Business Review Issue 1, January - February by Business Review

INTERVIEW: Florian Nitu, managing partner at Popovici Nitu & Asociatii, shares his expectations for the local M&A market this year, after the robust recovery of 2014, backed by fresh capital made available within new transactions »page 12

ROMANIA’S PREMIER BUSINESS MAGAZINE

JANUARY, 2015 / VOLUME 19, ISSUE 1

GERMAN & AUSTRIAN INVESTMENT AUSTRIAN AND GERMAN INVESTORS SAY A LACK OF SKILLED WORKERS REMAINS AN ISSUE ON THE LOCAL LABOR MARKET » PAGE 16

INVESTORS’ HOPES FOR 2015

After an election year that saw many investments put on hold, the future looks brighter with hopes resting on new legislation and a new president » page 18 TELECOM

Digital game In anticipation of the digital switchover, a new tender for the allocation of further television licenses will take place by the end of the month

» page 10

www.business-review.eu Business Review | January 2015

NEWS 3

NEWS in brief ENERGY

PwC: local CEOs optimistic about their firms’ growth perspectives

Enel banks on selling local assets in 2015

Some 44 percent of Romanian CEOs are very optimistic about their companies’ revenue growth perspectives in the next year, up from 39 percent last year, according to the results of PwC’s Global CEO Survey 2015. Another 40 percent of respondents are moderately optimistic about revenue growth in 2015. On the medium term, Romanian CEOs’ outlook is even more positive, with 54 percent stating that they are highly conﬁdent in their companies’ growth perspectives in the next three years (more than the global average of 49 percent). However, the global economic situation still gives them cause for concern, found the survey.

Italian utility company Enel will sell its assets in Romania and Slovakia this year, according to Francesco Starace, the group’s executive director. The company oﬃcial says the ﬁrm has already received offers for its assets in the two countries.The Italian government owns a 30 percent stake in Enel and is currently interested in restructuring the company. Starace said that he will draw up a plan with this goal in mind and present it by March.

E.ON Romania finishes merger of distribution assets

INSURANCE

HUMAN RESOURCES

MACRO

Human capital return on investment (HC ROI) in Romania rose 4 percent last year to 1.30, calculated as the number of monetary units generated by each employee for each monetary unit invested in her salary, according to the PwC Saratoga 2014 study. The proﬁtability of human capital in Romania is 16 percent higher than the European average (1.12) and above the Central and Eastern European average (1.28), said PwC Romania oﬃcials.

Real estate builds on hopes for further growth in 2015

Gross minimum wage and public sector pay to rise in 2015

10 Romania prepares to go digital in 2015 11

Media budgets set for growth in 2015

ING Asigurari de Viata to become NN Asigurari de Viata in April

14 Local M&A market ‘posted robust recovery in 2014’ 15

What’s new, what’s old in tax in 2015?

Austrian and German investors raise ﬂag on lack of skilled local workers

18 How is the investment climate shaping up in 2015? 24 Taking steady steps towards market development 26 Operetta and Musical Theater marks move to new home with Phantom of the Opera 27 Mall the cinema’s a stage… 27 Adrian Ghenie project to represent Romania at 2015 Venice Biennale 28 Pop up: bringing the international hits to Romania 28 Business by the book 29 Film review: Mommy 29 Turning up the heat: UK yoga concept takes Romanians to 37 degrees

E.ON Romania, part of German utility group E.ON, announced this month that it has completed the merger of its two distribution ﬁrms into the ﬁrst integrated gas and electricity distribution company on the Romanian market. E.ON Distributie Romania began its activity on January 1. The merger started in 2009 and involved the absorption of E.ON Moldova Distributie by E.ON Gaz Distributie. E.ON Distributie Romania operates a 20,000 km distribution network for natural gas, as well as an 80,000 km network for electricity which serves 3 million customers, covering counties in northern Romania.

Local employee profitability up by 4 pct in 2014

Contents

ING Asigurari de Viata rebrands itself as NN Asigurari de Viata ING Asigurari de Viata, which covers over one third of the Romanian life insurance market, will change its name in April to NN Asigurari de Viata, to underscore its aﬃliation to its mother group. Likewise, ING Pensii will become NN pensii and ING Investment Management will change into NN Investment Partners. The local insurance, pensions and investment divisions will launch a EUR 10 million campaign to announce the move.

IMF revises upwards growth forecast for European emerging economies The International Monetary Fund (IMF) has revised upwards its economic growth forecast for European emerging economies, Romania included, to 2.9 percent for 2015. The previous growth forecast, announced in October last year, was 2.8 percent. The region’s most recent projection for 2016 is 3.1 percent, up from 2.9 percent estimated in October. In mid-January the European Bank for Reconstruction and Development (EBRD) announced that it was maintaining its 2015 economic growth forecast for Romania at 2.8 percent. The local economy is expected to beneﬁt this year

ISSN No. 1453 - 729X FOUNDING EDITOR Bill Avery PUBLISHER Anca Ionita EDITOR-IN-CHIEF Simona Fodor JOURNALISTS Simona Bazavan, Raluca Comanescu, Otilia Haraga, Anda Sebesi, Tatiana Lazar COPY EDITOR Debbie Stowe PHOTO EDITOR Mihai Constantineanu LAYOUT Beatrice Gheorghiu ART DIRECTOR Alexandru Oriean PUBLISHER Bloc Notes Media ADDRESS No. 10 Italiana St., 2nd ﬂoor, ap. 3 Bucharest, Romania

EXECUTIVE DIRECTOR George Moise SALES & EVENTS DIRECTOR Oana Molodoi SALES & EVENTS Sales managers: Ana-Maria Nedelcu, Oana Albu, MARKETING Ana-Maria Stanca, Ana Maria Andrei, Iulia Mizgan PRODUCTION Dan Mitroi DISTRIBUTION Eugen Musat LANDLINE Editorial: 031.040.09.32 Oﬃce: 031.040.09.31 EMAILS editorial@business-review.ro sales@business-review.ro events@business-review.ro

www.business-review.eu Business Review | January 2015

4 NEWS

NEWSin brief from the oil price depreciation, increasing investments and an improvement in consumer conﬁdence, according to the EBRD.

Small hike in INS Q3 GDP growth Romania’s gross domestic product (GDP) grew by 3.3 percent in the third quarter of 2014 compared with the year earlier, according to revised data from the country’s National Institute of Statistics (INS). “The GDP estimated for the third quarter of 2014 was RON 168.3 billion in current prices, up by 1.8 percent in real terms on the second quarter of 2014 and 3.3 percent compared to the third quarter of 2013,” stated the INS. The institute initially reported GDP of RON 167.07 billion for Q3 2014, representing a 3 percent year-on-year increase.

MEDIA Court prolongs custody for MediaPro and Mediafax suspects The individuals arrested in December under suspicion of money laundering and tax evasion at MediaPro and Mediafax will remain in custody for another month, after a court extended the period for which they can be held, according to Paginademedia,ro. In the MediaPro case, 11 people charged with tax evasion and money laundering were taken into custody in December for a total of 30 days. They were held under suspicion of depriving the state budget of approximately RON 6 million in unpaid VAT and proﬁt tax.

Media agencies fined by Competition Council conspired against The Group The 11 media agencies ﬁned EUR 3.2 million by the Competition Council (CC) for forming a cartel, had agreed in 2012 to eliminate competition from the agencies of The Group, according to the CC, which published its detailed reasoning in the case in January.The agencies had meetings, discussions and exchanged correspondence “to remove the risks from the competition, especially through common actions, saying they would participate in some tenders depending on whether The Group was invited or rejected.”

4.4716/CHF, according to the oﬃcial exchange rate announced by Romania’s central bank. This was a new all-time record for the exchange rate between the two currencies. The currency spike comes after the Swiss bank abandoned its currency cap against the euro on January 15. The following day the CHF was up by 15.7 percent against the RON to reach RON 4.3287/CHF. It is estimated that around 200,000 Romanian borrowers have loan repayments in Swiss francs.

ONLINE Local Facebook users up 8.6 percent to 7.6 mln The number of Romanian accounts on Facebook reached 7.6 million in 2014, up 8.6 percent year on year. Out of this, 1.48 million live in Bucharest, according to facebrands.ro, the local Facebook monitoring service. Cluj-Napoca, Iasi, Timisoara and Constanta are next in line with over 200,000 Facebook users each. Nine other Romanian cities, namely Craiova, Brasov, Galati, Ploiesti, Oradea, Arad, Bacau, Pitesti and Sibiu, have over 100,000 users. The number of Romanian pages created on the social network also increased in 2014 by 12.8 percent, to 26,785.

POLITICS Iohannis wins incompatibility case Romanian president Klaus Iohannis won the case filed against him by the National Integrity Agency (ANI) after the Supreme Court rejected the ANI’s appeal. This final ruling confirms that Iohannis was not in a position of incompatibility when, as mayor of Sibiu, he represented City Hall in the general shareholders’ meeting of the companies Apa Canal and Piete. In April 2013, ANI found that Iohannis was in an incompatible situation but the now-president contested the decision at the Alba Iulia appeal court, which in September 2013 ruled in his favor.

Swiss franc hits new high against RON The Swiss franc (CHF) gained another 1.1 percent against the Romanian leu (RON) on January 19, reaching RON

TELECOM Nearly 800 remote villages to be connected to internet this year

February 1 New VAT rules The procedures for registering for VAT purposes will change for companies from February 1, after ANAF sent the revised system to be published in the Ofﬁcial Gazette on January 20. The amended procedures include a new form that companies will have to ﬁll out to justify their economic activities. Form 088 includes a questionnaire with different possible scenarios that owners need to be prepared to deal with and will have to be submitted at the same time as form 098.

By the end of 2015, 783 isolated villages in Romania will be connected to the internet as part of a RO-NET project, according the Ministry for the Information Society. The ministry began to roll out the project on December 18, 2014. The venture, co-financed through the European Regional Development Fund, will cost approximately RON 377 million (some EUR 85 million) out of which around RON 252 million is non-reimbursable. Romania ranks 13th in CEE for tablet and smartphone data traffic Romania was ranked 13th out of 18 countries in Central and Eastern Europe for data traffic from mobile gadgets. Data traffic from smartphones and tablets reached 9 percent in June 2014, compared to just 1 percent in January 2011, according to data from Polish research company Gemius, quoted by Mediafax newswire. Romania still ranks below the European average as far as data traffic from mobile devices is concerned, which at the moment stands at 10 percent.

February 6 Kids, cars and ﬁnes Drivers that fail to use special car seats or seat belts for the safety of their children will be ﬁned RON 450, under changes to the national road legislation that will come in effect on February 6.

TOURISM

February 25 New stock market for SMEs Bucharest Stock Exchange BVB will launch a new stock market dedicated to small and medium enterprises (SMEs), called AeRO, on February 25, according to a statement by Ludwik Sobolewski, CEO of BVB, in December.

Bucharest HoJo becomes Sheraton Starwood Hotels & Resorts Worldwide Inc announced it would introduce the Sheraton brand on the Romanian market after signing a franchise contract with SC Grand Plaza Hotel SA, the owner and operator of the Grand Plaza Hotel in Bucharest. The hotel has until now operated under the Howard Johnson brand.The franchise contract with SC Grand Plaza Hotel SA marks the start of the rebranding process of the 270 rooms of the hotel into a new Sheraton.

February 15 New Fiscal Code The new Fiscal Code and Fiscal Procedure Code will be completed by the government by February 15 and submitted to Parliament by March 15, to be debated and adopted, according to Prime Minister Victor Ponta. February 23 German / Austrian Investors’ Forum The sixth German and Austrian Investors Forum will look at the year to come through both the investors’ and authorities’ perspectives, trying to identify solutions to improve the economic environment and attract new investments on the local market.

MOST READ www.business-review.eu 1 Romanians, biggest New Year’s Eve ‘party animals’ in the world

SMES Romania last for active SMEs in EU

MONEY

the lowest density of SMEs from all EU 28 countries. However, Romania ranked eighth in the EU for the percentage of SME employees of the total workforce.

MONTH AHEAD

Romania is in last place in the European Union for the number of active small and medium enterprises (SMEs), and 17th for the added value brought by SMEs, according to a survey by the PostPrivatizare Foundation. The country has 426,295 active SMEs, with a total of 2.71 million employees, which represents

Local tourists spend EUR 36.4 mln on New Year’s holiday Over 161,000 Romanian tourists spent some EUR 36.4 million on New Year’s travel packages and parties, according to data from the Romanian Federation of Tourism Employers (FPTR). One major trend this season was that the number of tourists that chose local destinations was up by 38 percent y-o-y, to a total of 152,000. The remaining 9,000 tourists traveled abroad, down by 12 percent y-o-y.

2 Robbie Williams coming to Romania for the ﬁrst time in 2015

3 President Klaus Iohannis will take part in Charlie Hebdo solidarity march in Paris

4 Romanian executive Adrian Viman promoted to run Kauﬂand Germany

5 Swiss franc soars with dramatic effects for Romania’s banks

www.business-review.eu Business Review | January 2015

NEWS 5

WHO’S NEWS

BR welcomes information for Who’s News. Submissions may be edited for length and clarity. Get in touch at simona.bazavan@business-review.ro

Monica Botez

Alex Milcev

has been promoted to managing partner at Golin, replacing Hortensia Nastase. Botez joined the PR agency in 2008 as PR manager and moved on to become head of the corporate division in 2011 and partner in 2012. She has over ten years of professional experience in PR.

is the new head of the tax and legal practice at EY Romania. He is replacing Venkatesh Srinivasan who is leaving Romania to take on a global executive role for EY in his home country, India. Milcev has been a partner at EY since 2006. Over the past 17 years he has amassed considerable professional experience as a tax consultant. He has advised clients on both domestic and international tax matters involving complex restructuring projects, privatizations, tax compliance and tax optimization projects. Milcev is also an expert on transfer pricing. He is a founding member of the Chamber of Tax Consultants in Romania and a member of AmCham.

Mihail Ion is the new president of CFA Romania. He is the regional corporations and public sector director and president of Raiffeisen Asset Management. The association’s general assembly has also elected Emilia Bunea, CEO of Metropolitan Life Romania, and Adrian Codirlasu, market risk director at UniCredit Țiriac Bank, as vice-presidents. Razvan Szilagyi, CEO of Raiffeisen Asset Management, was elected secretary while Cristian Popa, investment director at ING Asigurari de Viata, was appointed treasurer.

Hortensia Nastase has been appointed vice-president by Lowe group in charge of coordinating its creative agencies – Lowe&Partners (Creative), Golin (PR) and Vibe (BTL).

The group’s new management structure also includes Veronica Savanciuc as president and CEO and Octav Popescu as COO and VB media & digital services. Nastase has previously worked for Golin where, since 2008, she held the managing partner position. She has over 15 years of professional experience in communication.

Alina Necula has been appointed head of marketing at Immofinanz Group’s local branch, the Austrian real estate company has announced. For the past two years she has held the same position at Adama Group, a residential developer fully owned by Immofinanz. Necula will maintain this position as well. Her recent appointment is meant to optimize marketing activity through local expertise and to ensure synergy and efficiency at group level, said Immofinanz representatives. Necula has been working for Adama for the past seven years. She has over ten years of professional experience in marketing and sales, having held various positions over the years.

Roxana Popel has joined CMS Romania as head of its recently created tax department. Her professional background is in tax and ﬁscal advisory and she had worked for PwC for the past 15 years, most recently as tax director. Popel specializes in several areas including corporate tax, cross-border tax structuring, tax auditing and due diligence.

Aura Zaharia has joined ProTV’s team as CFO, replacing Matei Drimboceanu. She has over 18 years of experience in ﬁnance and auditing and in the last ten years has worked as CFO for Grivco Group, Antena Group, Tiriac Auto and DTH Television group. Zaharia previously held the position of regional ﬁnance director for Metromedia Telecom Group and audit manager for KMPG Romania.

www.business-review.eu Business Review | January 2015

6 reAL estAte

briefs Afi europe begins extension works on Afi Palace Cotroceni Real estate investment and development company AFI Europe has begun extension and reorganization works on the AFI Palace Cotroceni shopping mall in Bucharest, its ﬂagship project on the local market. The area occupied by fashion retailer Reserved will be expanded to 2,000 sqm and two other fashion brands – Mohito and Sinsay – will become tenants. Also, Starbucks will reopen a coffee shop. The mall’s GLA will increase to 82,000 sqm and the developer says it is working on plans to add another 8,000 sqm.

real estate builds on hopes for further growth in 2015 The last year was the best so far since the crisis for the local real estate market and there are reasons to be optimistic about 2015 as well, say pundits. BR hears insiders' predictions for each segment and learns what new developments could lie ahead.

Luxoft rents additional space in Novo Park IT services company Luxoft has leased an additional floor in the 75,000 sqm Novo Park office complex in northern Bucharest, announced Genesis Development, the office project’s developer and owner. The expansion was possible because another tenant relocated after its lease contract expired.

first Home program gets eUr 557 mln allocation in 2015

Photo: Mihai Constantineanu

The authorities have allocated RON 2.5 billion (approximately EUR 557 million) to the government-guaranteed mortgage program for ﬁrst-time buyers, First Home (Prima Casa), in 2015. To this will be added funds left unused from last year. A bill will be debated in February on whether the program should include homeowners who want to sell their current properties and purchase a larger home.

bucharest’s ParkLake shopping mall reaches 70 pct occupancy rate ParkLake, the 70,000 sqm shopping mall developed by Sonae Sierra and Caelum Development in Bucharest’s District 3, has signed “and/or committed” some 70 percent of its GLA, according to the developer.The most recently signed tenants are Zara, Bershka, Massimo Dutti, Stradivarius, Pull&Bear, Zara Home and Oysho – all of them belonging to the Spanish fashion retailer Inditex Group – H&M, Koton, Maxitoys and Maxbet. The EUR 180 million ParkLake shopping mall in the Titan neighborhood of Bucharest should be completed in 2016.

Afi europe delivers third building of Afi Park in bucharest Real estate investment and development company AFI Europe has completed the third building of its AFI Park oﬃce project in Bucharest. The 12,200 sqm (GLA) class A oﬃce building required an investment of EUR 20 million and is fully leased to Endava Romania and TELUS International. Presently the developer is working on completing the project’s remaining two buildings.

High hopes: 2015 has the premises to be the best year for the local residential market since 2008, say pundits

∫ simoNA bAzAvAN One of the main markers on the local real estate market in 2014 was that the investment volume reached a whopping EUR 1.2 billion to EUR 1.3 billion, up from EUR 300 million the previous year and the highest level since 2007. This was the result of several large transactions being closed and it is unlikely that the same scenario will repeat itself in 2015, Andrei Drosu, research consultant at JLL, told BR. Nevertheless, the trend is positive and one major change this year could be the entry of new investors on the local market after it continued to be split between two players in 2014 – real estate investment funds New Europe Property Investments (NEPI) and Globalworth Real Estate Investments, which is controlled by Greek businessman Ioannis Papalekas.

“The country’s economic growth, its political stability and also the difference in yield levels between Romania and Western markets persuaded new players to look closely at local investment opportunities in 2014. Funds which a few years ago didn’t consider Romania a viable market are now active and looking for incomegenerating properties. This has also been fuelled by the availability of high capital volumes on Western markets,” said Razvan Sin, head of capital markets at DTZ Echinox. Potential new investors in 2015 include both existing real estate players that haven’t made any recent acquisitions as well newcomers to the local market. They are interested mostly in oﬃce projects, not only prime projects but also secondary ones, he added. As for why the scene continues to be dominated by only two players,

lack of know-how about the Romanian market is the main reason, said Sin. “It is hard for them (e.n. newcomers) to learn how the local market works. For example, in the case of ofﬁce projects, what scares them is uncertainty about sustainable rent levels given that new projects are being developed. Local players are so active because they not only have the funds but they also have this sort of knowhow,” he concluded.

2015 new office stock remains constant, demand on the rise Office was the most dynamic real estate sector in 2014 and it will most likely maintain the position this year as well. Around 120,000 sqm of new office space is expected to be delivered in 2015 in Bucharest, similar to the volume delivered the previous two years,

www.business-review.eu Business Review | January 2015

said Drosu. During the same time period demand has been constant at about 300,000 sqm each year while prime rents in Bucharest have maintained the same level since 2012 at EUR 18.5/sqm/month, he went on. The vacancy rate has decreased to around 13 percent and a slight fall is expected this year “as the new takeup will most likely exceed the new deliveries,” he added. Overall, the outlook is positive. “In 2014 we took part in important pitches to lease office spaces for the 2016-2017 period (consolidations and expansions), which goes to show that business is growing and tenants are confident in taking up long-term engagements,” said Madalina Cojocaru, head of the office department at DTZ Echinox. Companies from telecom, IT and outsourcing have been the main growth drivers in 2014 and this year banking is expected to have a more significant contribution as well.

Demand for retail space on the rise

reAL estAte 7 speculative developments awaited on industrial segment in 2015 The industrial segment experienced something of an effervescence in 2014 with over 180,000 sqm leased (100,000 sqm of which was in Timisoara) and a major transaction taking place – the acquisition of Europolis Park in Bucharest by Czech company PointPark Properties (P3). “We are optimistic that this dynamic trend will continue in 2015: the market will enter a new phase of speculative developments and will settle into a more solid position after a cycle of more than ten years during which all phases have been experienced – from development to boom, maturing, fall and stagnation," said Rodica Tarcavu, head of the industrial department at DTZ Echinox. Drosu too believes that the industrial market “has strong fundamentals to positively surprise in 2015”. Several investment transactions are expected to take place as well as new developments or extensions of existing projects. All this is fuelled by the increasing demand for new quality spaces and by “the more aggressive stance of new investors coming to Romania,” he noted.

Two major shopping malls are scheduled to be delivered this year in Romania – the 70,000 sqm GLA Mega Mall project in Bucharest which is controlled by New Europe Property Investments (NEPI) and the first phase of Coresi Shopping Resort Brasov (45,000 sqm GLA) developed residential market awaits its by Immochan Romania. By compari- turn son, in 2014 only about 62,000 sqm of “In terms of market dynamics and the modern shopping space was deliv- number of transactions, 2015 has the ered, marking the lowest annual level premises to be the best year for the since 2006. local residential market since After four years during which most 2008,”Adrian Erimescu, general direcretailers concentrated more on con- tor of online real estate platform Imosolidation and brand repositioning biliare.ro, told BR. One reason for this and less on expansion, 2014 saw a is that prices have stabilized and have more dynamic evolution which is ex- even grown on certain segments, a pected to continue this year as well, trend that has been constant throughaccording to representatives of DTZ out the past 12 month, he said. Also, Echinox. developers are investing more in the “We see increased interest coming marketing of existing projects and are from regional retailers, especially starting new ones which, although from Poland and Turkey, that have mostly small and medium sized dereached a peak on their domestic velopments, are better suited to the markets and are deciding to expand existing demand. to Romania because of consumption “At the end of 2015 we will defisimilarities and a certain economic nitely be able to say whether the resistability that has been confirmed over dential market has entered a new the past years,” said Sebastian Mahu, cycle, a growth cycle,” predicted Erhead of the property management de- imescu. partment at DTZ Echinox. One important development last Retailers such as Polish fashion year was the advance of the luxury group LPP, Debenhams, Marks & residential segment, a trend that is Spencer, Pepco and CCC are among expected to continue in 2015 as well, the players thought most likely to according to Mihaela Pana, head of open new outlets in 2015 and there the residential department at DTZ could also be new names coming to Echinox. “Some of the projects althe local market, says Drosu. ready under construction will be “Moreover, we might witness some completed and others will be started. important mergers and acquisitions, The number of clients that buy for inmainly in the food sector, and the re- vestment purposes will be on the rise vival of some existing shopping cen- as they come to understand that ters with poor performances through prices are on a slightly increasing new asset management initiatives, re- trend and this is the best time to buy furbishments or expansions that will high-end residential properties,” she render them worthy competitors for commented. the new generation of shopping premises,” he predicted. simona.bazavan@business-review.ro

www.business-review.eu Business Review | January 2015

8 labOr market

gross minimum wage and private sector pay to rise in 2015 Several changes in the legislation on employees’ annual leave and a rise in the minimum gross wage are expected this year, while the state needs to step up large investments to create jobs, say pundits. Meanwhile, salaries are tipped to increase in the private sector, as business leaders anticipate they must give raises and invest more in training to hold onto their highly skilled people.

The productivity of Romanian employees as compared to the investment that their employers have made in them has increased

∫ Otilia Haraga “The start of infrastructure projects, such as building highways or the largescale rehabilitation of buildings that are economically inefficient, could employ skilled and unskilled workers in construction, a field that did not fare well in 2014, due to the severe curtailment of public investments in large infrastructure projects,” Catalin Micu, managing associate at Zamfirescu Racoti & Partners, told BR. He suggested the state encourage major investments by adopting fiscal relaxation measures that would facilitate the hiring of the many skilled individuals made redundant when small

businesses went bankrupt under economic stress. “If major infrastructure investment projects could be initiated through the absorption of European funds, encouraging investments in signiﬁcant businesses through ﬁscal relaxation measures would require agreement between local and central decision makers, which will be hard to achieve in 2015,” he said. Also planned for this year is a rise in the gross minimum wage, which will increase in two stages. On January 1, the sum increased from RON 900 to RON 975. The second hike will come into effect on July 1, 2015, when it will reach RON 1,050. “In the second half of 2015, depend-

ing on whether quarterly or half-year results indicate potential economic growth, trade unions might reopen the dialogue to take the gross minimum wage to RON 1,200, which the unions have previously spoken in favor of,” Micu tells BR. Among the legislative changes, Micu draws attention to a proposal to alter Law 53/2003 on the Labor Code, which will undergo several amendments. Annual leave entitlement in direct relation to the calendar year will be modiﬁed. The actual duration of leave will be settled in the individual work contract, in accordance with the law and the applicable collective labor contracts.

Also, Micu pointed out that when setting annual leave, periods when the employee is on temporary sick leave, maternity leave, maternal risk days and away from work to take care of a sick child will be treated as working days. The duration of medical leave will therefore not affect the length of annual leave. Employees will have a right to annual leave even if their medical leave lasts more than an entire calendar year. In this situation, the employer must grant annual leave within 18 months, starting the year after the medical leave. If employees cannot take the entire annual leave they were entitled to over

www.business-review.eu Business Review | January 2015

a one-year period, employers are obliged to grant the remaining days within 18 months, starting the following year. Last but not least, if an employee misses work without reason or takes unpaid days off, these will be subtracted from their service in employment, explains Micu. Private sector pay has grown, and this may also happen in the public sector. “The trade unions are calling for the introduction of meal tickets across the public sector. If the Romanian government accepts this fervently supported proposition of the trade unions, public sector workers will earn more,” explains Micu. According to a survey carried out by PwC, salaries in the private sector rose by 4.1 percent last year, while for 2015, companies are planning salary increases of approximately 4 percent. The highest percentage salary growth of 7 percent was enjoyed by the IT sector, while more modest hikes of 3.2 percent came in the banking and retail sectors. The survey analyzed salaries and remuneration policies in 166 companies in advertising, banking, FMCG, industrial products, IT&C, leasing, pharmaceuticals, retail and outsourcing. Of the firms that participated in the survey, 86 percent had or were going to raise salaries while 14 percent had not made any decision or did not intend to raise salaries. It is becoming more and more obvious that one of the main problems for the private sector may not come from the legislators, but from their highlyskilled employees. According to the latest KPMG survey Economic Pulse 2014, hiring and keeping qualified staff is an increasing problem for companies in Central and Eastern Europe (CEE), which is likely to lead to further salary hikes in 2015. A poll that included 456 business leaders from eight countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia), found that 69 percent said they planned to raise staff salaries in 2015, with 50 percent of them saying the increase could be up to 5 percent. The typical rise, as indicated by 37 percent of the interviewed business leaders, will be between 2 percent and 4.9 percent. The reasons for which these company officials are planning to hike pay vary. For 41 percent of the interviewed leaders, a shortage of qualified staff and pressure from employees are the main drivers for pay raises. Another 28 percent think they should be the result of higher productivity while 25 percent expect to award raises due to improved financial performance. On average, 50 percent of the surveyed business leaders are not planning any significant staff changes, while 17 percent of them expect headcount to grow by at least 5 to 10 percent.

labOr market 9 However, these pressures come against a backdrop of a fairly upbeat economic outlook for 2015 in the eight surveyed CEE countries. Some 52 percent of respondents said they expected their country's GDP to increase by 1.0 to 2.9 percent while only 9 percent predicted a decrease. A total of 52 percent of the surveyed leaders also believe that inﬂation in their country will remain under 2 percent. “The CEE8 economies are following a path of healthy GDP growth and low inﬂation, but as skilled labor and the ability to export are the key drivers of economic competitiveness, the focus in the surveyed companies is increasingly on the quality of employees,” notes Serban Toader, senior partner at KPMG Romania. Within the CEE8 as a whole, 75 percent of respondents think that the shadow economy is a problem and

year,” adds the managing associate. The next most lucrative industry probably comes as a surprise to no one. Jobs in IT are among the most highly remunerated in Romania, and salaries have increased by 8 percent. “A Romanian IT director can earn up to EUR 53,000 per year,” notes Micu. Investments that employers have made in the labor force have not ceased to yield results. According to the PwC Saratoga 2014 study, the human capital return on investment (HC ROI) in Romania rose 4 percent last year to 1.30, calculated as the number of monetary units generated by each employee for each monetary unit invested in their salary. The data used in the PwC Saratoga Romania survey was collected from 80 companies from the pharmaceutical industry, consumer goods, industrial products, retail and ﬁnancial services. The proﬁtability of human capital

“encouraging investments in significant businesses through fiscal relaxation measures would require agreement between local and central decision makers, which will be hard to achieve in 2015,” Catalin Micu, managing associate at Zamfirescu Racoti & Partners that avoiding paying taxes by concealing real income is highly detrimental to the economy. “Most business leaders in the region also support a reduction of social security contributions,” added Ramona Jurubita, head of tax at KPMG in Romania. “This would be a way to further strengthen companies' competitiveness. There is also strong support among those surveyed for a simpler means of tax collection and administration, as well as for a flat tax as opposed to a progressive system.” Approximately 81 percent of the surveyed business leaders expect their turnover to grow in 2015, mainly driven by higher staff productivity and more intense marketing efforts. Also, 69 percent of them are planning investments in 2015-2017, focusing on their home markets and on neighboring countries. BR asked which positions are the best paid in Romania. According to Micu, at this point, engineering and production roles come with the biggest packages. “In Romania, people filling these positions receive very competitive salaries that are among the highest in Eastern Europe. An automatics engineer can earn EUR 30,000 a year,” he says. Banking is also a good place to be at the moment since employees in this sector are highly motivated from a financial viewpoint. “For instance, in Romania, the salary of a settlement manager can reach EUR 67,000 per

in Romania is 16 percent higher than the European average of 1.12 and also higher than the average for Central and Eastern European countries, which amounts to 1.28, shows the survey. “While the revenues of Romanian companies did not increase significantly last year and the remuneration costs have been relatively constant, the slight increase in the human capital return on investment compared to last year was generated by the optimization of indirect costs for companies, although we have also noted some remarkable investment in modern information systems such as ERP and CRM programs, that led to an increase in productivity,” said Horatiu Cocheci, senior manager, human resources consulting services team leader, at PwC Romania. Employees in financial services saw their profitability double, from 0.92 percent to 1.97 percent. However, the pharmaceutical sector was less than fortunate with the return on investment for its employees dropping from 2.01 percent to 1.6 percent. Further falls were registered for employees working in consumer goods (1.23 versus 1.5) and industrial products (1.11 versus 1.34) and remained at the same level in the retail sector (1.03). Companies stepped up their investments in employee development. The number of training hours per employee increased year-on-year from 15

in 2013 to 18 in 2014. On the other hand, the funds allocated to training decreased from EUR 135 in 2013 to EUR 105 in 2014, according to the PwC Saratoga Survey. “This shows that companies understand the need to invest in their employees’ development, but have become more innovative in terms of the specific programs involved, using more cost efficient methods of training such as e-learning platforms and long-distance classes,” said Nicoleta Dumitru, manager, human resources consulting services, PwC Romania. The number of training hours provided by Romanian companies is the same as the European average and a little lower than the CEE average of 19 hours. However, the EUR 105 training cost per employee is lower in Romania than the EUR 210 in Europe and EUR 170 in CEE. According to data from the National Agency for Labor Force Occupancy (ANOFM), in January more than 2,800 people who benefit from free professional training will participate in the 145 programs organized by the ANOFM county agencies. Most of the beneficiaries will get their training in Covasna (289 people), Mureş (210 people), Giurgiu (204 people), Vaslui (175) and Neamt (154). Some 297 people want to be trained as trade workers, 197 as HR inspectors, 164 to learn English, 155 want to become cooks, 137 to be waiters or sell products in food units, 128 to become hairdressers, 124 to be able to process data and 102 to become accountants. However, there are cases when a certain company is unable to find staff with the necessary skills to run its activity. In this case, the only viable option is to train the potential employees in-house. “The flaws of the professional education system in Romania and its impotence in shaping young graduates who are capable of working efficiently and productively have prompted companies to implement their own personnel training systems, when faced with the impossibility of bringing on board productive and qualified workers,” says Micu. He explained that the investments those companies make in training the candidates are recovered when the potential employees sign an addendum to the individual labor contract in which they commit not to resign from the organization for a certain period of time. “The main beneficiaries of these qualification and training programs are the employees themselves, who, apart from getting a job, also obtain the necessary qualifications to get another role on the market, if the employer who invested in their professional training can no longer offer them the position,” explains Micu. otilia.haraga@business-review.ro

www.business-review.eu Business Review | January 2015

10 TelecOm

romania prepares to go digital in 2015 This year, Romania will switch off the analog signal and make the transition to digital terrestrial television. A few other important events are also expected on the local telecom market as it goes through a process of consolidation. resources which meet their speciﬁc needs, Marinescu said.

∫ OTilia Haraga The first announcement on the market came at the beginning of the year when the Romanian telecom watchdog revealed that five contenders – 2K Telecom, Radio M Plus, Regal, Cargo Sped and Digital Video Broadcast – had submitted their applications to take part in the second procedure allocating digital terrestrial television multiplexes. This is part of the strategy to switch off the analog signal and move to digital terrestrial television before June 17, 2015. In 2006, Romania committed, along with another 102 countries from Europe, Africa and Asia, to make the digital transition. The strategy for the digital switchover and the national implementation of digital multimedia services was approved by the Romanian government on June 19, 2013. Following the first tender, which took place on June 10, the National Radiocommunication Company (SNR) won three multiplexes for just over EUR 1 million in license tax. RCS&RDS and SNR were the two candidates in the tender. In this second tender, the telecom watchdog will put up for sale two national multiplexes, 40 regional and 19 local ones. On January 20, the auction committee began to analyze the candidates’ files and decide who is eligible. By the end of the month, ANCOM will announce the winners of the first round and whether it is necessary to organize a second round. According to the competitive selection procedure, each of the participants must submit an initial offer, mentioning the categories and number of multiplexes they wish to acquire. If the demand exceeds the supply, the tender will continue with a new round. For the categories where demand is lower, the winners will be decided in the first round. After the winners and the prices for each of the multiplexes are settled, the next step will be a new allocation round in which the multiplexes will be allocated based on the supplementary payments they are willing to make to obtain certain frequencies. The minimum license tax, which represents the starting price in the auction for the two national multiplexes, is EUR 300,000. Regional and local multiplexes start from EUR 12,000 for a regional multiplex for Bucharest and EUR 1,000 for a multiplex allocated in a town or village that is not a county residence.

Telecom market undergoes consolidation

A new start for television: Romania carries on its strategy for digital switchover

The multiplexes are granted for ten years and winners can start providing TV broadcasting services on June 17, 2015. By May 1, 2017, the winners of the two national multiplexes must set in place at least 36 transmitters, while the operators awarded the local and regional multiplexes should establish at least one transmitter in each area. This year, ANCOM will also award additional spectrum for broadband services, in a tender that will see allocation of radio spectrum in the frequencies of 3,4-3,8 GHz. Catalin Marinescu, president of ANCOM, said, “Once the licenses in the 800 MHz frequency come into force, we have every reason to believe that, fuelled by the competition between mobile operators, we will witness fast growth in the coverage and number of users of LTE/4G services in Romania.” He added that the current limitations in covering the country with fixed communication networks via fiber optic, cable or copper, as well as the performance of some of these networks, could prove to be a competitive edge for the development of 4G networks. Against the backdrop of growth in 3G and 4G/LTE coverage, more mobile internet connections are expected this year. “After developing their 4G networks, mobile operators will be able to improve current applications and develop new ones to attract more customers – for instance mobile internet, IP telephony, online games, HD TV and even 3D, videoconferences, machine-to-machine, cloud computing or specific applications for smartphones with NFC,” Marinescu said.

Operators can also allocate higher bandwidth to mobile internet at peak hours, meaning higher data transfer speeds or several simultaneous data transfers. From the point of view of the end user, it will be possible to commute a voice call to a video call or transfer files without interrupting the conversation. This year, the telecom watchdog will also continue to implement the infrastructure law by pursuing the multi-annual project compiling the inventory of networks and the related infrastructure elements, as stipulated by Law 154/2012, governing the regime of network infrastructure. The inventory will indicate the coverage of these networks in every Romanian town and village and the situation of the available infrastructure elements. This will help to identify the areas that need a boost in infrastructure investment as well as to share the use of infrastructure elements. Operators should expect some inspections from the telecom watchdog, to check whether they have inserted some basic clauses into the contracts signed by end users. The watchdog will also check whether the operators have fulfilled their obligation to keep their customers informed. Another project on the legal agenda is to ensure growth in the access of people with disabilities to telephony and internet access services. According to an ANCOM bill currently under public consultation, end users with sight, hearing or speaking impediments will be able to benefit from telephony and internet offers comprising optimized consumption

Other major moves are tipped to take place on the telecom market this year. One is the long-heralded privatization of Romtelecom (currently Telekom Romania Communications) and its potential merger with Cosmote (currently Telekom Romania Mobile Communications). Last year, Romtelecom and Cosmote acquired the German identity of mother company Deutsche Telekom. The two firms started working as Telekom Romania, having integrated their fixed and mobile shops, a unified call center, one single website, and one social media presence. Even though they work as one, they are not legally merged, something which DT aims to do in the future. However, for that to happen, the Romanian state, which has a 46 percent stake in Romtelecom, needs to decide in what way the privatization of the former incumbent will take place. This topic should be high on the government’s agenda in 2015. The state is already late in making a decision: a possible listing of Romtelecom shares was announced for 2014, but did not happen. “In 2015, we can expect more and more generous offers from mobile operators, which will include more mobile internet and national minutes. We will also witness the diversification of convergent fixed-mobile offers fuelled by smartphones and tablets. Moreover, we can even talk about the substitution of fixed services for mobile services, accompanied by fixedmobile internet substitution,” predicted Marinescu. While Telekom Romania targets consolidation, Vodafone seems to be actively seeking new opportunities. According to Reuters, the mobile operator is reviewing potential acquisitions, including of Europe’s leading cable operator Liberty Global, which in Romania is represented by UPC Romania. The Liberty Global acquisition would enable Vodafone to provide TV services in Romania on a par with its main competitors, Orange Romania, Telekom Romania and RCS&RDS. Vittorio Colao, CEO of the British group, said in an interview with Ziarul Financiar that Vodafone was analyzing the option of providing fixed voice and data services to the consumer segment as well as TV services in Romania, which may include a merger or acquisition. otilia.haraga@business-review.ro

www.business-review.eu Business Review | January 2015

media 11

media budgets set for growth in 2015 After winning a small victory and managing to get through the Chamber of Deputies an amendment to the controversial emergency ordinance that sparked an outcry from media agencies last year, the industry is hoping for a less rocky road ahead in 2015. Budgets are poised to slightly grow and the market is set for consolidation. ∫ OTilia Haraga According to the latest Zenith Romania Advertising Expenditure Forecast, investments in advertising will post 1.9 percent growth this year, reaching USD 403.9 million by the end of the year. “We are expecting a small hike in budgets in 2015, of about 4 percent. If I take the 4 percent growth as reference, Romania is doing better than most countries in Europe. The allocation of budgets will be roughly the same, with probably a little more emphasis on digital in 2015,” Radu Florescu, president of the Romanian Advertising Association (UAPR) and CEO of Centrade, told BR. Mobile will see by far the most spectacular growth. The report predicts that it will become more and more visible in the ad consumption mix between 2014 and 2017, due to widespread mobile devices and technological innovations that are also beneﬁcial for the advertising industry. Still, however dynamic it may be, mobile’s share in overall advertising consumption will represent just 1 percent of the total in Romania this year and just 7 percent of the investments made in digital. This is because much conventional advertising does not display well on mobiles. Compared to a desktop display, the banners on mobile devices need more screen space and are considered much more intrusive, according to the report. The document also points out that there is one area in digital display that has proven to be successful in the mobile domain which is social media. Overall, digital posted the most spectacular and steady annual growth, up by 12 percent in 2014 versus the previous year. Over the next two years, Zenith Romania foresees a constant 10 percent advance for this ﬁeld. TV continues to attract the bulk of advertising investments in Romania, namely 63.5 percent, and this will hold true for the next two years. Digital, with a market share of 13.6 percent, has risen to second in the ranking, followed by outdoor advertising, with a 10.7 percent market share. “Digital registered double-digit growth and will continue to do so. (…) Mobile continues to attract much interest, and we believe that clients will continue to look at the ability of

Double digit growth for digital over the next two years, as it now has landed on the second place in the advertising mix

agencies to combine good ideas with today's technology. Why? Because technology helps us measure the effectiveness of a good idea. What better way to measure the success of an idea/campaign when it is backed up with speciﬁc data and results? I can`t think of a client who would say no to that,” said Florescu. Print accounted for 6 percent of the total investments in advertising, closely followed by radio with a 5.8 percent market share and cinema on just 0.4 percent. Turning to the industries that invested the most in advertising, the top ﬁve cover half of the market. These are drugs and pharma products, food products, retail (including online commerce), telecommunications and FMCG.

media agencies expect a more peaceful year After strenuous efforts and numerous appeals for dialogue with the authorities, the media industry has managed

to somewhat contain the effects of emergency ordinance 25/2013, which was expected to wreak havoc among agencies. “We are delighted that the Chamber of Deputies passed OUG 25/2013 with the amendment proposed by the International Advertising Association (IAA) and the UAPR. On February 2, the Culture Commission in the Senate will review the OUG and the amendment and we feel confident that they will understand the position of media agencies, stations and clients supporting a quick passage,” Florescu told BR. The emergency ordinance published in the Official Gazette on April 21, 2013, removed media agencies as intermediaries from the equation, putting TV channels in direct contact with advertisers. The measure was meant to bring broadcasters more revenue, but IAA representatives argued fiercely against it, claiming that it did nothing but complicate matters for both ad-

vertisers and television outlets, with smaller agencies and TV stations bearing the brunt. Florescu said that hopefully, no such major moves will shake the market this year. “Actually I remain optimistic that the government has recognized the need to consult the business community on any new proposed legislation. Arguably, there are still many laws on the books that remain unclear; however, I have seen even at the beginning of the year a concerted effort to address these issues,” said Florescu. He also predicted that the consolidation of the market will continue in 2015. “The consolidation process is ongoing. Given what are still diﬃcult economic conditions in Europe and Romania, albeit with a positive trend, we will still feel the pinch. Companies in all sectors will continue to search for eﬃciency and the best value for money,” he concluded. otilia.haraga@business-review.ro

www.business-review.eu Business Review | January 2015

12 INtERvIEW

Local M&A market ‘posted robust recovery in 2014’ Florian Nitu, managing partner at Popovici Nitu&Asociatii, tells Business Review about the current state of the Romanian mergers and acquisitions (M&A) market and his expectations for its performance this year. ments and work-outs. In fact, Romania is in a special situation here, as the new, noticeable real estate investment wave is associated with a signiﬁcant number of reconversion projects, and, therefore, with restructurings and work-outs. Fourthly, sectors posting organic growths opportunities – IT & telecom, agribusiness, energy – would raise even more interest, once access to fresh capital gets easier. The bottom line is that for M&A deals, Romania offers signiﬁcant potential in various economic sectors and a mix of very private, but also public to private deals.

∫ ANdA SEbESI What did 2014 bring on the Romanian M&A market in terms of the dynamics, value and volume of transactions? 2014 confirmed at all levels the robust recovery of the Romanian M&A market. This is illustrated by macroeconomics and fundamental parameters, but also by the direct data from the transactional ground. Indeed, the transactions realm has worked well with the dynamics of the financial markets in mature jurisdictions and the aligned interests yielding significant transactions, in number and value. Unsurprisingly, industry and real estate fared very well. In particular, investments and new development projects generated transactions adding up to well above EUR 500 million in the retail sector, and exceeding EUR 300 million in the office sector. In retail, from publically available data, it is worth mentioning the projects involving the Auchan-Real hypermarket platforms and Promenada Mall transaction, while among office projects, the Unicredit headquarters deal, Nusco Tower and Green Court Bucharest transactions were prominent. The financial sector underwent its second wave of effective restructuring, involving banking and non-banking financial institutions. One should look here at the Volksbank and Banca Transilvania divestments and ownership consolidation processes, but also at the leasing and insurance fields, seeing even more pervasive moves. Notable deals included Gothaer Asigurari Reasigurari and Axa Life Insurance SA. Energy, oil and gas look set to generate major transactions for 2015, after key investment/divestment projects were launched in 2014, including the Enel Distributie exit, the re-started Nuclear Power Plant Extension projects and notable privatization deals. The Romgaz IPO also proved successful. Logistics, transport and distribution, and the entire DIY sector underwent a massive restructuring and in some cases, painful work-outs in 2014, as illustrated by projects involving Bricostore, bauMax and Praktiker. The telecom and IT realm also saw significant movement, with major telecom providers diversifying to include digital TV businesses (see Orange TV, but also Vodafone and Telekom plans) and new stations trying to grab a market position on edge deals

(such as Transilvania Look SA and the related Sky Intel Broadcast contract with the Football League). In IT, notable operations included Teamnet getting a major financial institution on board, as well as the Star Storage divestment. Media and Advertising underwent the same type of evolution. What were the main trends on the Romanian M&A market in 2014? Firstly, the positive global impact confirmed again what I call “the six-month rule”, which is: if mature financial markets perform constantly well, as was the case with the US getting back to historical peaks in 2013-2014, there is a delayed M&A frenzy effect which can be sensed six months after in emerging markets. In 2014, the Romanian M&A market grew strongly on this effect. Secondly, additional cash and fresh capital made available within new transactions offered the opportunity for effective sector restructurings, mainly in banking and non-banking financial sectors, but also in consumer-related distributions, retail, logistics and DIY. Major deals, in number and value, were signed on these sectors. Thirdly, it is the real estate field that always confirms growth prospects, and in particular, new real estate development projects. Many real estate development projects were launched in 2014, but they came with a series of divest-

What do you expect from 2015 in terms of M&As on the local market? The banking sector is likely to continue its consolidation in 2015 and there will be major transactions involving the NPLs of key commercial banks aimed at clearing their statements. The same applies to non-banking financial institutions. Many investments and development projects will take place in real estate, with office and retail projects of all kinds in focus, new launches, restructurings, reconversions, workouts, and also liquidations. Local energy and natural resources are already well-known and are expected to continue attracting new capital, while a number of matured projects require exits. In this vein, shale gas investments remain a hot topic on investors’ agenda, but 2015 is unlikely to bring any clear answers to the associated geo-political and social concerns. The agribusiness sector looks set to grow organically and new acquisitions are likely to happen, from land banking deals to conglomerates involving chain food processors and manufactures, related logistics and distribution networks. And finally, there is the private equity factor, as it looks like private equity giants have managed to put up new funds and include Romania on their shopping list. Indeed, private equity investors will again make headlines in the M&A field because there are plenty of opportunities for such intermediate investors. Organically, there are numerous ventures just getting out of entrepreneurial infancy and in need of a PE fund to move to a different scale, to further roll it over to an operator and/or integrator, typically a strategic investor. How do you think the local M&A market

will evolve in 2015 and the years to come and what could give it impetus? The public sector will assume the role of a key driver here. The M&A market, particularly in emerging markets, needs fostering measure from governments. These measures may be regulatory ones, mainly, but also executive, economic ones. Privatization is one such measure. There is still a lot to privatize in Romania and a new national privatization program should be launched soon, after the successful IPOs of government utility companies. Should the government confirm and proceed with the long awaited privatizations of various strategic companies, potentially by using the stock market and IPO instruments, the capital markets may receive new impetus. Deals might include share stocks (IPOs or secondary offerings) of Romgaz, Electrica Distributie, Transgaz, Romanian Post Company, National Railway Freight Transportation Company CFR Marfa or Oltchim. In terms of regulatory measures, factors that may help the M&A market include maintaining quasi-low tax treatment and the flat tax in particular and ensuring proper operation of the supervisory and control authorities overseeing mergers (Competition Council, Financial Supervisory Authority, etc.). Is there a gap between the local M&A market and the other CEE countries? If so, how can we reduce it and how long would it take? There is a gap, the main reason for which is that the Romanian assets are deemed less secure; the regulatory framework less stable. This has an immediate impact on financing, which obviously impacts investment. So it is the government-banks-investors equation that we must settle in better terms to cover the gap. The government will secure long-term legislative stability and proper functioning institutions and on this basis the banks will show more involvement and the investment flows will hit Romania. We must see the state implementing feasible infrastructure projects and the banks being involved in financing them; industrial and M&A/buy-out projects as well as a frenetic capital market will ensue, as from the macro-economic perspective there is plenty of growth potential. anda.sebesi@business-review.ro

www.business-review.eu Business Review | January 2015

14 INTeRVIeW

ING Asigurari de Viata to become NN Asigurari de Viata in April Marius Popescu, general manager of ING Asigurari de Viata, tells Business Review about the rebranding process the insurer is undergoing and its importance for both the company and its customers. He also emphasizes the importance of Pillar II for the future generations of Romanian pensioners. gross written premiums while successfully imposing the new brand on the local market.

∫ ANdA SebeSI ING Asigurari de Viata will become NN Asigurari de Viata in April as the result of a rebranding process. What does this involve in terms of visual identity? In April we will officially become NN as a result of a rebranding process with the life insurance, pensions and investment management divisions being split from the ING group. The alignment to the new brand, which was made public in October last year, involves changing the name and visual identities of these companies both in Romania and the other 17 countries where the group operates. From April in Romania we will talk about NN Asigurari de Viata, NN Pensii and NN Investment Partners. The new name was selected from 300 options and reflects the firm’s extensive legacy and Dutch roots as well as the demands of an international brand. As for the new logo, it indicates the balance between past and future: the “N” letter from the orange logo expresses the roots of the Dutch brand (Nationale Nederlanden and ING) while being a modern element from the perspective of the graphics used to create it. The three shades of orange used in the new logo give it personality and make it easy to recognize. The new logo will accompany the entire contractual and commercial communication with our customers, partners and the market from April. What is the significance of this rebranding for the customers of ING Asigurari de Viata? The decisions made in the context of the rebranding process don’t impact our customers’ contracts or our relations built with them over time. These contracts are protected both through the assumed contractual obligations and the law. There will be changes only in the communication with our customers, and the new name and visual identity will be present from April on all the channels we use to interact with our public. As for the impact that the changing of the company’s name and visual identity will have, I expect it to be a positive one and for NN to become at least as strong a brand as ING was in the coming years. Our customers know and recognize us mainly for the values, commitment and professionalism that our team has proved

since our entrance on the Romanian life insurance market, 18 years ago. These are elements that they associate with a market leader and remain equally strong and valid in the context of our new identity. In fact, the NN brand means the same three entities responsible for the success enjoyed till now on the insurance, pensions and investment markets. All these things are trumps that will contribute significantly to the successful assimilation of the new identity. The current rebranding is the second since the company entered the local market, when it was called Nederlanden. How have these rebrandings influenced the firm’s business on the local market? This phase is a new and auspicious chapter for us that we’re looking forward to with enthusiasm and the intention to continue our plans for development. We remain the same trustful partners for our customers, the public and authorities, and supporters of the development of the local markets on which we operate. Starting from here, the change of the name and the alignment to the new visual identity can have only a positive impact in time. We also benefit from experience that shows us that assuming a new identity focused around some clear and solid values is welcomed by customers. For example, over 2001-2003 when we started to build the ING Asigurari de Viata brand, after the rebranding of Nederlanden Asigurari de Viata we developed our activity – in line with the market conditions at that time – by doubling the

What products performed best in 2014 at ING Asigurari de Viata? In 2014, as in previous years, the majority of the new contracts signed up by our customers were traditional life insurance policies which customers are more comfortable with when financial markets are volatile. So, 65 percent of the policies taken out in the first nine months of 2014 were traditional ones. However, we noticed a slow recovery of public interest in unit-linked insurance. Long-term saving was the main purpose for which our customers signed up for life insurance at ING. Over January-September last year saving plans were the most popular products (31 percent of the new contracts). What is specific about these products is that in addition to protection they offer the opportunity to save money, regardless of the purpose. Financial plans for children (20 percent of new contracts) and for pensions (18 percent) were also popular with our customers. Through these products our customers benefit from financial protection and savings for more specific objectives. How have voluntary pensions offered by employers to their employees as an extra-salary benefit evolved at ING Asigurari de Viata? 2014 brought an increase in the number of participants in ING funds for which employers decided to offer this extra-salary benefit. While over January-September 2013, contributions for voluntary pensions were paid exclusively by the employer for one third of new participants, this was up by 10 percentage points in the same period of 2014. I am confident that this trend will continue and consolidate as the economic conditions improve, given that the voluntary pension is an extrasalary benefit wanted by employees that brings fiscal advantages for companies. For employers it is an efficient tool to reward, motivate and make their employees loyal. Last but not least, if an employer initiates a voluntary pension plan, it can increase the level of financial education among its employees. In September last year you launched a new type of group health insurance

along with the Regina Maria private healthcare network. What does this product bring on the Romanian market that is new? The group health insurance product from the ING Asigurari de Viata portfolio was launched last year in partnership with Regina Maria and targets employers that already offer their employees medical subscriptions issued by our partner. In addition to the subscription, which covers the cost of ambulatory medical services, the insurance policy can cover the costs of over 250 types of surgical interventions (that require at least 24 hours of hospitalization) and the associated hospitalization in the private healthcare network’s hospital units in Bucharest (Euroclinic and Baneasa) and Brasov. Our product differentiates itself through the simple clearing procedure conducted directly between ING Asigurari de Viata and the network without involving employers or the beneficiary in the process, the high quality of the services and the complexity of the benefits offered. Last year you released a study revealing how often Romanians think about their retirement. How important do you think Pillar II will be for future pensioners on the medium and long term? Pillar II represents the only form of saving for retirement for a lot of workers and also plays a crucial social role. Worsening demographics oblige today’s young generations to have an additional form of savings for retirement, considering that the current difficulties that the public system faces will mean future pensioners get a lower income. Pillar II is meant to balance this problem to some extent and offer “future pensioners” an additional pension. In this context we can say that the system performed excellently as the funds from Pillar II offered an annualized average yield of 11 percent since its launch, in May 2008. Plus, it doesn’t involve additional costs for its participants as the monthly individual contribution represents a specific percentage of their contribution to social insurance. In 2015 this contribution is 5 percent of the gross salary and it is expected to increase by 0.5 percentage points a year to 6 percent, according to the schedule. anda.sebesi@business-review.ro

www.business-review.eu Business Review | January 2015

bRIefS Local legal system cannot handle 1 mln personal insolvency cases, say CSM judge The Romanian legal system cannot handle the 1 million personal insolvency cases that would result should the personal insolvency bill be passed, said judge Adrian Bordea, member of Romania’s Superior Council of Magistracy (CSM), during a debate in the legal commission of the Chamber of Deputies. He added that there simply are not enough courthouses or judges to handle this volume and the bill should be tied to the solving of these infrastructure problems.

VAT cut for tourism packages kicks in this month VAT on tourism packages has been cut to 9 percent from 24 percent this month. The measure is meant to support local tourism by incentivizing domestic consumption and to address the issue of high tax evasion in the industry. One of the ﬁrst consequences expected by hotel representatives is that hotel rates will drop by up to 10 percent.

New fiscal Code and fiscal Procedure Code to be sent to Parliament by february 15 The government will ﬁnalize the drafts of the new Fiscal Code and the Fiscal Procedure Code by February 15, according to PM Victor Ponta. They will be then submitted to Parliament by March 15, to be debated and adopted. The PM also said that the government has no intention of scrapping the 16 percent ﬂat tax in 2015 or 2016 and that “no new taxes are needed”. The replacement codes will come into force next year.

Romania’s capital market legislation similar to emerging markets Local legislation on capital markets is now at the same level as that of an emerging market following the changes made over the past two years, according to Mircea Ursache, president of the Financial Supervision Authority (ASF). Investors will now ﬁnd in Romania legislation similar to elsewhere in the EU and the certainty that the “rules are similar to those in the EU”.

bill capping cash payments could be passed by June A bill that proposes capping cash payments which is currently in the Chamber of Deputies could be passed by June, according to Ministry of Finance state secretary Dan Manolescu. This could also apply to taxes once card payments at the Treasury and public administrations are implemented, he added. In turn this is expected to help improve tax collection.

LeGAL 15

What’s new, what’s old in tax in 2015? TAX&LAW Nadia Oanea Head of Tax, Baker Tilly, Romania The beginning of 2015 has brought important changes in tax and accounting law, which may impact your business. Additional tax compliance obligations, as well as the international evolution regarding fight against BEPS (‘base erosion and profits shifting) modify the context of the tax strategy of tax payers in general, and of multinational enterprises particularly. We present you a short summary of these changes and evolutions, as well our thoughts on desirable features of a tax strategy for 2015. First of all, the accounting rules have changed since 1st of January 2015. The simplified accounting system applicable since 2011 to the economic operators that in the previous financial year recorded a net turnover below the RON equivalent of EUR 35,000 and total assets worth lower than the RON equivalent of EUR 35,000, which no longer complies with the new Community accounting framework represented by Directive 2013/34/EU, has been abrogated starting January 2015, and replaced by the new simplified European financial reporting system. In addition, firms are reclassified in compliance with the relevant European rules into three categories, the area of entities that may apply the new simplified system being thus expanded. The accounting rules for individuals obtaining income from independent activities are also going to be changed. They have the possibility to choose applying the single-entry bookkeeping or the double-entry bookkeeping system in order to conduct their accounting operations. Furthermore, they have a new obligation

to fill in the Taxpayers’ Records, so that their taxable net annual income should be established. Taxation has seen no so many changes compared with other years, but with big impact. From 1 January 2015, the VAT rules for telecommunications, broadcasting and electronic services have changed. They will always be taxed in the country where the customer belongs, regardless of whether the customer is a business or consumer, regardless of whether the supplier is based in the EU or outside. The Mini One Stop Shop cameinto force allows taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to nontaxable persons in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified. This scheme is optional, and is a simplification measure, allowing the taxable persons to avoid registering in each Member State of consumption. Starting 1st of January 2015, the tax rate for computing the special tax on construction was reduced to 1% from 1.5% in 2014. Furthermore, the tenants shall not pay anymore the tax on the value of modernisations and refurbishments to the rented premises. Revenues from gambling have seen also major changes in taxation. They are now subject to a 1% withholding tax applicable to all the amounts gained by a participant in gambling. The revenues from gambling, which are worth more than the RON equivalent of EUR 15,000, will be taxed at a 16% rate, while those in excess of the RON equivalent of EUR 100,000 euro are taxed at a 25% rate. In the side of tax compliance, the Chamber of Tax Consultants published new rules for the certification of taxpayers’ tax returns. The Rules apply for the certification of the tax returns prepared by taxpayers that are

either natural or legal entities that choose to have their returns be certified by a tax consultant before being submitted to the competent tax authority. According to a change of the Tax Procedure Code occurred in 2014, submitting certified tax returns may help the tax payers to score better in the tax risk assessment analysis made by the tax authorities when establishing what tax payers will be subject to tax audits. The Rules focuses on internal procedures of the tax payer ensuring reliable sources and flows of information for the preparation of the tax returns, as well as on correctness of the tax treatment of the transaction. Other interesting change refers to the gradual replacement (until November 2016) of the paper roll-type fiscal memory with a digital memory and the connection of the new cash registers to the surveillance and monitoring system of the National Tax Administration Agency (ANAF). At international level, the work on the directions designed by OECD for fight against BEPS continued, with the ultimate goal of bringing the international tax rules into the 21st century. As you may see, taxes are becoming a concerted action on a national as well as international basis. In order to avoid risks and take advantage of opportunities, the necessity to implement an adequate tax compliance system cannot be ignored. It is time to act and we recommend you important directions, like reviewing the facts and figures for all entities of the Group, identifying the tax risk profile, reviewing internal procedures, agreeing on tax strategy for Romania and Group level, drafting tax procedure manuals, implementing and monitoring being essential. nadia.oanea@bakertillyklitou.ro

fiscal receipts lottery to be launched in July The authorities will launch this July a fiscal receipts lottery to which the government has allocated RON 10 million (approximately EUR 2.2 million) for a six-month period, according to Mediafax newswire. The measure is meant to encourage consumers to ask for fiscal receipts when buying goods or services and thus help fight tax evasion. The draws will be held by the Romanian National Lottery on the first

Sunday after the 15th of each month for receipts issued during the previous month. The winning receipts will be identiﬁed by randomly selecting a number between 1 and 999, representing the rounded nominal value of the receipt (VAT included) and a date, representing the date of the receipt. Both Romanians and foreigners can take part in the lottery. The value of individual cash prizes

will depend on the total number of winning receipts for each draw. At the end of last year representatives of the Ministry of Finances said that 160 cash prizes worth an estimated RON 1,200 (EUR 270) each would be awarded each month, 20 for each ﬁscal region of the National Fiscal Administration (ANAF). Winners will receive the cash prizes in their bank accounts within 90 days of the draw. ∫ Simona Bazavan

16 inveStment report

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austrian and German investors raise flag on lack of skilled local workers Austria and Germany have for years been respectively the second and the third largest foreign investors in Romania, a ranking expected to remain unchanged in 2014 as well. BR talked to representatives of the two business communities to find out what developments can be expected in 2015. ∫ Simona Bazavan With the exception of Austrian BauMax and German Obi, two DIY retailers that left Romania in 2014, most major investors from the two countries further consolidated their local operations last year. In fact, over the past couple of decades, companies from both Austria and Germany have invested constantly in the local economy, building up a strong presence, particularly in industries such as energy, automotive, banking, insurance, retail, real estate and agriculture. Ever since the early 90s, Roma- Sebastian Metz, the general director Rudolf Lukavsky, commercial nia’s geographical location, the size of of AHK Romania counselor of the Austrian Embassy the domestic market and the cheap and skilled labor force have been the tions,” Sebastian Gromig, head of the with costs and prices increasing in the main factors attracting German and economic and commercial section of Far East, Romania is becoming an Austrian companies and individuals the German Embassy to Bucharest, attractive alternative for the neartold BR. shoring of cost-efficient productions,” to invest locally. he commented. Cultural ties have also helped The same applies to German instrengthen economic relations. 2015 – a year of consolidated vestments. “German investments in “There is also undoubtedly a cultural growth similarity between Austria and “Most of the Austrian companies that Romania are on a positive and stable Romania that has deep historical are large enough to invest in Romania trend. There will probably be new inroots. Such cultural components are already present; hence it is gener- vestors, but many of those already should not be underestimated. ally existing investors aiming to ex- present will definitely expand,” SeAfter all, it is people who do pand their presence in Romania,” said bastian Metz, the general director of business, so cultural discrepancies Lukavsky about future Austrian in- AHK Romania told BR. Austrian companies have estabor similarities are a major factor when vestments in Romania. Representait comes to building a trusting and tives of the German Embassy and the lished a strong presence throughout sincere business relationship,” Rudolf German-Romanian Chamber of Com- the local economy – from oil and gas, Lukavsky, commercial counselor of merce and Industry (AHK Romania) banking and insurance, to agriculture, the Austrian Embassy in Romania, agree. “The consolidation or expan- real estate and retail. Infrastructure told BR. sion of projects implemented by com- and environmental technology are Over recent years investors from panies already operating in Romania currently of particular interest to both Austria and Germany have not are probably the best acknowledg- them, especially in the context of the only decided not to put the brakes on ment of Romania as a business loca- availability of EU funds to finance investments but have further consol- tion. Those companies have done such projects. The automotive indusidated their local presence. business here and know the location try is another potential driver of fur“Generally the business ties be- in detail. When they decide to expand ther advancement, and not only as tween Romania and Germany are in Romania, this really sends a posi- suppliers for Dacia and Ford, but also for other European car producers. now stronger than ever. For many tive signal,” said Gromig. years Germany has been Romania’s Overall, Lukavsky predicts that “However, to reach its full potential, number one trade partner. German Austrian investments in Romania Romania urgently needs to improve investment is very visible in Romani- will further increase and continue to its rail and road traffic infrastructure,” ans’ everyday life as German brands grow at a sustainable pace. While urged Lukavsky. German companies are expected are well established on the local mar- most of this growth will come from ket. So, we are already talking about a existing companies, there is definitely to consolidate their already strong rather high level of economic rela- room for newcomers. “Especially presence in the automotive industry

Sebastian Gromig, head of the economic section of the German Embassy too. IT is another sector of interest to them and there is considerable potential for German investments in the research and development ﬁeld as well, said Metz. “Romania has the potential to become an important research and development center. A positive development in this direction is the passing this year of the employee inventions law. This is particularly important for the automotive industry where numerous German companies are present,” he added. Here too, the authorities’ involvement is required in order to reach full potential. “In Romania research and development represents only 0.4 percent of GDP while in Germany it’s almost 3 percent,” went on Metz. Austrian companies that completed important investments in Romania last year include OMV, Schweighofer, Schenker, Hobas Rohre and Salesianer Miettex, according to data from the Austrian Embassy. OMV invested EUR 600 million in the modernization of its Petrobrazi reﬁnery as well as in gas exploration activities in the deep-water sector of the Black Sea. Wood-processing company Schweighofer expanded its local presence by investing in a new sawmill in Reci, Covasna County,

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while transportation and logistics group Schenker opened a new terminal in Cluj.

Stability, stability and again stability Romania has been one of the fastest growing EU economies over the past couple of years and the outlook remains positive. This, coupled with the fact that Austrian and German companies already have a marked presence in the region, means the local market will remain attractive to them. Should Romania finally manage to offer investors predictability when it comes to political decisions, growth will be more substantial, representatives of the two business communities agree. “It is essential that companies have a reliable basis on which they can calculate their costs and revenue. In the past there have been major complaints about frequent changes to the fiscal code, the sudden introduction of new taxes and rapid changes to the legal framework for businesses,” said Gromig. Overall, frequent legal and tax changes continue to be investors’ main complaint. The changes in the renewable incentive system and the introduction of the building tax are two examples of how foreign investors are affected by short-term modifications of the Romanian

inveStment report 17 legal framework, went on Lukavsky. Such measures and the way they have been implemented represented a big setback for Romania as a business and investment destination and the impact was felt in more than the energy sector, contributing to a reduction of foreign direct investments to Romania of over 9 percent in 2013, he added. In addition to stability and predictability, another issue that Austrian and German investors alike have been complaining about for years is the country’s underdeveloped infrastructure and the authorities’ incapacity to speed up investments in this direction. “The problem with the infrastructure is not that there isn’t money, that there aren’t construction companies or that Romania doesn’t have the expertise to build roads. The biggest problem is the lack of transparency in public auctions and the public administration’s lack-of know-how,” explained Metz.

Growing need for skilled workers While Austrian and German investors have been struggling with the lack of stability and predictability for years now, a more recent issue they have been raising is a certain lack of skilled employees in Romania. “The question of education is also

overview of austrian and German investments Total stock at end-2013 Share in total FDI Ranking among foreign investors Number of active companies

austria

Germany

EUR 11.4 bn 19.1 2nd 6,856

EUR 6.7 bn 11.2 3rd about 8,000

Source: Commercial Section of the Austrian Embassy to Bucharest, AHK Romania

becoming more and more important. Romania must ensure that its economic growth is not hampered by a lack of skilled workers. The manufacturing industry in particular already has difficulties finding qualified staff in certain regions like Transylvania and Banat,” said Gromig. The dual education system which has proved successful both in Austria and Germany could help Romania in this regard, say investors. The Austrian Embassy is currently working on a pilot project for dual education in the fields of retail, gastronomy and carpentry. “This system has two major benefits: it gives businesses the chance to interact with educational institutions, and offers students highly practical and attractive training, giving them the best chance on the job market. A highly trained skilled labor

force is also a substantial competitive advantage for a market to attract investment and to increase the value added of local businesses,” said Lukavsky. German companies too have started to implement this system locally with good results. “I hope that the Romanian government continues to cooperate with German companies, the German-Romanian Chamber of Commerce and Land Baden-Wurttemberg to establish a system of dual professional education in Romania. Over the past two years we have made some promising steps towards creating such a system in Romania based on the successful model in countries like Germany, Austria and Switzerland,” concluded Gromig. simona.bazavan@business-review.ro

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18 investment outlook

How is the investment climate shaping up in 2015? Romania’s investment outlook remains positive: a Focus Economics forecast tips the economy to expand by 2.8 percent in 2015, picking up to 3.0 percent in 2016. But how do things look from the ground? Business Review asked representatives of the Foreign Investors Council (FIC), Association of Romanian Businesspeople (AOAR) and Romanian Banking Association (ARB) for their take on what the business climate holds in 2015, while specialists from industries such as energy, agriculture, pharmaceutical, legal, automotive and IT also shared with BR their proposals, which, if taken on board by the relevant officials, could benefit both the private and public sector. Mihai Bogza, president of the Foreign Investors Council, says, “With the quality of the dialogue between the government and the business representatives improving significantly over the last year, we expect the next step to be to seeing many of those proposals properly implemented.” ∫ raluca comanescu According to Valeriu Binig, partner at Ernst and Young Romania, the Romanian energy sector will face major challenges in 2015, some pertaining to strategic commitments not yet fulfilled, some to the ongoing transformation and implementation of reforms and some to the new challenges at EU and worldwide level. He said that the Romanian government is expected to finalize the long awaited National Energy Strategy this year, which is aimed at formulating strategic options and providing guidance to investors, financiers and services, works and equipment providers on the fields where attention and money will be concentrated during the next two decades. “Looking at the basic pillars of the EU and EU member states’ energy policies, one could expect a debate about prioritizing among security, affordability, competitiveness and sustainability, in that order to be strategic,” he told Business Review. Romania has committed to transpose the Energy Efficiency Directive by means of so-called “alternative measures” that include, as per the Romanian Energy Efficiency Law, the setting up of a National Energy Efficiency Fund. “It is crucial that sources of funding, delivery mechanisms and eligible projects be defined, in order to allow a decision on the implementation solution for this important funding instrument. Regarding funding

Valeriu Binig, partner at Ernst and Young Romania

Daniela Lulache, general director at Nuclearelectrica

sources, it must be decided whether there will be recourse only to public funds, or whether private funds will be allowed/invited/attracted to join the delivery channels. One could envisage reliance on the prior construction of FREE (the Romanian Fund for Energy Efficiency) or the adoption of a solution similar to the National Environment Protection Fund, as well as hybrid solutions,” said Binig. In the field of natural gas, the number of stakeholders (existing producers, new investors in upstream, transmission, distribution operators, traders, suppliers, consumers, the European Commission, external suppliers, fiscal authorities, royalty collectors, etc) indicates that any policy or political decision would have a serious and multi-faceted impact; there-

fore a roadmap for transforming the sector would be advisable. “This way, measures such as the harmonization of royalties and ﬁscal regimes, the setting up of the regulatory framework for offshore activities for non-conventional gas exploration activities, the setting up of the natural gas balancing market, the adoption of modernized grid codes, the opening of the Romanian market and transmission system towards Central European ones, the protection of vulnerable customers and of gas price-sensitive industrial customers would be adopted following thorough consultation and assessment of as many potential impacts as possible,” said Binig, adding that in light of the recently adopted Offshore Safety Directive Romania has to transpose key measures, including of the

setting up of a regulatory authority for environmental, health and safety issues in offshore hydrocarbon activities, by July 2015. Another major topic for the Romanian government is finding the right balance between the interests of investors, electricity consumers and the state, in the field of electricity generated from renewable energy sources. “As one witnesses more and more bankruptcies, guarantees executions (some banks are about to become major shareholders of renewable power generation businesses unable to repay their debts), write-offs, etc, the question arises whether Romania, which fulfilled its 2020 target regarding the share of renewables in 2014, will be able to preserve this successful position or will witness major withdrawals, some of them accompanied by actions in international courts. It might be advisable that dialogue be resumed with investors and solutions sought to facilitate revised (satisfactory?) rates of return,” concluded Binig. According to Daniela Lulache, general director at Nuclearelectrica, from the point of view of big changes, 2015 just marks a continuation from 2014, with slight improvements on the way. “In 2014 the energy market was no easy business realm for energy producers, owing to a significant drop in prices on the bilateral contract market, the increased volatility of the spot market, the strong impact of subsidized industries on the market, hence competition, legislation that forces producers to remain captive in a blocked domes-

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investment outlook 19

Frank Hajdinjak CEO of E.ON Romania

Mona Musat, managing partner at Musat & Asociatii

Razvan Gheorghiu-Testa, founding partner of Tuca Zbarcea & Asociatii

tic market,” she told Business Review. All these factors need to be addressed if the energy system is to benefit from the advantages deriving from a stable, truly competitive, mature market. 2015 does not herald drastic changes in all these aspects, but it could be a beginning for medium-term joint efforts to diminish and even eliminate market shortcomings and failures. “Energy producers need predictability for their planned sales. They need to be able to meet the objectives of their strategy, not to constantly switch back and forth trying to secure a way to sell their production. This is survival strategy. Survival must be replaced by predictable, marketbased strategies and analysis, competition-oriented strategies and growth-enabling legislation,” said Lulache, underlining that any change in energy market-related legislation should grant equal treatment to all players, allow them to forecast growth strategies for at least the medium term and support them in meeting their objectives by providing stability and accessibility to different core competence-related courses of action. Also, the gap between the advantages of export and legislative impediments must be addressed. Producers could greatly benefit from exporting their energy at advantageous prices, especially in the context of full market liberalization from the end of 2017. Regarding the trends in prices and consumption, Lulache does not foresee a meaningful change in 2015, as if the factors stay the same, one cannot expect different results. “Prices should be shaped by real competition, beneficial to both producers and con-

sumers, while consumption needs to be a consequence of economic growth and reindustrialization, with consumption efficiency being the natural direction to follow. Romania has all the advantages to start to play a significant role in the region. However, things need to be moved in the right direction to support this role. Part of the energy system has embarked on a new path by also becoming active on the capital market. The energy system strategy coupled with capital market strategy and strategic investment projects could put Romania where it should be in the years to come. 2015 is a very good year to begin,” concluded Lulache. A warning signal for the authorities was flagged up by Frank Hajdinjak, CEO of E.ON Romania, who cautions that additional taxes will affect energy companies’ investment capability in 2015. “First of all, we are looking forward to the presentation of the new timeline for the liberalization of natural gas prices for household consumers for the period July 1, 2015 to July 1, 2021. As far as non-household consumers are concerned, the market has been completely liberalized since January 1, 2015. Unfortunately, we reached such a moment without there being a competitive and functional centralized natural gas market, as in the case of electricity, because none of the necessary mechanisms and instruments is functional at present,” said Hajdinjak. Trading on the centralized market means that the trading platform functions as a real, competitive stock exchange, where demand meets supply so consumers get the most competitive price. Settling this matter will therefore remain an important topic for the authorities this year. He praised the recent government decision to reduce the “pole tax” from 1.5 to 1 percent, but noted that like any additional tax, it significantly cuts companies’ capability to invest. “In the same area, let’s mention the monopoly tax whose enforcement has been extended into 2015. These two taxes alone mean a financial effort exceeding

EUR 10 million for E.ON this year.” In the context of a still rather diﬃcult business environment which has been posing challenges on all levels, the E.ON Group is planning to carry out investments of about EUR 80-90 million in 2015, thus keeping a high level of capital expenses. “Most of the sum will be directed, as it has been up to now, towards the rehabilitation and modernization of the natural gas and electricity distribution grids, in order to increase the safety and the quality of the services. Also we expect to extend the portfolio of customers, to introduce packages of competitive products and services and to feel the beneﬁts of the merger of the companies E.ON Gaz Distributie and E.ON Moldova Distributie, resulting in the setting up of E.ON Distributie Romania, whose activity started on January 1, 2015,” said Hajdinjak. “The exis-

“additional taxes will affect energy companies’ investment capability in 2015” Frank Hajdinjak, CEO of E.ON Romania

“Banking and capital markets are expected to see new legislation this year” Mona Musat, managing partner at Musat & Asociatii tence of a stable political and economic climate, ensuring legislative and fiscal predictability, streamlining administrative procedures, cutting red tape and fighting corruption continue to represent real, imperative needs for investors and we hope we will witness more progress in this area in 2015.” Given the recent political changes, 2015 has begun against a backdrop of uncertainty. “Last year was an election year, and this was felt in the activity of investors and companies in the private sector, many of which have postponed projects, waiting for political and governmental clarification. The main problem encountered by investors is the

constant emergence of new initiatives to change the package of laws in various sectors such as taxation, infrastructure, procurement and energy,” Mona Musat, managing partner at Musat & Asociatii, told Business Review. With regards to investments, Musat believes that on the stock exchange, the best performing shares will be found in the energy and utilities sectors. Hidroelectrica, the largest domestic energy producer, could reach the capital market in the first half of the year, after its second insolvency put its IPO on hold. Another listing that was scheduled to take place in the summer of 2014, that of Complexul Energetic Oltenia, is expected in the second half of 2015. “Also, we can see growing interest in bank shares; this sector could become interesting in 2015, following provisions made in 2013 and 2014 and in the context of the more aggressive stimulation policy of the Central American Bank,” she said. According to the lawyer, the two sectors of banking and capital markets are expected to see new legislation this year, concerning for example the supplementary supervision of credit institutions and insurance companies as well as the capital market law. The energy sector is not immune to legislative changes, as this year a new law on mines will be debated, along with a package of amendments to the law of electricity and gas and several proposals for secondary legislation put forward by ANRE. Musat also told Business Review that the real estate sector will perform well this year as chances are high that new investors will enter the market, interested in buying both high-end and secondary properties, while investors that have remained inactive in recent years may resume trading. Last but not least, the business law market in Romania will not undergo significant changes this year, as the same large, traditional firms will continue to dominate the landscape, while second- and third-tier firms may face possible division and team changes as the economic climate favors concentration. “This year, the banking sector, which was very active in 2014 with acquisitions of banks – Volksbank’s acquisition by Banca Transilvania and Millennium Bank’s by OTP – will be strengthened and it is very possible that we will see new opportunities for local banks. We will also have activity in the energy sector, again a very dynamic sector last year, plus IT & telecom, infrastructure and agriculture, which is expected to attract strategic investments. Litigation and arbitration, with a focus on white-collar crime cases, the stock market, restructurings and insolvencies, energy and natural resources, along with competition and tax law will keep lawyers busy in Romania in the coming period,” predicted Musat.

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20 investment outlook Razvan Gheorghiu-Testa, founding partner of Tuca Zbarcea & Asociații and co-head of the firm’s real estate practice group, also struck a positive note. He believes that with expected GDP growth of 2.5 percent in 2015, there are positive signs for Romania for the coming year(s). “According to the recently released government strategy and investment priorities for 2015, it is likely that capital spending in infrastructure will also improve. The completion of several infrastructure projects (especially motorways but also the energy sector investments as defined by the National Investment Plan) is something for which the entire business community has been waiting for a long time, and everybody is confident that things will evolve in the right direction.” Gheorghiu-Testa believes that for investors, political stability, transparency and predictability in the fiscal and legal framework are not just fine words, but essential requirements for sustainable economic development. “Needless to say, a significant improvement in the level of EU funds absorption is not only long awaited, but mandatory.” As regards private investments, he tips financial services, real estate, energy, medical services/pharma and automotive as the sectors most likely to generate the bulk of transactions this year. Agriculture (including acquisitions of agricultural and forestry land) will definitely remain one of the hottest sectors. “While we do not anticipate any significant shifts in deal volumes or value, I would say a number of important transactions will take place, involving non-performing or under-performing loans, as well as office buildings, retail and, possibly, residential developments,” said Gheorghiu-Testa. He says that last year brought the revival of the real estate market and believes that both the industry and professionals are confident that the same pace will be kept up in 2015. “Concerning real estate, major institutional players are still reluctant to invest in this part of the world, but political stability, quality products and, last but definitely not least, the improvement of the terms for getting

“Pharmaceutical market is expected to grow in 2015, due to the inclusion of new molecules in the reimbursement list” Cristina Garlasu, general manager at Dr. Reddy’s Laboratories Romania

Cristina Garlasu, general manager at Dr. Reddy’s Laboratories Romania

financing should be enough reasons to change their perspective. The latest events in France and the current geopolitical framework (especially the Russia-Ukraine military conflict) are other significant factors that could impact future foreign direct investments in Romania,” said Gheorghiu-Testa. From a legislative point of view, he comments that some of the most important changes regard tax matters, including fiscal procedures. The founding partner said, “The business community strongly advocates for keeping the flat tax rate system (both for companies and individuals), as well as for the implementation of certain tax incentives (tax amnesty, reduced VAT rate, etc.). Romania should take firmer steps to strengthen its economic competiveness, ensuring regulatory transparency and legal stability.” The Romanian pharmaceutical market is expected to grow in 2015, due to, according to Cristina Garlasu, general manager at Dr. Reddy’s Laboratories Romania, the inclusion of new molecules in the reimbursement list. “The growth is quite unpredictable but Cegedim anticipates about RON 500 million per year, in line with IMS forecasts of a compounded growth until 2018 of approximately 4.5 percent. This percentage in itself looks relatively appealing, if we compare it with other EU markets,” she said. She says that the Romanian market is marked by total unpredictability, mainly in terms of costs. This is due, first of all, to the well known clawback tax, which rose by 42 percent in 2014 (versus 2013), without any direct connection with the market evolution. “This tax has become absolutely unsustainable, mostly for generics manufacturers, which operate with low profit margins. Hence we have seen a lot of restructuring processes in the market, with teams, products and therapeutic areas dropped. Unfortunately, I think this process will have to continue throughout 2015, for the same profitability considerations. The inclusion of new molecules for reimbursement, totally welcome and long awaited, will impact the clawback tax even more, in

Ana-Maria Baciu, partner and head of the IP department at NNDKP Legal & Tax

Cristina Cionga, gov & public affairs manager, Central Europe, DuPont Pioneer

spite of the cost-volume contracts that are supposed to be signed this year for the conditionally included products. This is why, for the beneﬁt of local manufacturers and all other generics, which should be the main source for savings in the healthcare system, we hope we will see the differentiated clawback implemented and all other legislative initiatives that have been submitted to our decision factors,” said Garlasu. She believes that another aspect that makes the environment unappealing for generics is the growing discounts imposed by the distribution chain, a real access barrier on the market and to the pharmacy shelves. “Last but not least, we will probably see a more consistent growth of OTCs, as a reaction to the same clawback tax and as a de-risk strategy for many companies, but which will be capped by the still low public purchasing power,” said Garlasu. Ana-Maria Baciu, partner and head of the IP department at NNDKP Legal & Tax, predicts 2015 to be a year of legislative changes, some expected, some, however, less predictable. The industry is looking towards new legislation (soon to come) that will provide the legal framework for the implementation of the much publicized transparency obligation with respect to sponsorship and other inducements offered by companies to healthcare professionals, as well as professional and patient associations. “Furthermore, the new rules on doctor incompatibilities, as well as the increased scrutiny by the authorities of this sector, may persuade companies to take a different, more practical approach to the promotion of their products and services. We might also witness a change in healthcare professionals' behavior, when it comes to taking part in events organized or sponsored by companies in this ﬁeld,” Baciu told Business Review. She also believes that 2015 will bring growth in the pharma market in Romania, mainly due to the inclusion of new molecules on the reimbursement list. “One cannot yet predict the costs this inclusion will involve, but it

is again expected to impact the clawback contribution, which is already difficult to bear.” She also pointed out the difficulties faced by some local players in the distribution chain which will probably heavily influence the relationships between producers and distributors. “On the other hand, the interdiction imposed at the end of 2014 on pharmacies, which are now forbidden to perform wholesale distribution activities, is expected to be beneficial for a market which, due to low prices, used to be a major source for parallel exports. Ultimately, we can only wait and see how the market will react to all these changes, and hope that no major (unexpected) change will challenge a market already under great stress,” said Baciu. For th agricultural sector, the estimations are that it will be favorable for both agriculture and farmers in Romania, provided that policy makers continue to address consistent horizontal themes across the whole agricultural sector (agriculture tax policy, land policy, development of infrastructure and services in rural areas), and the new Common Agricultural Policy (CAP) may constitute a general framework, if opportunities are identified by this pragmatically and used consistently. “Focusing on the fragmentation of land holdings and capitalization as causes of the sector’s poor performance, we should note the Ministry of Agriculture’s effort to accelerate the consolidation and improvement of agricultural land by running financial support schemes to address the two pillars of the CAP in a creative and synchronized way, in conjunction with the completion of the cadastre (including budget funds). Similarly, investments in rural infrastructure and irrigation projects should focus attention on medium-term government, catalyzing the deployment of specialized production for the farmers of industrialized countries that dominate today,” said Cristina Cionga, government & public affairs manager, Central Europe, DuPont Pioneer. Also, the coupled support that farmers in the vegetable sector are to

www.business-review.eu Business Review | January 2015

investment outlook 21

oPinion Florin Pogonaru President, Asociatia Oamenilor de Afaceri din Romania (AOAR)

Dorin Pena, general manager, Cisco Romania

receive in 2015 has its place in the new multiannual financial framework. “Further good news is that the proposed list also features soy, since Romania is one of the few European countries with favorable conditions for this plan, but areas have decreased significantly since 2006 due to the ban on GM soy. It is a new chance to re-launch production, thus reducing dependency on imports of vegetable protein. For us, one of the companies that continuously invest in Romania to bring to market the latest and safest products, it is important to have strong partners,” said Cionga. With regards to the IT&C industry, it looks like change is the only constant. The dynamic shifts by the day, and in this context, knowledge of trends and changes that will take place during the next one, five, ten or twenty-five years can make the difference between a successful company and a failed one. “The IT industry has one common denominator: the Internet of Everything (IOE). Our daily lives will revolve around this concept,” said Dorin Pena, general manager, Cisco Romania. “We’ve already seen many changes in how technology is used and consumed, which will force companies to adapt to user behavior. We are talking about real-time data analysis; more secure networks, more mobility, predictability and efficiency,” explained Pena. Spreading the IOE will generate a significant increase in terms of realtime data analysis, which will have huge implications. Big Data does not mean anything without those who interpret data and make decisions accordingly. For the data to be useful in an IOE world, they must be delivered to the people who need them in real time. And this assumes a predictive and reliable network. With the spread and implementation of an increasing number of sensors, expanding network capacity to retrieve all the data is not economically feasible. And here comes the concept of Fog Computing. “In the next ten years, data analysis solutions in real time together with Fog Computing will help optimize the exploitation of natural resources from

Bernd Schmitt, plant manager, Lisa Dräxlmaier Autopart Romania

agriculture to oil fields,” said Pena. In terms of security we will see many changes in the future. The IT security industry will make the transition from a preventive approach to one that will take into account all phases of an attack – before, during and after it has occurred. “We will also use the IOE to our advantage when it comes to fighting cybercrime. Billions of connected devices will generate a lot of information that can be used to improve security. All these things, all these changes, should be viewed as opportunities for companies in Romania, be they large or small. All organizations, whether working in the manufacturing industry or in areas such as retail, transportation, banking and sport, will become technology companies. The limits of industry will expand to such an extent that many IT companies will invest in the acquisition of companies outside the IT industry, so that the innovation that swept the industry will reach other areas,” said Pena. Dräxlmaier Group has been active in Romania since 1993, and the results the company had in 2014 were encouraging for the entire industry. “This give us reason to believe that this trend will continue in 2015. We base our statement on the orders and contracts we've already negotiated for the coming years,” said Bernd Schmitt, plant manager, Lisa Dräxlmaier Autopart Romania. Actually, the global scale indicates that the market will grow and the estimations for the next five years are positive. International consultancies companies foresee growth of more than 40 percent in the global automotive market in the next five years. “We hope that we can have our share of that. Dräxlmaier Group has invested a lot on the Romanian market and we keep on doing that by training specialists and using local raw materials. We chose to invest in Romania because the automotive industry had a long tradition for several decades and there were many qualified people committed to working in such a dynamic area,” said Schmitt. raluca.comanescu@business-review.ro

more focus on local investors

Both Romanian and foreign investors operate in the same business environment in Romania. Therefore there should be no difference in the treatment given to the two categories of investors. However, I cannot help but notice that, in general, foreign capital is more volatile than its local equivalent, with a speculative component including geography and going deeper than Romanian capital. Sometimes an excess of foreign capital may even raise national security issues. A typical example is the banking sector, as foreign capital accounts for 87% of banking assets. Only through good organization at the European level was the overspill of, for example, the Greek crisis into Romania avoided. Romanian capital also requires special attention in terms of exports. While foreign investors have well planned infrastructure for exports, financed by the parent company or at European level, Romanian investors should get some help and support to create such structures. There are endless examples arising from the Romanian state’s economic policy priorities. Eventually the state should adopt a proactive policy and not remain passive, simply waiting for some European in-

dustries to relocate. The attractiveness of the Romanian business environment is conferred by predictability, transparency and equal conditions for all. Any action to ensure the above is auspicious and will result in attracting investment. Typical examples include the establishment of multi-annual budgets, limiting the number of Emergency Ordinances etc. Apart from the above, investors, especially Romanian ones, want a clear signal that they are not just the usual suspects, but there is also respect and consciousness of their work creating wealth. At the same time they would also like to see some proactive measures in order to stimulate growth of national chains adding value, and not only development, based solely on exports. They would also like to see, beyond the statements, some concrete measures to stimulate their activities that add value. Specifically, it is worrying that Romanian IT players continued until recently to work through the lohn system [e.n. a system of outward processing trade (OPT), where the buyer supplies the necessary materials to the producer, who only provides the labor and the workplace, after which the buyer reimports the finished merchandise], instead of being encouraged to develop their own projects with high added value. Any pro business message from the Romanian president is auspicious for the business environment, and any message in favor of Romanian capital development, plus the creativity and skills of the local workforce is welcome. In this respect, continuing the basis for the development of vocational education legislation is a priority. Other priorities are: the consistent policy of encouraging the development of enterprises that generate high added value production and the reduced production of "commodities" (very low value-added products, typical of the Romanian economy today).

www.business-review.eu Business Review | January 2015

22 investment outlook

oPinion mihai Bogza, President, Foreign Investors Council

monitoring and transparency inform Fic proposals

l increasing the transparency, predictability and stability of the legislative process. This includes strictly observing the principles of consultation with all interested parties, for example by allowing enough time for such consultations when a new law is proposed – by the way, such principles and consultation procedures are embedded in Law 52/2003 as amended by Law 281/2013; not observing them means the state sets a bad example to its own citizens! In this respect, we were somewhat encouraged to see a reduction in the number of Emergency Government Ordinances last year, a trend which we hope will continue. On the other hand, we are concerned to see that a number of draft laws with a potentially significant impact on the business environment are being proposed by Parliament

Photo: Mihai Constantineanu

2014 was another year in which investors remained cautious about Romania, with total FDI of around EUR 2 billion, well below the country’s potential and definitely not significant enough to generate meaningful growth. While the country posted good preliminary numbers for GDP growth, current account and budget deficits and inflation, and the fight against corruption seemed to gather pace, progress appeared slow in developing infrastructure, attracting EU funds and implementing much needed reforms in publically-owned companies. To make 2015 more successful, the Foreign Investors Council (FIC) has put forward a significant number of proposals, which have been presented to the authorities and to the general public. These proposals cover areas that we believe could make a difference in improving the competitiveness of Romania as a destination for both domestic and foreign investment, by making the business environment significantly friendlier – such as the functioning of public institutions, EU funds absorption, infrastructure, energy, health and many others. As examples, here are some of the actions needed to improve the management of public institutions:

without being accompanied by an impact assessment study. l prioritization of public investments. This process, aimed at improving the efficiency of budget-financed investments by avoiding spreading the available funds to a myriad of low-importance projects too thinly, already started in 2014, but needs to be hugely improved when put in practice, as testified by the very small number of motorway kilometers opened to traffic and very low level of EU funds absorption in infrastructure projects last year. l improving the salary structure in the public sector, without increasing the total payroll. It is clear that salaries for some categories of personnel do not reward competence, responsibilities, honesty and skills. As a result, the state sector struggles to attract and retain high-caliber people. In some cases, like in the health sector, Romania pays to educate and train

people only to see them leave the country after graduation. In other cases, selection for top decision-making positions is carried out by adverse selection – people reach such positions only to enrich themselves by breaking the law, as witnessed by the recently prosecuted high-profile corruption cases. It is therefore high time for the state to implement a different system of salaries. l improving the government's monitoring capacity. How can the authorities assume commitments only to appear to forget about them? Take the case of the IMF agreement, by which the authorities pledged in June 2014 not to institute a Personal Insolvency Law, for a draft of such law to be proposed in Parliament only months later. Or how can a decision concerning a major investment proposal, like Rosia Montana, be delayed for more than ten years? Or how can one have an ordinance (nr. 109/2011) requesting the authorities

to implement a professional corporate governance system in stateowned companies without having a proper system to monitor its implementation and penalize its non-observance, if the case? We believe that the authorities should put in place a proper monitoring system for all these kinds of situations. In the private system, we say that what is not monitored does not get implemented – we believe this is also true for the public sector. These are just a few of the more than 70 concrete proposals we at the FIC have put forward to the authorities. With the quality of the dialogue between the government and the business representatives improving significantly over the last year, we expect that the next step will be to see many of those proposals properly implemented. This would really make Romania more attractive to investors and help bring new jobs and prosperity in 2015 and in the years to come.

www.business-review.eu Business Review | January 2015

investment outlook 23

oPinion Florin Dănescu, Executive President of the Romanian Banking Association

rebuilding investors’ trust – a banking issue The expansion of lending, measures aimed at rebuilding trust and an asset quality review (AQR) across the sector are the main targets of the local banking system for 2015. These should help give investors confidence, encouraging corporate customers to develop their business and access financing, and banks to lend to fund the business of their existing or prospective customers. The loan-to-deposit ratio is below 1, standing at 99.75 percent in September 2014. For the provision of liquidity, this ratio that is lower than ideal, but the contraction of the loan balance affects banks’ business/profitability. Recently mergers and acquisitions have led to more concentration, and the competition for solvent customers has intensified. Banks want to get more and more involved in lending to offset the shrinking of their balance sheets. There is liquidity in the market, proven by the low level of interest on the money market, with ROBOR 3M standing at 1.55 percent in January. We are of the opinion that all barriers should be eliminated so that banks are able to accelerate lending. We should maintain the European regulatory framework as regards banking. The crisis has made lenders more prudent in placing depositors’ money. We think that we should go on focusing on implementing measures that would lead to rebuilding trust, expanding lending and subsequently to economic growth. The prudence banks have shown as regards lending to the real sector of the economy has been brought about by lax financial discipline, by companies using insolvency proceedings in an abusive manner in some cases, as well as by the funding constraints implemented during the crisis. The Romanian Banking Association (RBA) is asking for the authorities’ support necessary to create a list of the officials (shareholders/administrators) involved in lending and currently under insolvency, similar to the Credit Bureau for private individuals. While four years ago, one company out of 30 was under insolvency, currently, one out of seven firms is in this position and the blockage brought about by this phenomenon across the whole economy amounts to EUR 25

billion. The law on procedures to prevent insolvency and on insolvency was published in the Romanian Official Gazette on 25 June 2014 after more than two years of debate. Problems occur when the law is being enforced. The firms under insolvency and those that have been declared bankrupt have overdue loan payments of about EUR 3.25 billion. If a filter similar to the Credit Bureau were introduced – but with complete data on insolvency in lending to corporate customers – and if the level of collateral usage went up with a view to meeting solvent demand, the new loans granted would go up maybe even by double digits in 2015. It is likely that the balance of non-government credit will see a slight increase in 2015, of 3-4 percent. The RBA together with the NBR and the authorities have been looking for solutions to revitalize lending. We have also been looking for solutions to secure loans with the FNGCIMM and we hope to rebuild trust in the optimal usage of guaranteeing solutions. Loan interest rates have been going down twice by about 2.5 times against 2008. But solvent loan demand is much lower. Lending is still affected by the lack of trust, the absence of large investment projects and by European reg-

ulations which have led to more restrictions on customers’ access to lending. The real advance of new loans granted is actually much higher if we take into account that we have as an analysis indicator the loan balance from which, month after month, the principal reimbursements and sales/outsourcings and off-balance sheet items are taken out. Balance sheet cleaning and the changing of the calculation methodology for the NPL rate reduced the rate by 7.25 percentage points to 15.31 percent in October 2014. The rate will further shrink by several percentage points until the end of 2015 given the elimination from balance sheets of fully provisioned loans. The provisions that banks were forced to set up during 2014 have affected the banking sector’s results, with losses after nine months standing at RON 1.6 billion. This would mean the fifth year of losses for the Romanian banking sector given that in 2013 the EUR 11 million profit was only an accounting profit. The banking sector is the mirror of the real economy. The bigger the problems that companies and the public have, the more affected bank balance sheets are. In 2015, we are going to

conduct a vast AQR across the local banking sector, with the reference date of the reviews to be 31 December 2014. The Romanian banking sector capitalization stood at a comfortable level, i.e. 17 percent, in September 2014. Romania has committed to being part of the European Banking Union. The European Central Bank will directly supervise significant banks, the lenders that have requested or received direct financial assistance with public money, the less significant banks (whenever this is needed in order to provide the consistent application of high supervisory standards) and the most important three banks from each participating member state. We expect the European Banking Union to make a contribution to enhancing the level of financial stability in the euro area, a fact which could mean also the deployment of an orderly process of disintermediation in non-euro states. We are of the opinion that any legal proposal affecting the lending discipline and where law enforcement depends upon good faith – particularly now when the economy needs the stability of the banking sector and lending resources, to increase its credibility – should be avoided.

www.business-review.eu Business Review | January 2015

24 R & D

Taking steady steps towards market development

panish start-up Marsi Bionics is working to take its lower-limb exoskeleton device to a wider audience. A spun off company from the Center for Automation and Robotics, a research center belonging to the Spanish National Research Council, it develops lower-limb exoskeletons, orthotic devices which, attached to the legs and trunk of a user, reproduce the normal gait. They are a solution for people with limited mobility. Spanish researcher Elena Garcia Armada, who was in Bucharest to deliver a presentation on her work at the Polytechnics University, says the idea of transforming the results of her research into a company came as the result of direct demand for the product. “When I ended the Atlas project (e.n. a research project on the development of functional lower-limb exoskeletons) […] this allowed me to see that we have a product that was useful in treating a number of diseases […] After that, families and associations of patients and doctors came to me to ask when they could make use of the device. But my research had ended and I had to look for other projects to continue my work. The commercial part was not something that was my duty. And this is the reason I started to look

CV Elena Garcia Armada

Elena Garcia Armada

for companies to make this transfer of the technology. It was 2013, it was an economic crisis year and there was no company interested in the technology transfer. So I just decided to try and do it myself,” she says. One of the main challenges Garcia Armada describes is the antiquated regulations concerning subsidies for the prosthetics sector. “The sector is very old so trying to integrate this technology is complicated. For instance, in Spain, the materials that are supported by the government, partially not totally, do not include, for example, titanium.

Garcia Armada is a roboticist at the Center for Automation and Robotics, the joint center of the Spanish National Research Council (CSIC) and Universidad Politecnica de Madrid (UPM). She received a Ph.D. degree in Robotics from the Universidad Politecnica de Madrid in 2002. She was a visiting student at the MIT Leg Laboratory in 1998 and at the Laboratoire d’Automatique de Grenoble in 2001. Garcia is currently a tenured scientist as a member of the Field and Service Robotics Group, a research lab that since 1990 has focused on the design, development and control of legged robots. And it is a prosthetic material. Our device is made of titanium,” she says. So, for the company a lot of work goes into convincing various public stakeholders to modernize their approach. At the same time, the technology is expensive and making it cost-effective

is complicated, says the researcher. “We have worked over the past year looking for investment and it is complicated because the technology is not mature enough for venture capital. For business angels, the amount we are looking for is around EUR 1 million. This is quite a lot for a business angel, for venture capital also, but they are looking for more mature markets,” she says. Right now the only funding the company receives is from public bodies, particularly EU funds. “We hope that once we ﬁnish the clinical trials the venture capitalists will enter,” adds the researcher. The devices are developed for therapeutic purposes as they reproduce the sequence of movement to support patient rehabilitation. The company’s products have a special focus on children as its exoskeletons are low-weight and there is no need for a caretaker to help with the transfer from the wheelchair to the exoskeleton. Overall, there are more than 60 million people worldwide who could beneﬁt from the use of an exoskeleton, the company estimates. Potential users of these devices include paraplegics, tetraplegics, people suffering from neuromuscular diseases and cerebral palsy and the elderly. simona.fodor@business-review.ro

www.business-review.eu Business Review | January 2015

26 cIty

Operetta and Musical theater marks move to new home with Phantom of the Opera One of the hottest tickets of the year so far is Phantom of the Opera, directed by Stephen Barlow. The Australian director has returned to Romania to stage this masterpiece as a premiere for the Ion Dacian Operetta and Musical Theater, which now has its own building, after 29 years of cohabitation in various cultural centers.

Photo: Mihai Constantineanu

New in town: Phantom of the Opera, the most successful musical of all times

∫ tAtIANA LAZAR The premiere took place on January 24, with all four scheduled performances selling out. The local cast featured Adrian Nour (Phantom), Irina Baiant (Christine Daaé), Florin Ristei (Raoul, Viconte de Chagny), Andrei Lazar (Monsieur André), Valentino Tiron (Monsieur Firmin), Gabriela Daha (Carlotta Giudicelli), Samuel Druhora (Ubaldo Piangi), Dana Rotaru (Madame Giry) and Alexandra Giurca (Meg Giry), supported by the Orchestra, Choir and Ballet of the Operetta and Musical Theater. Seen by over 130 million viewers worldwide, Phantom of the Opera, by Andrew Lloyd Webber, has been adapted in 14 languages and won over 70 awards. It is the most ﬁnancially

successful entertainment event to date. Renowned for his original and surprising approaches, Barlow reconsidered the original script by moving the action to the ﬁrst half of the nineteenth century. “I am delighted that we can return to Bucharest to attend a cultural revolution taking place in the musical life of the capital thanks to the vision of the director general of the National Opera, Razvan Ioan Dinca. I have personally lived a romance with ‘Phantom of the Opera’ over the last 28 years, from the moment that, as a child, I saw the West End production three weeks after the world premiere,” Barlow told Mediafax. “It was then, and remains now, a haunting story, captivating and, somehow, erotic. Gaston Leroux’s story is staged with

the most romantic and intimate music of Andrew Lloyd Webber. To stage a new production of the most successful entertainment show of all time is both a huge responsibility and a great opportunity. With an exceptional cast comprised of actors, pop stars and opera singers in collaboration with a team of young, but extremely talented artists from the London West End, I want to start a new path, both visually and psychologically, using the story and music. This totally new show is a tribute to Charles Garnier, the architect of the Paris Opera (Palais Garnier), where the action is set”, added Barlow. According to the publication Agenda Constructiilor, the new building housing the Ion Dacian Operetta and Musical Theater was developed by Aediﬁcia Carpati, the company responsible for the National Theater’s

facelift, and which restored the auditorium and created the research center at the University Politehnica of Bucharest, among other projects. The architect is Eliodor Popa, who described the new theater as a modern construction, on a metal supra-structure. Critics responded coolly to the building, deeming the architecture unsuitable for a cultural center, owing to its warehouse aspect. The EUR 8.7 million investment in the building – the ﬁrst such designed for musical performances built in Romania since 1989 – was made with the support of the Ministry of Culture. The 6,381 sqm cultural center has three ﬂoors, 550 seats plus a lobby, library, store, cafe and studio especially designed for children. editorial@business-review.ro

www.business-review.eu Business Review | January 2015

LIfestyLe 27

theAteR

Mall the cinema’s a stage…

Courtesy of Movieplex

Romanian actors Catalina Mustata, Paula Chirila, Claudiu Maier, Catalin Neamtu and Carmen Lopazan will take part in Theater in Cinema, along with improvisation troupes Improvisneyland and Backstage Boys.

∫ tAtIANA LAZAR The Theater in Cinema project will bring live performances to local movie theaters every weekend from January 16. Improvisation shows will take place on Fridays, Saturdays will host theater for children in the morning and for adults in the evening, while Sundays will bring special improvisations for children and stand-up comedy for adults. The project is the brainchild of Mihai Penisoara, general manager of Art Media Management, in partnership with Movieplex and Plaza Romania. “The idea of hosting theater performances in a cinema hall came to me naturally, given that talentAgency.ro, the management and talent division of Art Media Management, has been searching for suitable spaces to stage performances. Cinema is a perfect place to bring together various categories of performances for the public,” Penisoara told

Business Review. The project involved some logistical challenges. “Staging a theater show in a cinema hall both presents technical demands and requires the ﬂexibility to accept alternative content from the cinema’s owners. These were the main obstacles in implementing the idea behind the project,” added the GM. Tickets cost RON 29, with a buy one, get one free offer valid until the end of January. Children and students pay RON 19. Upcoming performances: Backstage Boys, January 30, 20.30 – improvisation theater The Day Sleep Ran, January 31, 11.00 – children’s theater An Earthly Odyssey, January 31, 20.30 – comic theater editorial@business-review.ro

ARt

Adrian Ghenie project to represent Romania at 2015 Venice Biennale ∫ sIMONA fOdOR A project by Romanian artist Adrian Ghenie will represent Romania at the 56th Venice Biennale between May 9 and November 22, Mediafax writes. The project, Adrian Ghenie – Darwin’s Room, curated by Mihai Pop, will occupy the exhibition space in Romania’s pavilion in the Giardini di Castello. “We took into account the name of the artist, who is currently enjoying both international attention and commercial success, but also the fact that, unlike at previous editions, this is the ﬁrst time a personal exhibition by a Romanian artist has featured. The project stood out with a convincing

presentation, well articulated and detailed, and through its sustainable character,” said the commission selecting the work. “The concept develops the theme of recent history, which is in accordance with the general theme of the biennale. Secondly, the selection of the artists is convincing: Michele Bressan, Carmen Dobre-Hametner, Alex Mirutziu, Lea Rasovsky, Stefan Sava and Larisa Sitar are all part of the ‘new wave’ of contemporary Romanian visual art; although young they all have and interesting and convincing portfolios,” said the committee. The project is curated by Diana Marincu. editorial@business-review.ro

www.business-review.eu Business Review | January 2015

28 LIfEstyLE musIC

BOOks

Pop up: bringing the international hits to Romania

Business by the book

Since 2005, Laura Coroianu, managing partner of Emagic, one of the biggest event ∫ tAtIANA LAZAR organizers in Romania, has brought some of the biggest names in global music – from Roger Waters, Madonna, Depeche Mode, Shakira, Lady Gaga and Sting to At a time when one of the most famous Metallica, Lenny Kravitz, Iron Maiden and Red Hot Chili Peppers – to the local stage. inﬂuencers in the world, Mark Zuckerberg, is moderating an online book club, BR talked to her about what goes on behind the scenes. commenting upon reading proposals ∫ tAtIANA LAZAR Which foreign artist sold the most tickets in 2014? In Bucharest, the artists with the best sales were Armin Van Buuren, 30 Seconds To Mars, Deep Purple and Peter Gabriel. If we look at the festivals around the country, the most popular were Electric Castle (Bontida, Cluj county), Summer Well (Stirbey Domain, Buftea) and Sunwaves (Mamaia, Constanta).

What does it cost to organize a concert featuring an international artist? Or to stage a music festival? It depends on the artist and the festival. Besides the artists’ fees, which can reach seven digits, one of the main factors in the production costs is the location. If the festival or concert takes place in a venue designed for such events, the costs are considerably lower than if it is held in an empty space such as a city square, beach etc. where everything must be built from a scratch: the stage, backstage, stands, fencing etc. Then, we have to take into consideration the cost of promotion, insurance and taxes, which makes it diﬃcult for us to create a pattern when it comes to costs. The budget may be tens of thousands or millions of Euros, depending on all the variables mentioned above. How would you characterize the concert organization market in Romania? And the audience of such events? In one word, challenging. It is an atypical market compared to what usually happens in Western countries. In the past few years, it has constantly grown, but we are still a little behind when it comes to the number of spectators. Some artists who would sell out a stadium concert in the West can

Photo: Cristi Mitrea

Did the events of the past year exceed your financial expectations? What was your turnover? I do not think there were events that exceed our expectations. It was quite a balanced year in which almost all event organizers were cautious. The turnover will be published in the Official Gazette at the end of the fiscal year, but from our approximations, it will be over RON 3 million.

barely ﬁll a third of a stadium in Romania. But their fees remain the same, and they do not give any discounts depending on the number of spectators. Therefore we still need sponsorship to help keep ticket prices at affordable levels. Audiences are increasingly open to events but rather picky. Also, very few fans budget in advance for show tickets. Most decide at the last minute, probably because of money: if they have the money for a ticket they purchase it, otherwise not. Such events are top of the list when it comes to cutting costs for Romanians.

it’s not very hard to choose. The challenge comes from ﬁnding less conventional spaces that can accommodate musical events. The selection criteria are quite simple: the number of spectators expected, the speciﬁc requirements of the event or the artist’s demands and, of course, the costs.

How do negotiations for a concert by an international artist play out? First and foremost the availability of the artist is checked, then we make an offer, and then we start to negotiate, but it differs from case to case. Sometimes discussions are completed in a few weeks and sometimes within a few months.

What concerts does Emagic have in store for 2015? The ﬁrst two bands conﬁrmed for 2015 are Roxette, with a concert on May 17 at Arenele Romane (Bucharest) and One Republic, on June 4, at the same venue. We are still negotiating with other artists. Also, the exhibition project History Hackers will continue with new openings and new themes.

How do you pick the locations for the concerts? There are few venues for concerts so

How do you determine the price of tickets? Ticket prices vary depending on the costs, meaning fees and production budget. Usually, the sponsorship packages are a critical counterweight for us to keep prices affordable.

editorial@business-review.ro

and being dubbed the new Oprah by the international press, and when top author Haruki Murakami is talking for a limited time to his readers through a blog translated into 60 languages, Romanian publisher Litera is launching the CEO Must Read category, with a range of titles to inspire the businesspersons. Lean In: Women, Work, and the Will to Lead by Sheryl Sandberg promises to be an inspiring call to action and a blueprint for individual growth, destined to change the conversation from what women can’t do to what they can. Facebook COO Sandberg is ranked on Fortune’s list of the 50 Most Powerful Women in Business and as one of Time’s 100 Most Influential People in the World. The Advantage by Patrick Lencioni argues that the seminal difference between successful companies and mediocre ones has little to do with what they know and how smart they are and more to do with how healthy they are. The Five Temptations of a CEO by Patrick Lencioni, considered a masterpiece when it was first launched years ago, serves as a timeless and potent reminder that success as a leader can come down to practicing a few simple behaviors that are painfully difficult for each of us to master. Warren Buffett on Practically Everything by Carol J. Loomis is an autobiography written by a Fortune journalist who discovered the business guru when he was a little-known hedge fund manager in Omaha. They became close friends over the following decades, giving Loomis unique access and insight into the mind of the world’s greatest investor. The One Thing by Gary Keller and Jay Papasan has made more than 125 appearances on the bestseller lists of such periodicals as the Wall Street Journal, New York Times and USA Today, presenting people who use this simple, powerful concept to avoid distractions in their personal and work lives so they can focus on what matters most. All books summarized above come in Romanian language versions. BR is interested in its readers’ thoughts on them. If you want to review any of these titles, send your comments to editorial@business-review.ro. editorial@business-review.ro

www.business-review.eu Business Review | January 2015

LIfEstyLE 29

fILm REvIEW

WELLNEss

mommy

turning up the heat: uk yoga concept takes Romanians to 37 degrees ∫ tAtIANA LAZAR

Shore thing: Anne Dorval plays the devoted Mommy in Xavier Dolan's powerful drama

DEBBIE stOWE Director: Xavier Dolan starring: Anne Dorval, Antoine Olivier Pilon, Suzanne Clement On at: Cinemateca Union, Elvira Popescu, Studioul Horia Bernea – NCRR, Scala, Studio, Grand Cinema & More, Hollywood Multiplex In the suburbs of Quebec, a ﬁftysomething woman crashes her car, stumbles out and swears. It would be a point of high drama in most movies; in Mommy, it is one of the more banal happenings for Diane (Anne Dorval) whose life is a series of car crashes. She is the titular Mommy to Steve (Antoine Olivier Pilon), an ADHD-suffering teen. Steve is often violent and unpredictable, loud, lewd, rude, racist and menacing. Spending two hours and twenty minutes in the company of such a character could be unbearable, but for the fact that he can also be sweet, loyal, sensitive, generous and hopeful. The then 16-year-old Pilon’s mature, complex and dynamic performance is stunning. Similarly convincing is Dorval as a chain-smoking, brash and brassy widow whose short skirts and low-cut tops show that she hasn’t given up on life, despite the constant struggle to keep her son out of trouble. Not an easy task. After Steve starts a ﬁre in a café, injuring a fellow inmate of the mental health institution that houses him, he is kicked out of the juvenile unit and moves back in with Diane. The pair befriend new neighbor Kyla (Suzanne Clement), a young mother on leave from her teaching position after a nervous breakdown left her with a speech impediment.

We’re not sure quite why, but all is not well between Kyla and her husband, and while most people run a mile from Steve’s volatile behavior, the troubled housewife is drawn to and finds solace with Diane and her unruly son, whom she starts to tutor so he can apply for college. As the trio bond and help each other – Steve focusing on his studies, Diane enjoying friendship and fun and Kyla’s stammer receding during her time in their company – dare we hope that things might turn out okay? Hmm. A title card at the beginning notes that in this imagined Canada of the near future a new law allows parents to institutionalize disturbed kids with no legal process, which hangs ominously over the ensuing events. The happiness and progress that the dysfunctional trio makes is fragile, and there is always something – an overly friendly male neighbor, spiteful neighborhood kids, the law – threatening to bring it crashing down. But then isn’t that the human condition? Astonishingly, director Xavier Dolan is only 25. Despite his youth, he has crafted a powerfully unsettling yet moving film that touches on family ties, love, hope, acceptance and vulnerability as well as the foremost theme of mental distress and its impact on those around. It’s shot in a 1:1 aspect ratio, meaning we see events in a square, a format that is played with to memorable effect in the middle of the film. But Mommy is primarily a very human story, painfully raw, sometimes undisciplined and certainly too long, but a searing depiction of the parent-child bond, with its pleasures and pressures blown up. debbie.stowe@business-review.ro

Hot Vinyasa Yoga classes, being held in an inﬂatable, heated studio in central Bucharest, consist of a 60-minute intensive and balanced physical workout, which promises to restore calm and clarity to the mind in soothing, cocoon-like pods. What’s most important, it is conducted in 37 degree heat. “Max Henderson and Nick Higgins, founders of HotPod Yoga, realized that the majority of people are intimidated by the contorted positions and the idea of yoga being only for those who already know the poses. With this in mind, they devised the Hot Vinyasa Yoga class, which is adaptable to every level and creates a micro-universe based on simplicity, diffuse light, relaxing music, aromatherapy and, of course, heat,” says Alexa Boeriu, communication coordinator of HotPod Yoga Romania. Currently, there are three locations in London, six elsewhere in the UK, one in Amsterdam and the one recently opened in Bucharest. The

concept was launched two years ago and is sold through a franchising system. Exponents say that practicing yoga contributes to a healthy lifestyle, with proven physical and mental benefits, helping to reduce stress, increase flexibility, and concentrate power and energy. “Heat also helps the body melt into the practice, warming the muscles and aiding flexibility while the heart works harder. A purifying sweat helps ensure maximum benefit from your effort,” adds Boeriu. Since the opening of the center in mid-January, almost 200 clients have signed up. The center will be officially opened on February 6, when the two founders will come to Romania to share their experience with yoga practitioners. A single class costs RON 50, with subscriptions available for five (RON 225) and ten classes (RON 350). The yoga center is situated in the Universitate area, on 23 Ion Brezoianu Street, inside the Universul building. editorial@business-review.ro

www.business-review.eu Business Review | January 2015

30 CIty fILm festIvAL

Local movies march on Berlin ∫ tAtIANA LAZAR

Courtesy of HiFilm Productions

Selection for the 65th Berlin International Film Festival is now complete, with 23 productions picked to appear in the Competition program and vie for the Golden and Silver Bears. Romania is represented by director Radu Jude’s movie Aferim!, a coproduction with Bulgaria and the Czech Republic, starring Teodor Corban, Mihai Comanoiu, Cuzin Toma and Alexandru Dabija, and by the latest movie from Tudor Giurgiu, Why Me? / De ce eu?, which will be screened in the Panorama section. According to the website Cineuropa, Aferim!, set in the 19th century, tells the story of a local policeman, Costandin, who is hired by boyar Iordache to find Carfin, a Gypsy slave who had run away from the boyar's estate after having an affair with his wife, Sultana. Costandin sets out to find the fugitive, beginning an adventurous journey full. The site notes, “Aferim! (a Turkish word which means ‘Bravo!’) may prove controversial in Romania, a country which is struggling to integrate minorities into society. Although historians have thoroughly confirmed the existence of Gypsy slavery for as many as seven

Director Radu Jude

centuries in the country’s history, it is not a very popular topic in modern times.” Costing EUR 1.25 million to make, the movie was produced by HiFilm Productions and co-produced by Klas Film (Bulgaria), Endorﬁlm (Czech Republic) and EZ Films (France). Shooting took place in July 2014. Jude’s picture will have its world premiere in the Berlinale competition,

two years after producer Ada Solomon won the Golden Bear for Calin Peter Netzer's Child's Pose. Contenders for the Golden Bear include Queen of the Desert, directed by Werner Herzog, Taxi by Jafar Panahi, Eisenstein in Guanajuato, by Peter Greenaway, and Terrence Malick’s Knight of Cups. Giurgiu's ﬁlm will compete in the Panorama section with 34 feature

films from 29 countries including Mexico, Morocco, the USA and Argentina. Inspired by real events in Romania in the early 2000s, the suicide of the prosecutor Cristian Panait, Why Me? tells the grim story of the disillusionment of Cristian, played by Emilian Oprea, an idealistic young prosecutor who attempts to unravel a tangled case of corruption in the chaotic social and political context of the 2000s. He is assigned to investigate a fellow prosecutor suspected of bribery, forgery and theft of documents, but as his investigation implicates high-ranking officials in criminality, the young and zealous attorney sees his confidence in justice shattered. In his quest for the truth, Cristian enters a dangerous zone and is exposed to painful and unexpected revelations, according to the synopsis of the film. The movie will have its world premiere at the Berlinale, and will hit silver screens nationwide on February 27. The festival starts on February 5 and the awards ceremony will take place at the Berlinale Palast on Saturday, February 14. editorial@business-review.ro

Calendar ∫ tAtIANA LAZAR

Opera premiere: falstaff february 19, Bucharest National Opera Giuseppe Verdi’s last opera returns to the Bucharest National Opera House

Alexandru tomescu concert february 20, Radio Hall

Courtesy of Alexandru Tomescu

Since its world premiere in Montreal in April 1996, the Quidam show has been seen by millions of people. It features over 45 top artists, acrobats, musicians, singers and actors. Cirque du Soleil says of the show, “Quidam: a nameless passer-by, a solitary ﬁgure lingering on a street corner, a person rushing past and swallowed by the crowd. It could be anyone, anybody. Someone coming or going at the heart of our anonymous society. A member of the crowd, one of the silent majority.” Tickets are available from www.evenim.ro and in Orange stores, with prices from RON 150 to RON 500.

Courtesy of Bucharest National Opera

Cirque du soleil – Quidam January 29 – february 1, Romexpo

after many years of absence from its repertoire. The director is Graham Vick, known for his original and experimental stage productions. The three-act opera, which has a libretto by Arrigo Boito and is inspired by William Shakespeare’s plays, will be performed in Italian and subtitled in Romanian.

Violinist Alexandru Tomescu returns to the stage of the Radio Hall, as concerto soloist, under the wand of conductor Cristian Macelariu. The event is broadcast live by Radio Romania Cultural and Radio Romania Musical stations and online on these radio stations’ websites. Alexandru Tomescu will perform A. Salieri, W.A. Mozart and L. van Beethoven. Tickets are available on www.bilete.ro, from the oﬃces of the Romanian Postal Company, the Inmedio shops Bilete.ro, the Germanos retail chain and the Radio Hall box oﬃce.

swan Lake february 25, 26, 28, Bucharest National Opera Bucharest National Opera has re-booted Romanian choreographer Gheorghe Iancu’s Swan Lake ballet, a twist on Oleg Danovsky’s ﬁrst staging which gave Iancu his inspiration. Since 2008, when Iancu ﬁrst brought this performance to the stage, the artists have grown spiritually, artistically and physically, he says, explaining how he sees the performance that was re-staged on June 2014. editorial@business-review.ro