova’s access to the technical and managerial expertise of a world leader in the field of environmental services: Veolia. In today’s circular economy, in order to move from resource consumption to a use-and-recover approach, Veolia designs and implements solutions aimed at improving access to resources while protecting and renewing them and continuously reducing our impact on the environment.

To close the circular economy loop, the Group is enhancing its expertise on ecodesign in order to be able to provide better support to producers from the initial stages of designing their manufacturing processes to producing new materials from processed waste. We therefore contribute to generating new resources as wastewater is returned to the natural circuit and waste becomes reusable in production processes or is used as fertiliser in agriculture.

To sum up, the entire process consists of capturing the water from the Arges and Dambovita rivers and guiding it to treatment plants in Arcuda, Rosu, and Crivina for disinfection, filtration, and pH correction before it is distributed to homes in Bucharest and surrounding areas which the company

serves. The water circuit ends at the Glina wastewater treatment plant, where we collect it then treat it mechanically and biologically to return it to the natural water circuit. At the same time, the biogas generated during the treatment process is used to produce electricity and heat.

What is Apa Nova’s contribution to Bucharest’s transformation into a city of the future? Apa Nova will continue its efforts to improve the city’s water and sewerage infrastructure through strategic investments, something that is needed not only in Bucharest, but in other major European cities as well. At the same time, the company has responded and will continue to do so immediately and pointedly to all strategic urban and metropolitan development project, including of course the city’s Master Plans for development, financing applications or digitalization projects.

Through the addendum signed in August 2020, Apa Nova has agreed to invest a total of EUR 367.9 million in four primary strategic axes, but mainly in combating the effects of climate change phenomena: reducing flooding risk in central and depression areas by extending the rainwater and household sewerage network by more than 94 km, adapting the water infrastructure to current needs and urban development stages by resizing the water distribution system in Bucharest and its surrounding areas – an investment project that will benefit over 645,000 inhabitants –, and extending the water and sewerage networks by 132.8 km and 91.4 km respectively, according to the urban development plan.

What is Apa Nova’s digitalization strategy for the next 5 years? In recent years, Apa Nova has made major investments in digitalization and will allocate several million euros to continue and even accelerate this process. We are talking about the digitalization of processes related to production, operations, support services, customer service, and human resources management.

Our company has implemented and is constantly looking for innovative operational technologies, from applications enabling automatic control of water treatment plants, treatment and pumping processes, smart metering or online water quality monitoring to software solutions that can predict and detect losses and emergencies or even automate billing and customer interaction processes.

At the moment, our field teams are equipped with tablets and use a digital tool to automatically take work orders and request the delivery of materials directly to their location. Communication is thus instantaneous and downtime has been eliminated.

Digitalization remains a top priority for us, and so does developing a well-defined digital ecosystem that is receptive to the current needs of the market, to help the company evolve, collect data, and analyse it quickly in order to save resources and be more efficient. Having undergone a complex business transformation process over the last 5 years, Apa Nova is now in the Continuous Improvement stages, which aim to deepen and expand the digitalization of processes within the company by integrating technology into all operations. This stage involves continuously developing and increasing our teams’ digital skills, which is why we use an internal e-learning platform and we have created a custom structure dedicated to digital transformation.

Chimcomplex puts Romania on European chemical industry map

Chimcomplex president Stefan Vuza sat down with Business Review to talk about the importance of the chemical industry for the Romanian economy and the way it has adapted to the current context to become an even bigger player on the local scene.

By Anda Sebesi

Does Romania need new policy for the chemical industry? If so, what should it look like and what would our country stand to gain from this policy? Yes, because Romania can become part of the European value chain. There are PanEuropean projects and investments that can be made to cover demand for products of strategic importance to Europe. Romania's chemical industry has the capacity, the knowhow, and the ability to develop innovative technologies to respond to the challenges we face today and in the future. The Green Deal was designed as a turning point for Europe, and the chemical industry is ready to support the goals it lays out. The pandemic was one of the many cases in which we showed that our sector was resilient and reliable – when we pushed our capacity limits to meet the exponential growth in demand for disinfectants and products used in the development of protective gear. Oltchim and Chimcomplex are two emblematic and strategic chemical plants in Romania, and they are the only industrial platforms with fully Romanian capital to have continued operating throughout the transition of the last 30 years. These two platforms are crucial for Romania to remain a strategic industrial player in the region until 2030. Back in 1990, Romania used to export chemicals worth EUR 34 billion per year, and now it imports EUR 8 billion worth of chemical products every year. The chemical industry generates the largest share of the country's foreign trade deficit, with EUR 7 billion, but at the same time it has all it needs to become one of the biggest growth engines for Romania's economy.

What kind of projects has Chimcomplex developed around the circular economy and energy efficiency? We have ambitious projects in the field of energy efficiency (photovoltaic energy and 100 percent cogeneration on green hydrogen) integrated with high performance technological processes (nanotechnology in electrolysis generating green hydrogen). Our general objective is to continuously improve and raise the efficiency of production processes and to increase the quality of life in the communities where we operate, by ensuring well-being, environmental protection, and economic and social cohesion. The impact of investments in the region’s sustainable development will ensure job stability for Chimcomplex employees and over 5,000 employees from companies which are linked to us both horizontally and vertically.

What are the Romanian chemical industry’s financial needs? We need to operate in the same economic environment as our major European and global competitors, which benefit from the liberalisation of energy prices, state guarantees for investments, and access to European funds. We need access to the EUR 9 billion the European Commission provides through the EU 4Health programme, but we need decision-making and political support in competition with other countries that are strongly lobbying in Brussels.

What are Chimcomplex’s main products and how do they meet the needs of the region and contribute to a higher quality of life? In addition to chlorosodium products, we also produce a wide range of other chemicals. The products manufactured by Chimcomplex are used daily to produce thousands of other safer and more durable products: from polyurethane shoe soles and car seat foam to PVC prosthetic limbs, titanium aircraft wings, and batteries for hybrid cars.

Our products are used in several fields, including the automotive, furniture, plastics, textiles, sugar, metallurgical, pharmaceutical industries, in the production of bleaching agents, soaps, detergents or road defrosting substances, in refining petroleum products, manufacturing cellulose, purifying free fatty acids in the oil industry, in water treatment facilities, thermal insulation, and the list can continue.

Top 4 trends on global investment map and how Romania can react

COVID-19 has generated a steep economic decline. As companies face the realities of falling revenues and shrinking profits, understanding new foreign direct investment (FDI) trends is crucial as the UN is predicting a 40 percent drop in FDI levels this year. The big question is: what are the latest trends in FDI and how can Romania adapt to the new reality?

By Claudiu Vrinceanu

According to the United Nations’ 2020 World Investment Report, global FDI flows are estimated to drop by up to 40 percent this year, decreasing well below their value of USD 1.54 trillion in 2019. The trend is expected to deepen in 2021, with a 5 to 10 percent drop, and only in 2022 do we expect markets to start recovering. This crisis may open up a window of opportunity for Romanian authorities to re-examine their approach to investment attraction and retention, with a focus towards increasing the integration of FDI within local economies. 2. THE DIGITALIZATION OF BUSINESS ASSISTANCE SERVICES Many governments and Investment Promotion Agencies (IPAs) have used creative digital solutions to assist firms in the context of COVID-19. This could also be the path for Invest Romania, our governmental investment body, whose focus should be on scouting for potential investors, identifying their concerns, and facilitating their access to support services offered by local authorities. The Romanian government should accelerate the digitalization of certain marketing services and create a new online platform to promote Romania. This might be a good way to cope in the post-lockdown recovery. Some good ideas could include organising virtual site-selection visits to assist in project definition or organising training for staff and webinars for firms to facilitate e-learning opportunities via existing platforms. Online surveys could also be conducted to better assess the impact the crisis is having on companies. 3. COMPANIES ARE RETHINKING THEIR SUPPLY CHAINS Companies are also likely to begin rethinking their supply chains in the medium and long run and the direction of these changes will depend on how companies balance risk mitigation with cost efficiency, among other factors.

The effect of this phenomenon is predictable for Romania: a vertical integration of agricultural producers towards better processing/industrialisation of their products. In this context, large producers probably already have solid plans and will adapt their strategies to the crisis by reducing costs in production and logistics. It is an opportunity for mediumsized producers to diversify and invest in the food industry (in processing - cheeses,

The Romanian government should accelerate the digitalization of certain marketing services

1. THE DECLINE OF FDI

sausages, and in semi-prepared foods). 4. THE RELOCATION OF MANUFACTURING CAPACITY Romania may be able to attract new manufacturing capacity as the global economy undergoes major changes in the context of the COVID-19 pandemic. According to a report from Colliers International that looks at the regional industrial market, Romania in particular is noted in the report as a highly competitive location, both in terms of costs and its significant increase in industrial production in recent years. It is worth noting that in Romania, the gap between value added per employee and labour costs is slightly below that of China, which is also true of neighbouring countries, with some small differences.

But what can Romania do better? Innovation remains the region’s Achilles’ heel, with Romania scoring far below other European countries in the World Economic Forum’s competitiveness indicators. However, Romania has managed to significantly close its gap with EU countries and other developed nations over the last couple of decades in terms of infrastructure and institutional quality.

Going global in the US: why it’s hard for Romanian companies to develop in America

It has become very difficult for European companies to develop in the US

Medijobs, a digital platform focused on healthcare recruitment, has also opened its first office in New York and plans to consolidate its presence on the US East Coast. DocProcess, a Romanian technology company with an international footprint, has launched a new brand positioning and it is looking to gain new clients in the United States. Last but not least, Druid, a Romanian company that develops chatbot technology for large companies, intends to expand rapidly in the United States in the context of a new investment round it obtained this year.

New research suggests that it has become very difficult for European companies to develop in the US, as it has become more expensive and as opportunities in Europe have improved. This results in European startups being much less committed to a US launch. New research by Index Ventures today reveals that less than 1 in 5 (50 out of 275) European tech firms are choosing to relocate their engineering base as they expand to the US, although this would have been part of the general strategy a decade ago.

The survey of 275 European startups over the last 10 years shows that creating US-based engineering, tech, and R&D teams has fallen out of favour, and they are staying in Europe for longer, taking advantage of the region’s much-improved availability of talent and funding. Even if you have global ambitions and the US represents a large share of your addressable market, you still need to carefully pick the right time to build your US presence.

Index Ventures research into European expansions to the US revealed that 59 percent of startups expanded to the US pre-Series A in the period between 2008 and 2014. This dropped to just 33 percent for the 2015-19 cohort. So most European founders are now holding back expansion until after Series A. Few Romanian tech startups have scaled globally and managed to establish a relevant presence in the United States to achieve the kind of growth they wanted. Success stories include the well-known UiPath, with offices in New York, Houston, Seattle, and Austin and Typing DNA, headquartered in New York. Based on these two business cases, we might say that founders must relocate to the US to maximise their companies’ success.

By Claudiu Vrinceanu

on multiple fronts. In January, they hired a US Sales leader following a search process, according to the Index Ventures study. He had solid experience and ran the US until recently, building inside and field sales teams. Later, a top Romanian sales rep moved over to support him. Pre-sales was covered through a lot of travel by the Romanian team. Daniel Dines, the founder and CEO of UiPath, started spending four or five months per year in New York. “My being in NY wasn’t significant for closing US sales. But it helped for hiring US execs,” he said. It is often claimed that a successful US expansion requires the founder to relocate, but the reality is more nuanced. According to the Index Ventures survey of European startups that have expanded to the US, 46 percent believed that it was critical for a founder to move to the States, but in fact, only 36 percent of them actually made the move. Even in the outlier list of European successes in the US, only 40 percent of founding CEOs had moved to the US.