Vol. 7, No. 7, September 2011
The magazine for informed internationals
Terminally ill? Romania’s healthcare system is ailing, while the private medical sector goes from strength to strength
Plane sailing Local aeronautics once again flying high
politics
economics
business
city life
Vol.7, no. 7, September 2011
The National Arena, the largest modern stadium in Romania, opened to the public in August, welcoming over 100,000 visitors on its first day. The official opening will be this month, when Romania will take on France at football. Construction of the venue took about 3 years and required EUR 150 million. The stadium has a capacity of 55,000.
26
Hard cell The embryonic local stem cell market is developing rapidly
42
China Syndrome Chinese companies are looking beyond the market stall
38
Bust intentions Insolvency firms are picking up the postcrisis pieces
5. Gold ace
47. Suite dreams
The Presidency bets on Rosia Montana project to boost national reserves
Local furniture firms are adapting their strategies to a tough market
8. Management scout
51. Fast wheels
The state and the IMF agreed on private executives for 15 state-owned firms
Mercedes SLK gets more aggresive shapes
9. Blowing in the wind Austrian company Verbund gave a go to the EUR 300 mln Tulcea wind farm
12. Hub cap Cluster creation is propelling Romania on its regional journey
52. Sure start The Signal Iduna president talks insurance market entry
54. Home sweet home The sales of new apartments in Bucharest are way under European results
editorial
306 Calea Mosilor, 56 Bl., A Staircase, 2nd Fl., Apt. 7, 2nd District Bucharest, Romania www.thediplomat.ro Publishers Adrian Ion adrian.ion@thediplomat.ro
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Reporters Cerasela Marin cerasela.marin@thediplomat.ro
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The Diplomat September 2011
How many cars does it take to drive the economy forward?
O
ne of the indicators that show us how a country’s economy is faring is undoubtedly consumption. Let’s take for instance the auto market. Unfortunately, in recent years, the local car sector has been in continuous decline, with the most optimistic voices predicting that the market will record the same numbers this year as last. However, despite the hopeful claims of top-ranking industry officials, this seems to be wishful thinking. The alarm signal is the statistics released by the Directorate for Driving Licenses and Vehicle Registrations (DRPCIV), whose figures are the most reliable owing to their objectivity, albeit lagging behind the actual time of sale. From January-July, only 40,259 new passenger cars were registered, over 14 percent down on the same period of last year. Taking the July statistics in isolation gives an even worse picture: they are 18 percent lower than in July 2010. And let’s not forget that July 2010 was the first month when the Government hiked Valued Added Tax (VAT) to 24 percent. It all indicates that new passenger car registrations are still weak, taking into account that to July 2010 registrations were also partially added those passenger vehicles sold in June 2010 and registered the following month. And as this year, despite the fact that Romania’s cash for clunkers program is still in progress, market players have not even bettered the figures for that month, we must ask what will happen in the coming months? Will this year’s new car sales and registrations reach last year’s level? How will they perform over the year? If the market maintains its current pace, I would hazard a guess that the auto market will reach about 80,000 new car registrations this year. This would mean a decrease of approximately 15 percent from last year’s results and a leap back in time. But eventually this year’s market dip will be less important than what happens in the
coming years. The question is how dealership networks can survive at this sales level, since there is no hint that the situation is improving. More and more dealers have entered or will enter into bankruptcy, and we will see “the survival of the fittest”. The cash for clunkers program, on which auto players are pinning their hopes, is not the panacea it seems. And in any case it is not a long-term measure to boost the car market. Unless the program is run non-stop, which would mean ongoing state aid to buy a new car, the scheme will tank the market when the subsidies are exhausted, as potential buyers of new cars will probably defer their purchase until the program resumes. It is true that we’re talking about those customers for whom a EUR 1,000 incentive matters, but this certainly means the majority of drivers who purchase a new car. Meanwhile, the fee designed to boost the registrations of new passenger cars at the expense of second-hand ones has had only half its desired effect. It is true that registrations of used cars have fallen, but without the concomitant spike in the new car market. However, these declines could be an advantage for the driver when he or she pulls into the dealership, as the pressure to make a sale at any price is mounting, making “the customer is king” more than just an empty marketing slogan. It looks unlikely that we will see a market where a car can be purchased in installments over five years with 0 percent actual annual interest – but why not? Maybe dealers should consider these unprecedented alternatives. After all, once the car is sold, the company can boost revenues with after-sales services, which do not come cheap. On a market stalling as badly as Romania’s auto industry, it’s time for players to pull out all the stops. ■
politics Victor Ponta and Dan Sova targeted by DNA
Traian Basescu: We need the gold from Rosia Montana The Rosia Montana gold mining project must be carried out, because Romania needs gold for its national reserves, said Romanian President Traian Basescu. He mentioned the rise in the price of gold over the past five years, adding that the central bank gold reserves should increase from 10.7 tons to 200 tons. “What country sits on such a fortune without looking for ways to bring it out?” Basescu said. The President spoke about the need for a good plan for environmental protection. “Those who talk about environmental destruction should visit Rosia Montana now,” said Basescu. He went on to say that the project could not be started without the European Commission’s approval, but this statement was challenged by the Romanian environment minister Laszlo Borbely, who told a press agency that the Rosia Montana project must comply with European best practice
guidelines regarding cyanide mining, but does not require any unique approval from the European Commission. “According to EU rules and directives we do not need any special authorization from the European Commission, only to follow these rules,” said the minister. The scheme, which is projected to cost USD 1 billion, is being run by the Rosia Montana Gold Corporation, controlled by Canadian company Gabriel Resources, which owns 80.46 percent of the share capital. The Romanian state owns 19.31 percent of the stock. Prime Minister Emil Boc said the Government was waiting for a specialist opinion on the project before making a decision regarding the investment. Boc said that, personally, he was not a “fan” of the project and that the current contract, which is not the most advantageous to the state, “should be renegotiated.” ■
Ritli Ladislau appointed new health minister UDMR party member Ritli Ladislau has been appointed to head the Ministry of Health, after Cseke Atilla resigned, citing discontent with the money his ministry is now due to receive following the rectification of the state budget. Cseke, also a member of the UDMR party, complained that he was not consulted when the Government planned the new budget for healthcare. Ladislau is specialized in pediatrics, oncology and hematology and is a professor at the Oradea medical college. Since 2010 he has been medical director of the Dr. Gavril Curteanu municipal hospital in the city.
Ritli wants to continue the reforms started by Cseke, intended to generate cost savings in the healthcare sector. ■
Romanian fiscal authority inspectors (ANAF) have decided to notify anti-graft prosecutors (DNA) about opposition leader Victor Ponta and Senator Dan Sova, who are suspected of receiving illegal sponsorship through contracts with energy plants in Rovinari and Turceni. Ponta was invited to attend ANAF headquarters in June with income statements for 2007 and 2008. The move came at the same time as media reports wrote on an inspection by ANAF at Rovinari and Turceni, where it allegedly came to light that a law firm run by Senator Sova and at which Victor Ponta was senior partner had received RON 4.4 mln illegally. According to press reports, ANAF concluded more than half the money received by SCA Sova&Asociatii from Turceni and Rovinari – RON 4.4 mln of a total of RON 7.1 mln – was paid on the basis of improper contracts which were not in line with regulations on public acquisitions.
Minister Lazaroiu: European funds have helped us attain growth
Over-bureaucratization, plus the lack of monitoring and a coherent strategy for the absorption of structural funds are, according to the minister of labor, Sebastian Lazaroiu, the main causes for the low degree of absorption of structural funds, considered a significant opportunity for Romania’s economy. Lazaroiu added that Romania’s slight economic growth was due to European money, but Romania still had a low degree of absorption. “The European money of the last two years has helped the economy to come back,” said Lazaroiu. “We had three quarters of economic growth, and the European money meant a lot, likewise with public investment. No European state allocated 7 percent to public investment. Our rate of absorption is not satisfactory. We have EUR 30 billion which we have to take by 2015 and we have not been able to absorb more than 3.5 percent, which is very little.” The minister added that Romania needs an institution to monitor and make a strategy for the absorption of structural funds, based on the model of neighboring countries such as Bulgaria and Poland, which should boost the absorption degree.
politics Interior Minister of Bavaria: Germany supports Romania’s Schengen accession
The head of the Ministry of the Interior of the German state of Bavaria, Joachim Hermann, has reiterated Germany’s support for Romania’s accession to Schengen as soon as possible. Hermann voiced his satisfaction with the progress Romania had made in its preparations for joining the Schengen Area, after a meeting with Romanian state secretary Doru Costea. The Romanian official expressed his appreciation for the cooperation between the two countries in the process of preparing Romania for accession to the Schengen Zone, underscoring that the country had met all the technical conditions set down in the relevant acquis, which progress reports had pinpointed.
Romania keeps higher taxes for multiple properties
The Romanian Government will keep the higher taxes levied on owners of two or more buildings into 2012, supplanting a law approved by Parliament that limited their application to this year. In 2010, the government also doubled the tax on vehicles with an engine capacity of more than 2,000 cc in order to increase budget revenues. Taxes paid by owners of multiple buildings have been raised by 65 percent for the first building other than their own residence, by 150 percent for the second such building and by 300 percent for subsequent ones.
Government gives money to schools to pay construction debts
The Government has assigned EUR 4.2 million to the Education Ministry’s 2011 budget to pay off debts schools across the country have accrued to construction firms for renovation works. Under the government decision, the money will be distributed to school inspectorates by order of the education minister and will be used to pay off debts to building firms and to finance current expenses.
The Diplomat September 2011
President Basescu calls for ‘United States of Europe’ The Romanian President Traian Basescu has said he is in favor of the creation of a “United States of Europe”, arguing that Europe will be able to remain an economic and military power only by individual states ceding sovereignty. Basescu added that the idea of establishing the United States of Europe (USE) had already been discussed, and that the crisis called for “bold measures”. The president said that he was not sure that today’s politicians could convince the people that a USE would not affect their culture or traditions. The Romanian head of state asserted that the European Union’s future as a political structure was uncertain unless proper decisions regarding its functioning were taken. “This is nothing original, nothing new under the sun,” said Basescu. “Yet this is a time of economic crisis where there are risks of the recession returning. I say risks because we have not reached that stage, but there are risks nonetheless, and crises call for bold measures.” Romania’s president added that it would
be hard to say how quickly the United States of Europe could be established, but that national governments have proved they can be “vanquished” by markets and the will of investors. ■
Romanian budget adjustment: more money to transport and agriculture The Romanian government has carried out its first budget adjustment for the year, with more money being awarded to the Ministry of Transport and Ministry of Agriculture. The sums were allocated in response to positive news from the economy, with a 1.5 percent increase estimated for this year,
premier Emil Boc announced. The general consolidated budget execution is RON 11.3 billion, representing 2.07 percent of GDP, below the RON 12.6 billion limit agreed with the International Monetary Fund, World Bank and European Commission. The Ministry of Transport received an additional RON 1.69 billion, while the Ministry of Agriculture was given RON 910 million. The Ministry of Health was allocated only RON 341.2 million. To fund the amendment, the budget of the Finance Ministry will be reduced by RON 593 million and that of the Ministry of the Environment by RON 78.3 million. According to the media, in the first six months of this year, income from tax on profit grew by RON 155 million, as a result of rebounding economic activities. Revenue from income tax rose by RON 144 million, with the premier attributing this to the appreciation of gross average salaries. The main increase comes from excises, which brought an additional RON 1,645 million to the budget. Most of this sum comes from tobacco products. Non-fiscal incomes hiked by RON 574 million. ■
economics Government to freeze public sector hiring and bonuses, halt pension hikes and introduce new property tax Romanian public sector employees will receive no vacation, gift or meal vouchers until 2014, no bonuses until 2013 and will only be compensated for overtime with time off in lieu, under the Government’s fiscal-budgetary strategy for 20122014. The Government has also vowed to call off some pension raises scheduled for 2012 and wants to introduce a new property tax system that will generate more money for the state budget. Under the strategy, only one in seven vacant public sector positions will be filled through to 2013 and public institutions will not be allowed to purchase cars, furniture or office equipment until 2014. Meanwhile, state officials will postpone certain pension raises that would have taken effect next year until 2014, arguing that the lack of a “sustainable framework” for the application of the pension law will increase the social security budget deficit. The new pension law, which came into
force on January 1, 2011, stipulates that workers who met certain conditions after April 1, 2001, would receive a 25 percent increase in their monthly pension base, calculated as the ratio of the individual gross salary to the average gross salary in that particular month, while a correction index would be applied to the yearly score of people who retire this year, calculated as 43.3 percent of last year’s gross average salary and a pension index in effect at the time. Both these raises were to take effect on January 1, 2012. The Government will also change the building, land and vehicle tax regime, introducing a new calculation method that will allow earnings from this source to increase by more than EUR 233 million over the next three years. The strategy, designed to save the Government tens of millions of EUR over the next couple of years, was approved by the Government in mid-August. ■
Ministry of Transport amends Bechtel’s Transylvania Motorway contract The Ministry of Transport has modified its contract with the American company Bechtel for the construction of the 415 kilometer long Transylvania Motorway. Bechtel will finish work on two segments of the motorway, and the remaining six will be awarded to other companies by auction. According to Minister of Transport Anca Boagiu, the early termination of the contract with Bechtel cuts the cost of the motorway by 50 percent, to EUR 6.9 million per kilometer. Bechtel will go on working on the Campia Turzii-Gilau and Suplacu de Barcau-Bors segments of the road, which amount to 118 km of highway. According to Prime Minister Emil Boc, the US firm will receive no compensation for the changing of the contract. The price for the segments on which Bechtel will continue to work will be reduced to EUR 6.9 million per km, from EUR 14.7 million. For the other segments, the estimated rate is EUR 7.2 million per km. The Government also has to pay Bechtel EUR 90 million of outstanding debt. Minister Boagiu commented
Fitch: Moderate risk of fiscal slippage in 2012
Fitch Ratings believes that Romania will face a “moderate risk” of fiscal slippage around the election period in 2012, which could put downward pressure on its sovereign ratings, it said in a report. “The agency considers that there is a moderate risk of fiscal slippage, mainly due to parliamentary elections scheduled for November 2012,” states the document. “Further measures are needed to reduce the budget deficit and achieve the deficit target in 2012, less than 3 percent of Gross Domestic Product (GDP).” The agency predicts that the budget deficit will narrow next year to 3.5 percent of GDP.
Romania suspended from selling carbon credits
Romania has lost about EUR 1.8 million after it has been suspended from selling around 300 million carbon credits. The Romanian Agency for Environment Protection (ANPM) failed in reporting correctly the national emissions to European institutions, according to media reports. “The Kyoto Protocol committee has decided to suspend Romania from trading green certificates, after it noted breaches in the national inventory of carbon emissions. The decision will apply until we will meet all requirements,” said Laszlo Borbely, Environment Ministry. Following the costly mistake, Nagy Iosif, the ANPM chief resigned.
Bucharest-Ploiesti motorway: 10 km ready in 4 years
that modifying the deal with Bechtel was made possible with the aid of the United States Embassy and Romanian President Traian Basescu. The Transylvania Motorway project began in 2004, involving the construction of 415 km of motorway for EUR 2.2 billion. Seven years after the project started, barely 10 percent of the motorway has been built. .■
The first 10 km of the forthcoming A3 Bucharest-Ploiesti motorway has been laid down, more than four years since the project was started. The motorway will have a total length of 42.5 km and must be finished in the next five months. Works on the road were delayed for four years, because of disputes between the construction company and the Romanian authorities. Romania’s transport minister Anca Boagiu said in August that about 130 kilometers of highway will be finished in 2011, to include the Timisoara-Arad, Medgidia-Constanta and Bucharest-Ploiesti sectors, as well as the Arad and Constanta beltways. According to Boagiu, the national roads authority CNADNR will also finish upgrade works on 515 kilometers of national road.
economics Government to sell 20 percent stake in Tarom
Romania’s Government wants to sell off 20 percent of shares in national airline Tarom on the Bucharest Stock Exchange. The Government issued a decision approving Tarom’s privatization strategy, as part of the state’s commitments to the International Monetary Fund and European Commission. The Transport Ministry is in charge of the strategy’s implementation and the sale of the stake through an initial public offering on the BSE. The timing of the sale will be decided by the Executive.
Foreign residents in Romania to pay taxes sooner
Foreign residents in Romania will start paying tax on income earned both locally and abroad one year after receiving resident status, according to a draft decree amending the Tax Code. These incomes will be taxed from the first year after a person becomes resident in Romania, at the same time as the payer receives the right of deduction Romanian citizens have. Currently, a non-resident individual who fulfills the conditions of residence in Romania for three years pays taxes on incomes obtained from any source, both from Romania and abroad, from the fourth fiscal year. In order to be considered resident, an individual has to live in Romania for more than 183 days per year, or to be a Romanian citizen working abroad.
Bucharest to get new multi-purpose sports center by 2013
Romania’s Ministry of Regional Development and Tourism will build a multi-purpose sports center in Bucharest by 2013, which will seat 16,000 people and cost EUR 60 mln, according to a draft Government decision, quoted by news agencies. Construction will last three years, starting from 2011, and the money will come from the state budget. The new facility will be built near the Lia Manoliu national stadium, on the spot currently occupied by a skating rink. The site already has training halls for gymnastics, weightlifting, judo, boxing and athletics, which are currently used by Romania’s national and Olympic sports teams.
The Diplomat September 2011
Private management for 15 state-owned companies The Romanian Government and the International Monetary Fund (IMF) have drafted a list of 15 state-owned companies that will be put under private management, IMF mission head Jeffrey Franks said at the beginning of August. “It is the IMF’s recommendation that the largest state-owned companies that are not up for privatization be placed under private management,” said Franks. The IMF official later told Mediafax news agency that the list will include firms such as Nuclearelectrica and Hidroelectrica, as well as railway companies CFR Marfa, CFR Calatori and CFR Infrastructura. The authorities in Bucharest are expected to hire an international HR company to select
the future managers. Romanian President Traian Basescu also spoke about state-owned firms, saying that he did not rule out the possibility that some of them might go bankrupt, and that the Government was not obligated to constantly step in and save them. However, Basescu declined to give any examples of such companies. “A list hasn’t been made but the Government, unable to pay off the debts of all these firms, will have to allow creditors to recover what they are due from these companies,” said the president, according to Mediafax. “We can no longer tolerate gangrene in Romania’s economy. The Government bailing out any state company will be a thing of the past.” ■
Romanian companies to pay profit tax once per year Companies will in future be able to choose between paying their profit tax every quarter or once per year, but the latter option will require an advance payment of 25 percent of the profit tax owed for the previous year, according to a draft ordinance amending Romania’s Fiscal Code. Currently, only banks can pay profit tax once per year. Under the quarterly payment system, companies will have to determine the profit that they owe by calculating their revenues and expenses, and other elements involved in adjusting the tax base, recorded in each quarter. Non-profit organi-
zations and taxpayers deriving profit mostly from the cultivation of cereal, industrial plants, horticulture and viticulture will continue to pay profit tax once a year, without advance payment being required. ■
green energy Hanalei Finance to launch renewable energy projects in Romania
EC law to support renewable energy projects through green certificates The European Commission (EC) has approved a law that grants incentives in the form of green certificates to investments in renewable energy projects. Law 220 was initiated by the Romanian authorities as early as 2008. According to Joaquin Almunia, deputy president of the EC in charge of competition policy, the law should help Romania meet its renewable energy targets by 2020, without distorting competition. Under the draft submitted to the EC for approval, green certificates will be awarded for 15 years to electrical power producers for each MW obtained through renewable sources of energy, such as wind, water (hydro power plants), solar, biomass, landfill gas and gas fermentation sludge from wastewater treatment plants. The certificates issued by the state to the renewable energy producer can be sold on to the
electricity distributors that are compelled to buy them each year, in a proportion corresponding to the minimum feed-in quotas of the electricity they supply to final consumers. The quotas go from 10 percent in 2011 to 20 percent in 2020, while gross final consumption in Romania passed 45 million MWh in 2010. Under the law, if the distributors do not meet their target, they will pay penalties to Transelectrica, energy network operator. The money will be used to support small renewable energy producers. According to the EC, around 500 companies, estimated by the National Energy Regulatory Authority (ANRE), could benefit from these incentives by December 31, 2016. Under the same law, some renewable energy providers will be given priority in accessing the distribution and energy transportation network. ■
Verbund starts wind farm in Tulcea The Austrians from Verbund have started a EUR 300 million investment in a wind farm in Tulcea, in the Casimcea area, the largest electricity project developed by an Austrian company in Romania. Verbund, which has global businesses worth EUR 3.5 billion, plans to complete and prepare the wind farm for exploitation by next year. According to the project description submitted to the Romanian Ministry of Environment and Forests, Verbund has joined with a local developer in Tulcea to build the 200 MW wind farm. The proj-
ect will consist of 77 turbines in four groups. Tulcea is also on the map of the Portuguese company Martifer, which signed a financing agreement worth EUR 23 million with Banca Comerciala Romana (BCR) in April this year for a wind farm of 42 MW in Babadag, in the Dobrogea region. The Babadag project has 20 turbines, split into two groups, of 16 and 4 turbines respectively. Martifer intended to start a wind farm in Babadag in 2007 but disagreements with local authorities caused the project to be postponed until 2010. ■
GE Energy, Prowind and Transelectrica to build EUR 500 mln wind farm in Vaslui GE Energy and the German renewable energy developer Prowind have inked a contract with energy transport operator Transelectrica to link the four 300 MW wind farm projects from Vaslui, worth EUR 500 mln, to the national energy system. “The wind farms will deliver many jobs in the Vaslui area,” said Johannes Busmann, founder and owner of Prowind. GE intends to deliver 120 tur-
bines, with the first coming in the second half of next year. According to Carmen Neagu, regional manager of GE Energy for SEE, the electricity network connection agreement with Transelectrica is an important step in supporting the renewable energy plans of the Government. These objectives target the production of 24 percent of the entire energy in Romania from renewable resources. ■
French investment fund Hanalei Finance will launch two renewable energy projects in Romania worth some EUR 35 million, according to media agencies. The first project – a wind farm with a capacity of 30 MW – will be located in the Dobrogea area. The second – a micro hydro power plant – will be built in the mountains. Works will most probably start next year. The fund is active in Romania through its subsidiary Windtechnics, which provides maintenance services for wind turbines.
Electrica to run two wind farms in Constanta and Galati
Electricity supplier and distributor Electrica estimates that it will operate two wind farms – currently under construction – by the end of next year. The first wind farm is located in Chirnogeni, Constanta County, while the second is in Frumusita, Galati County. “The acquisition procedure is currently underway for the 45 MW wind turbines that will be installed at the Frumusita wind farm,” said Electrica officials. “In September, we will publish the announcement of intent for the auction of wind turbines at Chirnogeni. The auction will start after the construction license is obtained.” The Frumusita wind farm has been authorized for construction and the connection contract is signed. For the 50 MW park in the Chirnogeni area, the feasibility study has been carried out and documentation submitted in order to secure approval.
EUR 90 mln wind farm project to be build in Suceava
Wind Energy Management Company, controlled by French investors, has received authorization to build a EUR 90 million wind farm from the Suceava Environment Agency. “The project has an installed capacity of 54W, and will be built near Ilisesti, Suceava County, on an area of 14 hectares,” said Ernest Virgil Popovici, minority shareholder in the Wind Energy Management Company and also president of the Romanian Payment and Intervention Agency in Agriculture (APIA). Popovici added, without giving details, that the company intends to develop more such projects in Romania and elsewhere.
appointments Ezio Salvai is the
new chief executive officer (CEO) at Intesa Sanpaolo Bank Romania. He will be responsible for coordinating all the bank’s activities and strategy. Salvai was president of the management board at Banka Koper, Slovenia, for the last three years. He started his banking career in 1972 with Istituto Bancario Sanpaolo in Turin and held various executive positions, both on the Italian market and abroad. Salvai was head of the CEE banks department of the newly founded Intesa Sanpaolo Group at that time. He also had a five-year mandate as CEO and member of the board at Inter Europa Bank Hungary.
Florin Golovatic has been appointed presi-
dent of the board and general manager at Uniqa Asigurari. He had previously served as CFO for the insurance company since 2010. Golovatic brings extensive expertise on the financial market, after more than 13 years spent as audit director for financial institutions at accounting and consultancy company KPMG.
10 The Diplomat September 2011
Monica Hodor is the
new CFO of Enel Romania, and will coordinate the accounting, fiscal, financial and controlling departments for entities within the power company. She replaces Vincenzo Ranieri, who has completed his mandate. Previously, Hodor held the position of general manager and financial director of Praktiker România and managed the accounting and controlling department of the Italian oil group ENI.
Jim Barber, a 26-year
UPS veteran, has been appointed president of the UPS Europe Region with responsibility for Europe, the Middle East and Africa. He succeeds the retiring Wolfgang Flick as the region’s president. Barber will be responsible for all UPS’s package, cargo and logistics operations in 120 countries and territories with more than 40,000 employees. Flick has retired after 35 years of service for UPS.
Oana Scrobota has joined Bostina si Asociatii, to which she brings her expertise in the fiscal field to meet the increasing demand for this practice segment seen by the 130-strong team of attorneys at the law firm. Scrobota graduated from the Faculty of Law at the University of Bucharest and has extensive tax experience, having worked as legal adviser for institutions such as the Ministry of Public Finance and the National Agency for Fiscal Administration (ANAF). She graduated from the Faculty of Law at the University of Bucharest in 1997 and holds two master’s degrees in criminalogy and criminal sciences and the management of public institutions. Monica Ene-Pietrosanu will occupy the
position of Romania R&D country manager at Intel Romania Software Development Center (IRSDC). Previously, she has worked for Microsoft in positions such as support group and site manager, support team manager, senior consultant and other managing positions.
investments GERMANY
Rewe OKs EUR 45 million expansion plans for Penny Market
German retailer Rewe has said it will invest EUR 45 million in expanding the discount chain Penny Market by 13 new units, to reach a total of 129 locations in Romania by the end of 2011, according to a company release. At the end of 2010, Penny Market had 116 units, while in 2009 Rewe had 99 discount stores countrywide. In 2010, Penny Market’s turnover exceeded EUR 435 million, a 4.3 percent increase on the previous year.
Alfred C. Toepfer declares major investment plans for Romania
Grain trader Alfred C. Toepfer, which has EUR 300 million worth of businesses in Romania, has announced plans to develop 12 local silos along the banks of the Danube, another in western Romania and an export terminal in Constanta harbor. Through these investments, the company means to directly acquire grain from farmers, in order to stash and export it. The firm has a storage capacity of 110,000 tons of grain in Romania. It competes on the local market with the American company Cargill, Dutch firm Nidera and Swiss entities Glencore and Ameropa.
GREAT BRITAIN
British fashion brands expand in Romania
British fashion retailer Next has opened a new store in Bucharest inside AFI Palace Cotroceni. The store, selling clothes for children, will occupy a 280-sqm sales area on the mall’s ground floor. The Next brand is operated in Romania by Ixy Retail, which opened the first two Next stores in Romania in 2008, in Baneasa Shopping City and Liberty Center. AFI Cotroceni will also be home to the entry onto the Romanian market of another British brand, New Look. New Look will continue its expansion in Romania with shops to be opened in Cluj-Napoca and Constanta by the end of the year.
ROMANIA
Romgermed invests EUR 20 million in private hospital in Bucharest
Private medical services group Romgermed, controlled by businessman Dorian Sam Schwartz, has started work on building a private hospital in Bucharest, with an investment of EUR 20 million. The hospital will hold between 150 and 200 beds over 5,000 sqm, located in Calea Plevnei, in the center of Bucharest.
Conarg opens EUR 20 mln hotel in Pitesti
Romanian businessman Valentin Visoiu, who controls the Conarg group of companies, has opened the four-star hotel Ramada in Pitesti, following an investment of EUR 20 million. The project has been developed by Confident Travel, a company in which Visoiu and two other Romanian investors are shareholders. So far, Conarg Real Estate, the real estate arm of the group, has delivered 1,500 residential units in Bucharest-based compounds Quadra Place and Quadra 2, located in the Politehnica area, and the Rasarit de Soare residential complex, in Titan, east Bucharest.
Bucharest to see two theme parks worth EUR 31 million in the next year
The Rami Dacia company is investing EUR 25 million by the end of September in launching Tetra Park, a 30,000-sqm entertainment park in Bucharest’s sixth district. The second entertainment development in Bucharest will be financed with EUR 6 million from the City Hall of district four, which will fund a similar development in Parcul Tineretului, to be completed in May 2012. The park will occupy 18.4 hectares and will be partially opened to the public from December 2011.
11
decision maker
On the long regional road Romania’s fortunate position, by the Black Sea and the Danube, could help it to support cluster creation and become a regional hub – but location alone is not enough. Costin Lianu, manager within the Ministry of the Economy, tells The Diplomat-Bucharest the advantages of clusters, the immediate action plan and the financial resources that could be leveraged to support this strategy. By Magda Purice
R
omania could become the Eastgate Trade Hub of the CEE region if the right transportation and logistics policies are implemented, say the authorities. But specialists argue that this is easier said than done. The reward could be substantial, as Romania has the opportunity to access EUR 25 billion by 2025 to boost GDP and create 150,000 new jobs, according to data provided through European Gateways Platform. Moreover, since it joined the European Union (EU), Romania can access EUR 19 billion of funds through to 2013, of which EUR 8.5 billion is assigned to infrastructure and regional development.
Baby steps towards a regional hub
Romania’s National Export Strategy, coordinated by Costin Lianu, manager within the Ministry of the Economy, Trade and the Business Environment (MECMA) told The Diplomat-Bucharest that Romania must capitalize on its fortunate geographical positioning and the infrastructure potential delivered both by the Black Sea region and the Danube corridor for this strategy to bear fruit. The first half of the year brought the first steps in developing Romania as a regional hub in Europe, with the creation of the Romanian Black Sea Gateway Association, an organization designed to promote the development of Romania’s potential in the field of re-export activities, transport and logistics. According to Lianu, becoming a hub for international trade routes between Europe and other continents will take decades, but there are measures to be taken now that would bring concrete results in a few years, namely: the implementation of import VAT deferment for all companies, no matter the value of the imports, the adoption of the Global Fiscal Representative system, custom duties deferment procedures and developing an inter-modal 12 The Diplomat September 2011
strategy for Romania. The EU will rethink its strategy for structural funds between 2014 and 2020 and the financing will be offered according to competitiveness and efficiency standards, Lianu explains. As such, by 2014, Romania must develop a very clear strategy for the Danube corridor and Black Sea region, the two poles in developing a regional hub, if it wants a slice of the EU funds.
Clusters sell better
Clusters are information networks related to industries, operated by multiple specialized companies and institutions. Currently, Romania has 20 innovation clusters and by the end of the year more are expected to be formed within the aviation, marine, renewable energies, furniture and automotive industries. According to MECMA, of the 20 clusters, only 14 are involved in European projects. Creating further clusters in Romania could put the country on the map for large investments, according to Lianu. “The plans are on a very long term. The Netherlands developed over several decades, but we could see the first results in five years,” said Lianu. More than 2,000 regional clusters have been identified in Europe by the European Cluster Observatory. Regarding the concepts of regional coordination and regionalization, the Lisbon Strategy has as its objective on the long term to spend 3 percent of European GDP for development and research by 2020, which could lead to 3.7 million new jobs, while Europe’s yearly GDP could rise to EUR 800 billion by 2025.
Non-EU markets, a key target
The new Romanian National Strategy for Export until 2015, approved in May, underlines the focus on non-EU markets and fields such as the low carbon emission industry,
nanotechnology, design, renewable energy, automotive, furniture, textiles, IT and technology and organic agriculture. Currently, almost 28.5 percent of Romanian exports target nonEU markets including Russia, Japan, India, North Africa and Arabic states. “Accessing the energy resources and raw materials is already a priority and part of the countries’ strategy and Romania has major potential in this respect,” said Lianu. According to ministry data, 50 percent of all exports come from 100 large companies while the rest stem from SMEs. Almost 700 SMEs operating in all these sectors are included in the ministry’s financing strategy. In 2010, exports reached EUR 37.2 billion, a record value over the last two decades, while January 2011 brought an increase in exports of almost 48 percent compared with the same month of the previous year. By 2015, Romanian exports are estimated to grow at a y-o-y rate between 12 and 15 percent, with a cumulative value exceeding 50 percent. Romania has a big chance to promote, and therefore extract profits from industries such as organic agriculture and design (in fields like furniture, textiles, footwear, handmade items) where awareness of local products has already been created. On this subject, Lianu says that the demand for organic food in Northern and Western European countries is high, but the export advertising in these regions is costly, especially for Romanian producers, which have difficult access due to market regulations. Therefore, the need remains to create regional centers and marketing associations that could ultimately support the regional exports of producers. According to statistics, last year, 40 percent of the international fairs and exhibitions organized by Romania and financed by state funds targeted areas like Russia, the Middle East, Asia and the US. ■
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aviation At Berlin’s main airport, an Airbus 320 – belonging to Air Berlin – is getting ready for takeoff. It gets the green light and starts taxiing down the runway. Minutes later, the plane is airborne. This is the first Airbus put together using components made in Romania, after Premium Aerotec, a division of the French-German group EADS, opened a new production facility in Ghimbav, Brasov County. The investment should remind local authorities that just two decades ago, Romania was one of the top ten countries in the world in the field of airplane manufacturing. By Cerasela Marin
Romanian aeronautics industry prepares for lift-off P
rime Minister Emil Boc walks confidently towards the stand. He smiles broadly at the audience and begins his speech by congratulating the Premium Aerotec division of the EADS group for its “successful investment” in the aircraft components factory in Ghimbav. “It’s an example of commitment, meant to put Brasov back on Romania’s aeronautics map,” says Boc. The Prime Minister goes on to assure everybody that such investments will be encouraged by the Romanian government, through state aid. “We’ve already given out about EUR 4-5 million of a total of EUR 19 million which will be awarded in the form of state aid, in line with national and European norms,” adds Boc. Up next after the Prime Minister is none other than Louis Gallois, 67, president of EADS’s administrative council. Brief and to the point, Gallois says that Romania has made significant progress since his last visit here, ten years ago. “Romania has completely changed in a positive way: it has modern buildings, clean streets and modern cars – maybe slightly too many cars. This is one more reason why we want to be here,” says the CEO of EADS. Gallois also reminds his audience that another EADS division is also present in Ghimbav – Eurocopter, a company owned in partnership with IAR Ghimbav. “The helicopter division, Eurocopter, has been functioning in Romania ever since 1973, with staff that have been trained constantly by EADS,” adds Gallois. One by one, Ghimbav factory officials take the stand to give those present at the event more information about the invest14 The Diplomat September 2011
ment. We find out from Gunther Butschek, Airbus’s executive manager and president of Premium Aerotec’s supervision committee, that the production facility was finished in less than a year, and that it started production in January. “We are talking about a greenfield investment, worth EUR 40 million, which stretches over 60,000 sqm,” adds Butschek. In turn, Dieter Meiners, administrator of Premium Aerotec and president of the administrative board of Aerotec’s local branch, says that production will be developed gradually until the end of 2012, and from that moment on the factory will have 500 employees, double the number currently working there.
EUR 40 million investment takes flight
After the speeches and a long session of congratulations and handshakes, the phalanx of officials heads towards the production hall for a tour of the factory, which has that “new” smell all over it. Robust, longarmed machinery is continuously rattling. You can barely hear the person next to you talk. “And now it’s actually quite quiet,” says one factory worker, smiling.
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million euro is the whole project worth, including EADS’s suppliers
We are now in an enormous hall where Airbus engine components are “tailored”. I approach a table where, on each side, workers are seated. They are looking at side by side drawings and measuring pieces of metal that will then be sanded. I am greeted by their foreman, the man who can best explain what goes on in there. “We have orders for small single-stage components. The factory specializes in processing metal, from milling and turning to debarring,” says Serb Gones, proudly. “In the future we will also make larger components and even entire sections of planes.” Each employee is appropriately clad in blue overalls with the company logo embroidered upon them. The workers are young, aged between 24 and 40 – surprisingly so, considering that they are making such complex components. “Each employee has been on training courses, either in Germany or in Romania, but held by German experts,” says the foreman. “That’s where they picked their specialties, especially since most of them have never worked in aeronautics before.” The staff looks content. The pay is good and the conditions are excellent, as the all the equipment is latest generation. Adrian Popa is 24 and has recently graduated from college. He majored in technological engineering in Brasov, in the Industrial Robotics division, and he’s been working in the Ghimbav factory for a year. “I sent my resume and I was called in for an interview. Because of my educational background, it was easy for me to find a specialty fast,” says Popa, who now works in the assembly division. He is one of
aviation
“We are talking about a greenfield investment, worth EUR 40 million, which stretches over 60,000 sqm,” Gunther Butschek, Airbus’s executive manager and president of Premium Aerotec’s supervision committee
the workers who were trained in Germany, where he says he learned that quality is more important than quantity. “I underwent three months of training, two months in Romania and one in Germany. I sat next to our German colleagues; basically every one of us had a mentor from whom we ‘stole‘ trade secrets. They weren’t at all arrogant and they told us everything we wanted to know.” In fact, very few of the people working at Premium Aerotec have prior experience working in aeronautics. Most employees come from the car-making industry, where things had been going better over the past ten years, says Ioan Bortos, a quality control supervisor. Bortos outlines the route that the equipment manufactured at the factory takes. The three production lines make about 12,000 custom markers. Three weeks after the order comes in, the components are ready. They then take a two-day trip to Germany, from where they leave to be assembled in France, after they are thoroughly checked
and prepared. In total, it takes a few months for the components made in Romania to end up in an Airbus plane. “If the infrastructure in Romania were better and if we had an airport, things would move much more quickly,” concludes Bortos. But until there is an airport in Brasov, perhaps Romanians simply ought to be thankful that a large concern like EADS continues investing in Romania. The entire Ghimbav project was a challenge, says a representative of consultancy company Noerr. “The whole project in itself is worth about EUR 90 million, together with EADS’s suppliers,” says Iulin Sorescu, ACCA associated partner and financial advisor at Noerr.
Orders worth USD 70 billion get off the ground
The production at Ghimbav is constantly growing from one month to the next, especially as EADS is getting more and more orders for Airbus civilian aircraft. “The outlook is very good for us,” says Louis
Gallois, in a short interview with The Diplomat – Bucharest. “Just last month we received 730 orders for planes, at Paris-Le Bourget. This means that we closed deals worth USD 72 billion, an all-time record.” It now becomes clear why the production facility in Ghimbav, the largest of its kind in Central and Eastern Europe, has to make 1.3 million components a year. All models of Airbus planes – from the A320 and A330 to the A380 – will be fitted with Romanian components. Premium Aerotec is the biggest European maker of structures for large aircraft. The company was established in 2009 as a subsidiary of aeronautics and defense group EADS, which is the sole owner. EADS has 7,000 employees worldwide and had a EUR 1.3 billion turnover in 2010. ■
The Romanian aeronautics industry’s turbulent flight In 1989 the Romanian aviation industry ranked ninth worldwide for production capacity, a position similar to Israel and Spain. Over 30,000 employees, two airplane makers and one helicopter producer, a repair center, factories that assembled engines and equipment and research institutes made up a sort of a holding that broke into pieces after 1990. Romania’s airplane industry proved much too big a hat for any post-revolutionary government to wear, and production was left to drift. Some factories were privatized, while others are still waiting for buyers. The Bacau factory, specialized in Soviet-made army airplane repairs (MIG 21 and MIG 29 aircraft), was rejuvenated when it started modernizing the MIG 21, in a joint billion-dollar project with the Israeli company Elbit. Aerostar Bacau was boosted by its decision to carry out maintenance on civilian planes, specifically Boeing 737s. The company
was privatized in 2000, with the majority stake being bought by a consortium made up of the Employees’ Association and the company IAROM Bucuresti. Meanwhile, the Avioane Craiova and Romaero Baneasa factories, which once made the IAR 93, IAR 99 and Rombac 1-11 aircrafts, remained in state hands. Avioane Craiova was supposed to make 400 IAR 99 planes for the army, but it only got around to making 25 by 1990 and a few more afterwards. The company’s hopes for survival were pinned on possible orders from the military, but they never came. In the case of Romaero, which currently has the best production capacities, things are further complicated as the factory and Baneasa Airport have common land. However, Romaero’s chances for survival are high, as the firm currently has a USD 30 million contract with Lockheed Martin in effect, for the maintenance and repair
of the C130 Hercules aircrafts owned by the Romanian army. Meanwhile, it has also managed to become a provider for Airbus and Bombardier. However, orders are far below the real potential. IAR Ghimbav, which produces the Puma-style IAR 330 helicopter, has been put up for privatization several times but with no success. However, it has been kept afloat by a deal with Eurocopter Romania. All of IAR Ghimbav’s maintenance, revision and repair assets, meaning buildings, land, facilities and equipment, will be transferred in stages to Eurocopter Romania. The French-German-Spanish group Eurocopter, a division of the EADS group, is present in Romania through the Eurocopter Romania joint company, established in 2002 by the EADS and IAR Ghimbav. The Ministry of Economy holds 64.89 percent of IAR Ghimbav’s capital.
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Romanian healthcare system awaits life-saving cash injection Romania’s public healthcare system still has no idea how to shake off its ailments and embrace the 21st century. The sector has received blow after blow. From the Government’s side, the legislation is incomplete, cluttered and unclear and money is short. In the trenches, hospitals lack basic drugs and the necessary equipment for diagnostics, treatment and surgery. Almost every minister hasn’t yet managed to find a cure for this diseased body. One can’t help but ask if it’s not better, rather than fix it, to tear it down and build it up again. By Cerasela Marin
I
n the 20 or so years that have passed since the revolution that overthrew the Communist regime, Romania hasn’t built any public hospitals, investing only in the partial upgrade of some of its facilities. But these measures were a long way from remedying the problem and were not enough to keep up with technological advances. What’s more, Romanian medics are leaving to fill the shortfall of skilled workers in Western Europe, where they command better salaries than they do at home. At a management level, hospitals are rarely run efficiently – most of the time doctors themselves run hospitals, rather than professionals specialized in healthcare management. At a social level, the problem of medical staff soliciting bribes from patients is endemic, and there are also suspicions of kickbacks between some hospital procurement staff and private providers of medical equipment and pharmaceuticals. Moreover, the leadership of the ministry is constantly changing, bringing more and more instability.
Out with the old, in with the new
“Managing the money will be the main priority during my tenure. The medical system needs to be made efficient, from the management to healthcare programs. We have to get money into the system.” These are the promises of the new Romanian minister of healthcare, Ritli Ladislau, who came into office in the middle of August. The 20th holder of the post wants to heal a sector that is already in agony, a sick system that most of his predecessors were unable to 16 The Diplomat September 2011
fix. His diagnostic is well-known to most representatives of the authorities, but the treatment is expensive, especially when one is dealing with an organism on the brink of collapse. Ritli Ladislau was appointed after UDMR member Cseke Attila resigned because of the Government budget rectification, a measure that the Executive announced without consulting the minister beforehand. “A necessary signal to show the way the Ministry of Finance deals with the issue of healthcare in Romania,” said Cseke Attila when announcing his resignation. Attila’s tenure ended after a year and seven months, during which time, although young and inexperienced in the field, the minister took some unpopular measures, closing down 69 hospitals considered to be cost-ineffective and slated for re-orientation, and completing the system’s decentralization. “The measures to re-shape the medical system will undoubtedly continue,” said the new minister Ritli Ladislau. He referred to the system’s “financial problems and the way we manage them” and added, “we can’t
20
is the number of ministers who have led the healthcare sector after 1990
delude ourselves.” The minister is aware that he will have to proceed with the reforms, even though his sector receives just 3 percent of the Gross Domestic Product (GDP), almost half of the proportion Bulgaria’s healthcare sector gets and three times less than France and Germany.
Overcrowded wards
Romania does not have a clear and coherent strategy for the development of its healthcare system and few Romanians trust the efficiency of public hospitals. “This is perhaps the biggest problem. More important than financing, even,” Adina Geana, expert in medical services and health insurance, told The Diplomat-Bucharest. “We are managing the system in an obsolete way. We still work with the system like we used to do before 1989. We keep on thinking in terms of units, instead of medical services. We’re thinking about how much it costs instead of what results it yields.” Adina Geana says that the issue of overcrowded hospitals is more than 20 years old, but until now nobody has tried to devise any strategy to try to solve it. “People stay admitted in the hospital for too long; some even check into hospital like they would into a hotel. The big problem here is that hospitals don’t care, because they get the same money. The number of doctors is set by the number of beds, not by the number of patients.” To solve this problem, two major steps have been taken in the public healthcare system in the last two years. The first is decentralization – the majority of public hospitals are now in the process of switching from the
focus medical
5,700
is the number of hospital beds that Romania must ax by the end of this year, down to 129,500 jurisdiction of the Ministry of Health to that of local councils. The second is the closure of hospitals that can no longer deal with emergencies. Government officials supported the two measures precisely because, according to them, they would reduce system expenses and improve efficiency. Prime Minister Emil Boc is however convinced that decentralization will prove itself effective. “As a citizen, it’s one thing to demand answers from a mayor or from the town council, and another to demand them from the Prime Minister. It’s a lot harder to get to the Prime Minister. In the medium and long term, the decentralization process will help the medical sector better answer people’s
need for improved healthcare and infrastructure at a local level,” Emil Boc said. Meanwhile, the closure of small medical centers was apparently aimed mainly at improving medical performance, because most of these centers were just “places for processing patients”. Out of the 470 plus Romanian hospitals, only a few can provide full medical assistance. A total of 69 units have been shut down since April. This is also because Romania must reduce the number of hospital beds by 5,700 by the end of the year, to 129,500 units, as a result of negotiations with the International Monetary Fund (IMF). The public’s reaction was far from positive, with medical staff and patients frequently protesting. “What they have done is a crime,” says Anca Ionela Nicoleta, manager of Baia de Aries Health Centre, one of the hospitals that have been closed down. “People will die because of lack of immediate medical aid. The nearest hospital is 25 kilometers away and it will not be able to handle the extra flow of patients.”
The race for certification
The number of hospitals that will be shut down because they are inefficient will not stop at 69, say specialists. The total will rise
69
hospitals considered to be cost-ineffective were closed down during the mandate of former minster Cseke Attila after they have to pass the certification process, which was launched this year. More than 500 hospitals, public as well as private, will be assessed by seven officials who specialize in finance, management, quality of service and patient rights. “The hospitals will be analyzed based on certain quality values, graded and put into several categories,” Dan Romulus Serban, general manager of the National Commission for Hospital Certification (CONAS), told The Diplomat-Bucharest. The most points will be awarded for patient rights and quality of medical services. According to the CONAS manager, if a hospital gets a score of over 85 points, it
Hospice Casa Sperantei Foundation helped over 12.000 patients since 1992 The Hospice Casa Sperantei Foundation is the first and leading organization in Romania dedicated to the development of palliative care by providing medical assistance, social, psycho-emotional and spiritual support for patients with life-threatening diseases and their families in their centers in Brasov and Bucharest as well as in some rural areas. Professional doctors, nurses, social workers, psychologists, therapists and chaplains work together and provide free of charge, specialized services for adults and children adapted to their disease. Patients can be cared for either at home by the home care team or in the inpatient unit as well as in the day centers or the outpa-
tient clinics – as they wish and adapted to the stage of evolution of their disease. In 2010 the Brasov clinic admitted 380 patients to the adult’s inpatient unit and 295 patients to the children’s unit. An additional 1,389 new patients were admitted to the clinic’s services and 9,666 home care visits were undertaken. New inpatient teaching hospice to be built soon The hospice in Brasov is a centre of excellence and Hospice Casa Sperantei plans to build an urgently needed inpatient teaching hospice in Bucharest. Efforts towards setting up the hospice in Bucharest progressed very successfully with an Honorary Patrons’ Board
attracting huge support for the project. The board consists of influential members such as the American, British, Italian and Canadian ambassadors, as well as General Managers of major international companies, i.e. Vodafone, the pharmaceutical company GlaxoSmithKline and Raiffeisen Bank. The Honorary Patrons Board was founded at the end of 2009 by GlaxoSmithKline Romania’s former General Manager Patrick Desbiens. GlaxoSmithKline has been a long term supporter of Hos-
pice Casa Sperantei with high involvement towards their work in Brasov and Bucharest and have had a huge impact for the Bucharest hospice appeal. Palliative Care is an approach that improves the quality of life of patients and their families facing the problems associated with lifethreatening illness, through the prevention and relief of suffering by means of early identification, impeccable assessment and treatment of pain and other issues – physical, psychosocial and spiritual.
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How ministers saw the reform of the Romanian health system Mircea Cinteza 2005
Eugen Nicolaescu 2009
Ion Balzac 2009
“We have much more difficult measures ahead of us: the introduction of personal health insurance, in addition to the compulsory insurance, and which will be available after we set up the medical service package guaranteed by the public healthcare system; the re-organization of the public health system, so that not just 5 million people pay for 21 million patients, re-organizing the hospital system for more efficient allocation of funds.”
“Decentralizing the health system is one of the targets of the reform initiated in 2005. The law decentralizes the functions that the Health Ministry has in hospital management and passes them to local administrations, and also sets the legal framework for decentralizing the management of hospital services and strengthening the public administration’s responsibility to the citizens.”
“The system didn’t work because it didn’t have any rules. We are introducing a rule today, and that rule is called ‘the Medical Service Package’. This and the health ticket are necessities and they are part of the structural reform of the health service. They will help reduce informal payments and improve the financing of the health system, thus insuring an increase in the quality of the medical service.”
is certified. A score in the 75-84.9 interval means the facility is worthy of “high trust,” and 45-74.9 means of “medium trust”. If the institution scores under 45 points, the hospitals are not certified, and their fate is in the ministry’s hands. “There are two scenarios here: either the ministry can ask for a second evaluation, or that particular hospital can become private, be re-oriented or merge with another facility,” says Romulus Serban. The Ministry of Healthcare has demanded that hospitals that fail to get certification be taken over by local or county councils and put under the command of another hospital over which the councils have authority. But Romulus Serban believes that the best way to manage these hospitals is to put them under the authority of the Church, which could then turn them into healthcare centers. “The only condition is that where there was once a hospital, a 24 hour emergency medical practice must keep functioning. You can turn these hospitals into centers for children,
senior citizens’ homes, centers for the treatment of obesity, things that the Church can get involved with. There are some churches that manage this sort of healthcare center under the authority of the Iasi Metropolitan Church.”
also to bring more money to the National Healthcare House – would be the introduction of co-payment. This is a system where most public healthcare beneficiaries have to pay small sums of money to access services. It is intended to discourage both malingerers and bribetaking, but the Government has delayed its launch. “Co-payment has already been practiced for more than 11 years, most often in dentistry,” Adina Geana explains. “It makes all income visible and taxable. This is good for the patients but not as good for those who bank illegal profits, avoiding tax. On the other hand, we are now getting close to finding out what the real costs of the services are, and we’ll be able to set standard costs for them.”
EU treatment
But certifying well run hospitals, shutting down inadequate ones and giving them away to local councils only fixes some of the issues the medical system is facing. Market players say that the whole system needs to be rebuilt from scratch. “In some cases, it’s more convenient to tear down a hospital and build it again, so it can better suit the public’s needs,” says Dan Romulus Serban. One way to solve the financial problem would be to access European funds to build and upgrade the hospitals. There are facilities in Romania that have already taken this step. The hospital in Moinesti, the Matei Bals Institute and the Deva County Hospital are three such examples. Another spender is the Constanta County Emergency Hospital, which accessed more than EUR 5 million to upgrade its building and fit it with new equipment as well as institute better waste management. The money, however, was accessed through Elena Udrea’s Ministry of Tourism and Regional Development. A major measure to reduce the number of days a patient spends in hospital – but
The real cost of treatment
Currently, nobody, not even hospital managers, can say how much each patient’s treatment costs, from the moment he or she enters hospital until the moment of discharge. Nobody is doing any math, and a lack of knowledge about the real costs leads to the precarious management of finances. Because of this, National Health Insurance House (CNAS) money goes mainly to the hospital system. The new healthcare minister, however, wants the CNAS to be coordinated by the ministry, arguing that this will lead to health-
“Co-payment makes all income visible and taxable. This is good for the patients but not as good for those who bank illegal profits,” Adina Geana, medical expert
18 The Diplomat September 2011
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Cseke Attila 2011
Ritli Ladislau 2011
“The system cannot be reformed without rules. Rule 1 – classifying hospitals by the level of performance. For each class, a level of financing will be guaranteed. For example, the first class will receive 90 percent financing. Rule 2 – the health card. “We have to enforce the health card rule. Everyone must carry the card in their pocket, right next to their ID. We are at least 15-20 years behind in introducing and enforcing this card.”
“The healthcare system must be made efficient. Healthcare programs, hospital management and the implementation of a claw-back system will bring the service more funds. Managing the money will be the main priority during my tenure. The medical system needs to be made efficient, from management up to healthcare programs. We have to get money into the system”
care money being spent more efficiently. The proposition that the governing coalition is analyzing brings the CNAS under the ministry’s coordination, but also allows it to remain independent and keeps the public functions coherent. “The National Health Insurance House keeps its autonomy, it goes on being a credit release authority, and the head will be appointed by the Prime Minister. Therefore, from a functional perspective, the house remains autonomous,” said Sever Voinescu, Democrat-Liberal Party spokesman. According to Voinescu, as far as the enforcement of public healthcare policies is concerned, “the authority of the Ministry of Healthcare in implementing these policies is acknowledged. This way, any unwanted blockage between the house and the ministry, such as those we unfortunately experienced recently, will be avoided,” Voinescu added. The CNAS president Lucian Duta said he would make no comment on the organization moving under the ministry’s authority until an official document establishing it comes out. The National Health Insurance House was created in 1999, under the authority of the Ministry of Healthcare. In 2006, it became autonomous and moved under the control of the Romanian Government. Over 470 public hospitals and another 60 private ones in Romania have contracts with the CNAS and most of the public units are financed up to
100 percent from these contracts. “In Romania we have a social health system. All citizens are obliged to pay health insurance from their wages and the CNAS uses this money to pay for medical services for those who need them,” says Adina Geana. “The issue is the lack of correlation between the way private and public operators function. The CNAS signs contracts with private and public operators under the same terms, but there are no reference points regarding the competence of each system.” But references could be obtained after the Government approves a basic package for the medical services that insured patients can have access to. “We need such a package, set up from a realistic perspective, not from an overly optimistic and exuberant one,” said the healthcare minister, Ritli Ladislau. “I think that this system, which revolves around the hospital, needs to be changed and, even if it’s been said before, we need to focus on general medicine.” But with all the measures taken by the Government, the medical sector’s fate is in the hands of doctors working in hospitals. Many young medical students choose to work abroad, while a lot of the doctors who stay in Romania become disillusioned, and therefore less interested and professional. The lack of cutting-edge equipment, of medical studies and research has a side effect for the current level of medical services that local
patients “enjoy”. “Many patients die in public hospitals because they are not diagnosed correctly,” says Dan Romulus Serban, general manager of the National Commission for Hospital Certification. “A good medical performance depends not only on what the doctor actually does, but also on the hygienic conditions that the patient has to recover in. There are a lot of germs and bacteria that have become resistant to disinfectant and these are a danger to the patients.” The resolution to all these problems is in the hands of the Ministry of Healthcare, which in 20 years has been led by just as many ministers and which, with every change of leadership, has also changed strategy – sometimes performing a total U-turn. “There is no common vision among the existing political and social structure. There is no consistency,” says Radu Lupu Gorduza, manager of General Electric’s healthcare division. “And even if there were consistency and a vision, there is no obligation. Without that, you cannot build a good system.” ■
“You can turn these hospitals into centers for children, senior citizens’ homes, things that the Church can get involved with,” Dan Romulus Serban, CONAS manager
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The public healthcare system is dead! Long live the private system! As the public medical system sinks deeper and deeper, with no reforms and no stable healthcare ministers to pull it out of the quicksand, private investors are making plans for expansion and counting their increasingly larger profits. Faced with growing demand, market players stand ready to double the number of private hospitals across Romania. By Dana Verdes and Cerasela Marin
D
octor Catalin Copaescu is specialized in bariatric and laparoscopic surgery. He’s been practicing medicine for the last 20 years, over which time he has performed hundreds of procedures. He’s spent his career working in the public sector, but its deficiencies made him think of starting his own business. “There are countless limitations in terms of securing the materials needed for modern surgical operations,” Copaescu says. “You can’t perform major procedures when the materials needed for them are three-four times more expensive than the procedure itself.” This was why Copaescu, along with seven other surgeons, started a hospital specialized in obesity procedures. “The risks for people suffering from obesity are very high. Over 10 percent of them die,” the doctor explains. “There are about 300,000 or so patients of this type in Romania, who need to undergo surgery.” About EUR 13 million and a 10,000 sqm-building were necessary for the hospital to run at European standards. “We want our activity to proceed without compromise, using state-of-the-art equipment, and to bring satisfaction to both patients and doctors,” says the Delta Hospital manager. Two months since it opened, Delta has treated 20 The Diplomat September 2011
170 patients. Most of them were foreigners, because the prices in Romania are much lower than abroad. “A gastric resection in Romania costs about EUR 4,000-5,000, while in the West it’s five-six times more,” Copaescu adds.
From conception to delivery
Delta Hospital is one of dozens of private hospitals that have launched in the last two years. The disastrous state of the public sector and Romanians’ despair that they can’t find quality services have driven the growth of a market whose worth is now estimated at over half a billion Euro. First came dentists and opticians. Then it was test clinics, and in the past few years
150
million euro is the estimated investment in private hospitals since the beginning of 2011
the first private hospitals have appeared. The investors’ stories are, in most cases, the same: entrepreneurial doctors who started their own businesses. That is the case for the biggest players on the market: MedLife, Regina Maria, Sanador and Gral Medical. Doctor Mihaela Marcu Cristescu made the first step in 1996, when she left Bucharest’s Titan polyclinic to open the first MedLife clinic. At the time, the business had four specialties, including pediatric and internal medicine. Three years later, MedLife’s first test lab was opened, but the real development started in 2004, under the lead of Marcu Cristescu’s son, Mihail Marcu. “If you look at MedLife’s evolution over the past few years, we have always had annual growth of over 30 percent. In 20072008 we grew 67 percent,” says Marcu. “These are huge growth rates, determined first of all by investment and sustained by very high demand from the market. Also, there has been a massive market shift.” But Marcu is aware that clients’ needs are maturing along with the market. “There are some fields that have developed really well, at least from a performance point of view, such as pediatrics.” In response, MedLife launched a pediatrics hospital
focus medical in June of this year. The investment was over EUR 13 million, about half the budget the company set for expansion in 2011. “We had already opened a hyper-clinic in Titan and we took over the majority share package of a major operator in Arad. The next projects planned are to open two other hospitals – a general one in Brasov and a specialized hospital in Bucharest,” Marcu outlines. A total of almost EUR 150 million has been invested in private hospitals since the beginning of this year. The largest investment by far went into Sanador Hospital, owned by Florin Andronescu. About EUR 40 million was needed to open the unit, which offers services in all medical specialties as well as surgery. A significant amount, given that the market as a whole is estimated at half a billion Euro. And the investments don’t stop here. In autumn, Medicover will launch its first hospital. “It’s going to be a general unit, interdisciplinary, with OB-GYN, surgery and pediatrics wards, a specialized outpatient ward with 36 medical and surgical specialties, an imagery center and an ambulance service,” says Catalina Balan, general manager of Medicover. Also this year, the private
clinic chain Regina Maria, the result of the merger between Unirea Medical Center and Euroclinic, will open a obstetrics and gynecology hospital, on which it will spend EUR 12 million.
Healthy expansion
While in 2000 the Romanian private healthcare market was at an incipient stage in terms of the number of private hospitals, eleven years later it has reaped tens of millions of euro of private investment in all major cities. Sfantul Constantin Hospital in Brasov, Arcadia Hospital in Iasi, Athena Hospital in Timisoara and Muntenia Medical Hospital in Pitesti are just a few of the private units that have begun operations either last year or this year. “At the beginning Muntenia Medical Hospital was just a beautifully drawn project on the architects’ board. It was opened in May this year and took more than two years to go from idea to reality,” Liviu Constantin, marketing manager at Muntenia Medical Hospital, told The Diplomat-Bucharest. There are no easy recipes for such tens of millions of euro investments. Investors
say that bureaucracy often pushes back the projects. “We started the investment in 2007, but the hospital has been operational since the beginning of last year. One of the things that delayed the works was bureaucracy, as there isn’t precise legislation in different areas of the healthcare system. For instance, it took us 16 months to obtain the permits for the in-vitro fertilization laboratory. Obviously, the actual works also took too long. “Another significant aspect that has tremendous importance in managing such a business is the personnel selection,” says Konstantinos Giatras, professor in obstetrics-gynecology, specialist in assisted human reproduction and investor. According to him, Athena Hospital needed a EUR 20 million fund injection. The unit currently has 130 beds, 130 employees and several collaborators.
Price conscious patients
The accelerated growth of the private sector has without doubt raised a lot of questions in patients’ minds. One of them is about the price of treatment in the private sector and the proportion they have to pay. Private
IN THE NAME OF EXCELLENCE WE STAND UNITED Centrul Medical Unirea and Euroclinic become the largest private health care network
21
focus medical
Romanian private health system sees Pelican
■ Investment: EUR 15 million ■ Shareholders: Adrian Maghiar and Teodor Maghiar ■ Services: medical consultations; laboratory; emergency ambulance; 6 operating rooms ■ Number of beds: 87 ■ Employees: 98 ■ Opening date: Autumn 2008 ■ City: Oradea
Athena Hospital
■ Investment: over EUR 20 million ■ Shareholders: Konstantinos Giatras ■ Services: in vitro fertilization center; a center for prenatal diagnosis; gynecology; surgery; orthopedics; urology ■ Number of beds: 130 ■ Employees: 130 ■ Opening date: February 2010 ■ City: Timisoara
Muntenia Medical Hospital
■ Investment: EUR 12 million ■ Shareholders: SIF Muntenia ■ Services: 25 medical and surgical specialties; laboratory ■ Number of beds: 90 ■ Employees: 90 ■ Opening date: May 2011 ■ City: Pitesti
Sanador Hospital
■ Investment: EUR 40 million ■ Shareholders: Doris and Florin Andronescu ■ Sevices: Generalist ■ Number of beds: 290 ■ Open date: April 2011 ■ City: Bucharest
22 The Diplomat September 2011
Delta Hospital
■ Investment: EUR 13 million ■ Shareholders: Catalin Copaescu, Dana Jianu, Stefan Jianu, Alina Ambrozie, ■ Daniela Diaconu, Daniela Godoroja, Mihai Godoroja, Anca Copaescu ■ Sevices: Minimally Invasive Surgery ■ Number of beds: 55 ■ Open date: June 2011 ■ City: Bucharest
Europe Eye Hospital
■ Investment: EUR 14 million ■ Shareholders: European Eye Centers ■ Sevices: Ophthalmology ■ Number of beds: ■ Open date: May 2011 ■ City: Bucharest
focus medical
hundreds of millions Euro investments Nova Vita
■ Investment: EUR 7.5 million ■ Shareholder: Virgil Mailat ■ Services: palliative care; complementary therapies; medical rehabilitation; pharmacy and laboratory; maternity; surgery, cardiology and radiology departments ■ Number of beds: 150 ■ Employees: more than 100 ■ Opening date: July 2008/2010 ■ City: Targu Mures
Arcadia Hospital
■ Investment: EUR 20 million ■ Shareholders: Fiterman family ■ Services: consultations; investigations; diagnosis; treatment in over 35 medical and surgical specialties ■ Number of beds: 220 ■ Employees: 150 ■ Opening date: June 2010 ■ City: Iasi
Sf. Contantin Hospital
■ Investment: EUR 20 million ■ Shareholders: Ropharma pharma group, Floriean Firu, VP at SIF Transilvania, Cristian Teodorescu, local entrepreneur ■ Services: general surgery; oncology; urology; neurosurgery ■ Number of beds: 79 ■ Employees: 160 ■ Opening date: March 2011 ■ City: Brasov
Life Memorial Hospital Medlife ■ Investment: EUR 17 million ■ Shareholders: Medlife ■ Sevices: Generalist ■ Number of beds: 150 ■ Open date: July 2007 ■ City: Bucharest
Euroclinic Hospital Regina Maria
■ Investment: EUR 6.2 million ■ Shareholders: Advent International ■ Sevices: Generalist ■ Number of beds: 75 ■ Open date: June 2005 ■ City: Bucharest
Medlife Pediatrics Hospital
■ Investment: EUR 13.5 million ■ Shareholders: Medlife ■ Sevices: integrates pediatric services ■ Number of beds: 120 ■ Open date: June 2011 ■ City: Bucharest 23
focus medical
Private sector’s solutions for the ill public health system Catalin Copaescu, Delta Hospital
“A health card issued by the ministry could be a record of the patient’s medical history. When I’m looking at a patient and I can see his history on a card, I can make a decision regarding him very fast. Because this card doesn’t exist, I have to thoroughly interview every patient, to do some tests again, because he can’t provide me with results from prior tests, to waste time and energy. Such a card would be greatly welcome.”
clinics’ prices are high when compared to Romanians’ standards of living. For the average patient, hospitals are inaccessible, with a day’s admission setting the patient back an average of EUR 100. And this does not include the cost of the medical intervention and drugs. “The prices charged in private hospitals reflect the difference between medical services provided by the state versus the private sector. We know well that once the co-payment system is in place the patient will decide what type of medical services to use,” said the Muntenia Medical Hospital official. One good thing is that these services are transparent, with prices specified in the contracts. The patient doesn’t have to pay bribes and the services are top quality. Another advantage is that most clinics have signed contracts with the National Health Insurance House (CNAS), so many services can be partially offset by health contributions. The typical patients who use private medical services are between 25 and 55 years old and have above average incomes, say specialists. Private hospital officials say that the number of patients in the private sector has increased by approximately 40 percent since the beginning of the year, and according to market estimations this will rise due to factors such as co-payment and state hospitals closing. “Over the next few years the number of patients who will prefer private medical services will increase, but this dynamic will be determined by the development of the private medical system in niche areas and the flux of patients who will come through private medical insurance,” says Constantin. 24 The Diplomat September 2011
Mihail Marcu, Medlife
Radu Lupu Gorduza, GE
“In Romania, healthcare is seasonal. In the wintertime hospitals are full, especially outside Bucharest. This tells us that people go and check themselves into a hospital like they would do in a sanatorium. The result is that we have a very high number of days of hospitalization, the facilities are crowded and the cost is very high. If we introduced the co-payment system, old people would stop going to the doctor 30 times a month.”
“One of the main issues plaguing the Romanian medical system is poor road infrastructure. You can’t just use helicopters all the time. It’s a nice thought, but for Romania, it’s something out of a science fiction novel. We need road infrastructure that allows the ambulances that we bought to travel 50-60 km to where they can find a hospital that can address the patient’s condition. So just buying equipment is not going to solve that.”
No ER
State remedies
Private hospitals aren’t yet able to treat accident and emergency patients. So even if the words “emergency room” appear in their literature and advertising materials, urgent cases are sent to public hospitals. “There is also a cost issue, because it’s one thing to have five doctors on call at any one time, like we have at Life Memorial, and it’s another thing to have about 16,” says Marcu.
500
million euro is the value of the private healthcare market “If you’re treating emergencies then you might have an accident victim who has brain damage or pneumo-thorax or something similar. So the costs are high.” An investment in an emergency room would be possible only if the health insurance system were well-formed. “The most important step to improve the way the system works is to turn the current concept of health insurance into a professional intermediary between the service provider and the patient,” says Tiberiu Roth, Hiperdia clinic manager. “The best solution is that the current CNAS should be split into several public insurance houses that would provide competition in attracting insured patients through the effect of the law, and that private insurers deal with additional and optional policies.”
For the private healthcare system to really take off, specialists say that there is an acute need for private medical insurance to enter more aggressively on the market and to create that balance between state and private healthcare. “The need to develop therapeutic guidelines and redirect money towards private health operators could generate a critical mass supported by extra financing from optional contributions, with fiscal stimulation to accelerate the reform,” says the Muntenia Medical Hospital official. “This way the infrastructure investments could make their presence felt as investors could have a business plan with a predictable end, including recovering the investment through medical insurance. Through the critical mass of those insured the financial volume will be directed through insurance companies towards suppliers.” Other investors believe that for private investments to be stimulated the CNAS should act more decisively to eliminate the Balkanic tendency to solve issues through acquaintances. Specialists say that medical institutions should be divided into three levels. ”The first should be hospitals as complete medical institutions. The second should be clinics, a structure that intersects with several specialties including surgery. The third could be medical practices,” says Giatras.
Different directions
Although they share the same health system, the public sector and its private counterpart seem to be developing in parallel. Private investors have seldom sat down at the same table with those who have run or currently run the Ministry of Health.
focus medical
Tiberiu Roth, Hiperdia
“The most important step to improve the way the system works is to turn the current concept of health insurance into a professional intermediary between the service provider and the patient. The best solution is that the current CNAS should be split into several public insurance houses that would provide competition in attracting insured patients through the effect of the law, and that private insurers deal with additional and optional policies.”
“If the authorities had wanted to find out the private sector’s solution for the situation, they would have looked to consult with us. We have participated in such discussions once or twice, things got changed, but afterwards people changed in the management of different authorities, and there was no subsequent involvement on their part,” said Giatras. According to him, Athena Hospital has hundreds of millions euro to recover from the CNAS, in the form of debts accumulated over a six-month period. Furthermore, nobody knows when and how the steps supposed to link these two sectors will come into force. Co-payment, private health insurance and health cards are only a few of the measures that the private system has advertised in the past few years. Even though companies have signed contracts with the National Health Insurance House, Romania still lacks even a basic package for insurance beneficiaries. Thus, once in front of a doctor, patients don’t know what expenses they can deduct. And co-payment is stalling, although talks over its introduction have been going on for a few years now. Although co-payment won’t match the prices of private clinic, patients will be more careful when seeking treatment that is not entirely free and will stop going to the doctor for spurious reasons. “There are old people who go to the doctor’s surgery 30 times a month. This means expenses for the public sector. If they had to pay RON 3 every time they showed up at the doctor’s office, they wouldn’t go as often,” Marcu explains. But managers remain optimistic and hope to see some measures adopted by the end of year.
Konstantinos Giatras, Athena Hospital
“The medical institutions should be divided into three levels. The first should be hospitals as complete medical institutions. The second should be clinics, a structure that intersects with several specialties including surgery. The third could be medical practices. If the authorities had wanted to find out the private sector’s solution, they would have looked to consult with us.”
Medical equipment market in robust form
It is not only the patients benefitting from European standard services who are enjoying the boom in the private medical sector, but also medical equipment providers. The market is growing slightly, by about 5 percent each year. Most clients, about 90 percent of the total, are from the private sector. “There has been an increase in the consistency of investments in the private
100
euro is the estimated cost per day of hospitalization sector and, in the big cities, large sums have been invested in private hospitals, which shows that the market is maturing,” says Marian Ghinescu, manager of the healthcare division at Siemens Romania. “Imaging equipment is the most sought after, like Computer Tomography and MRI scanners. The sums invested can go up to hundreds of thousands, even millions of euro.” The estimated growth for this year is still 5 percent, as most of the equipment used in clinics and hospitals that have opened this year was bought in 2010. “Depending on the laboratory profile or the investor’s budget, we can offer business plan counseling, to analyze their income and costs and to look for financing,” says Radu Lupu Gorduza, manager of General Electric, a company that holds about 30 percent of the market.
Liviu Constantin, Muntenia Medical Hospital
“We know well that once the co-payment system is in place the patient will decide what type of medical services to use. Over the next few years the number of patients who will prefer private medical services will increase, but this will be determined by the development of the private medical system in niche areas and the flux of patients who will come through private medical insurance”
Only 10 percent of medical equipment providers’ clients are from the public sector. Acquisitions are made by public auction, and decentralization has given a positive signal to companies. “The auctions moved from the control of centralized authorities to that of local councils. The councils manage their funds much better and have started to buy small things here and there,” says Gorduza. “If you put all these auctions together, you get the same level that you would get if you had a central auction. So from this perspective, the market volume hasn’t changed.” However, Gorduza believes that the public system’s main problem isn’t the equipment, but the sanitary conditions. “We tend to depend too much on equipment when making a diagnosis. Often, a medical intervention’s lack of success is not the result of a bad diagnosis or the way the operation was conducted, but the hospital’s hygiene standards, antibiotic-resistant germs and post-surgical complications that lead to death.” That is why companies on the equipment market are also waiting for healthcare reform. “The lack of predictability makes devising a strategy really hard,” Ghinescu explains. “The stock market is, in turn, cautious, because it doesn’t see any real elements, such as a private insurance system or co-payment.” However, the managers of equipment providers say that Romania still has a chance: European funds for the development of the public sector. They can be spent on buying equipment, as well as on renovating and upgrading buildings. It wouldn’t solve all of the public medical sector’s problems, but it would give patients the chance to enjoy decent public services. ■ 25
stem cells
Harvesting hope from stem cells It’s a service that has only recently appeared on the Romanian market, but is already developing fast. The harvesting of stem cells from placenta blood is a market that has grown tremendously in the past five years. The existing fourteen stem cell banks count tens of thousands of clients and represent a business worth over EUR 16 million. Expectations for growth are healthy, as more and more parents are willing to pay EUR 1,000 to safeguard their children’s health. By Cerasela Marin
A
na Maria Balan, 29, an accountant for a Bucharest-based multinational company, is one of the new parents that have recently used the services of a stem cell harvesting bank. She heard about it from the gynecologist that assisted her throughout her pregnancy. The new mother says she made the decision after being “amazed” at the benefits of stem cells, and considers such an investment worth the money. “Our family’s income is about EUR 1,800 a month, but we chose to buy these services for our baby’s safety and health, even if it is quite an effort financially,” says Balan, who paid EUR 900 for the stem cell harvesting, plus another EUR 70 for the cell storage.
Growth potential
Stem cell harvesting began more than 20 years ago, but in Romania the first harvest was performed in 2006. Cord Blood Center, established in Cluj-Napoca, was the first stem cell bank to begin operating locally. “At that time, the importance of stem cells 26 The Diplomat September 2011
was virtually unknown to the Romanian public, including future parents,” Tudor Panu, general manager at Cord Blood Center Romania, tells The Diplomat-Bucharest. “In time, thanks to information campaigns and to hospital and clinic staff, we managed to make people aware of this medical procedure and help them understand it,” explains Panu. And the results started to appear. In the five years it’s been harvesting stem cells from placenta tissue, the company has had over 45,000 clients. The number of customers grows year
1,000
the price in euro of a stem cell harvesting from placenta blood
upon year and business has also spread in this sector. At this moment, the market, estimated at EUR 16 million, is dominated by only 5 players of the 14 currently active. Companies are estimating constant growth rates, of at least 10 percent, and are convinced that they will manage to cover 10 percent of total births in Romania with this service. “Currently, the harvesting rate in Romania is 8 percent of the total number of births, way above the European average, which is only 3 percent,” Dr. Bogdan Ivanescu, GM at Stem Sure Solutions stem cell bank, a company that has an 8 percent market share, tells The DiplomatBucharest. “The only country that does better than Romania is Portugal, with a 15 percent harvesting rate.”
Who’s the mummy?
The price of harvesting stem cells is lower in Romania than in other European countries, where bills are almost double, reaching EUR 2,500-3,000. The services provided
stem cells
“The initial investment was EUR 1.5 mln, but is a continuous process of maintaining equipment upgrades,” Tudor Panu, general manager Cord Blood Center Romania
by these cell banks are mainly targeted towards the premium segment, according to the client profile outlined by Elena Kelemen, Lifeline marketing and sales assistant. The typical mothers who seek these services are between the ages of 22 and 35, with average and high education levels, working in the banking, law, financial or medical sectors, with above average incomes, and living mainly in big cities. “Compared to the early period, the public has become more interested in this service and the market segment has widened,” explains Kelemen. “People on low incomes and even some living in disadvantaged areas have taken out loans to harvest stem cells, being fully aware of the importance of this service.” Elena Kelemen believes that this kind of business will not be affected by the crisis as cell banks offer their clients the option of paying in installments. “One can pay in cash when the contract is signed or in monthly installments, over 14 or 26 months.
The 20-year storage is included in the price,” says the Lifeline representative.
Equipment expenses
Stem Sure Solutions expects a turnover hike this year. “We are estimating a 50 percent growth in turnover,” says Ivanescu. The money is crucial for recovering the millions of euro of investments, as well as continuing to buy state of the art equipment. “The initial investment was about EUR 500,000, but in time it got bigger, because we got new products and benefits from our mother-company in Denmark,” says the Stem Sure Solutions manager. “We didn’t take out any loans as we preferred to use the initial investment of the four shareholders.” Doctor Ivanescu adds that the equipment in the lab alone is worth EUR 4 million, as the stem cells are stored in Denmark. For Cord Blood Center, too, the investment in equipment has been a few million euro. “We have laboratories and two placenta blood storage banks in Romania, one
in Bucharest, and one in Cluj,” says Panu. “The initial investment in the Bucharest lab was about EUR 1.5 million, but what we’re talking about here is a continuous process of maintaining the quality of the samples and constant equipment upgrades to achieve that.” What’s more, the company says that this field definitely requires investment in research. “We signed a partnership with the team coordinated by Member of the Academy L.M. Popescu, from the Victor Babes National Institute, to study the telocytes-stem cells tandem, a top domain in world scientific research.”
27
stem cells Awareness remains in its infancy
But while Romania is doing well percentage-wise, stem cell specialists say that the public is still not aware enough. “Parents are misinformed, which is why they have to understand how important this service is for the health of their family,” says the Lifeline representative. “Parents meet us during seminars and we try to explain to them all the positive, as well as the negative, aspects of this field.” Most often, decisions are made very late and mothers opt to harvest placenta blood for stem cell storage at the last moment. That is why some banks have contracts with a number of maternity wards across the country, so they can convince the indecisive parents.
“The harvesting rate in Romania is 8 percent of total births, way above the European level of 3 percent,” Bogdan Ivanescu, general manager of Stem Sure Solutions
“It is advised that the pregnant woman contact us and sign the contract earlier than the seventh month of carriage, so we can avoid missing the harvest in the event of premature birth,” explains Ivanescu. “Each patient receives a harvesting kit for placenta blood and this kit has to be obtained prior to labor.” But it is not only the lack of information that is a problem for this business model. Another is the fertility figures, which have seen a significant drop in Romania. In the
What are stem cells? Since their discovery, stem cells have become a generator of hope. They can transform into different types of tissue, like skin or nerve cells, and can help treat a large number of illnesses, including leukemia, diabetes and cancer. The best time to harvest stem cells is at birth. Material is taken from the umbilical cord or from the placenta, which until recently were considered waste tissue. The procedure is fairly simple. The obstetrician who assists the woman in childbirth takes a few milliliters of blood from the umbilical cord or from the placenta, which he then passes on to the bank that will harvest the stem cells. The harvesting of the blood takes between 30 seconds and 3 minutes, depending on the procedure. Neither the mother nor the baby suffers any pain
28 The Diplomat September 2011
or other complications as a result of the procedure, which has no adverse effects. In less than 72 hours, the parents receive the results. They know exactly what the harvested sample contains, from the white cell number to the absolute number of stem cells which result after the second centrifugation. While the parents are looking over the results, the stem cells have already been frozen and placed in a specialized European bank. The place where they are stored has to follow some strict rules, so that the cells don’t lose any of their attributes. They are stored in specially designed centers and kept in liquid nitrogen, at a temperature of -196 degrees Celsius. From this moment on, all the parents have to do is remember to pay a yearly fee for storage and hope that their child never needs a stem cell transplant.
first months of 2011 alone there has been a 10 percent fall in the birth rate compared to the same period of 2010. “Although statistics are worrying and reversing this situation is extremely complex and difficult, we hope to see parents become more and more aware of how important it is to harvest stem cells, and this allows us to predict a growth in turnover for this year,” adds Panu.
Transplant procedures
If a patient needs the stem cell sample, the procedures are simple. “Our service states that we can send the sample anywhere in the world, to any hospital, within 24 hours of the request,” says Stem Sure Solutions’ manager. The company has formed a partnership with BCR Asigurari, to insure stem cell medical procedures. “Until now, no stem cell samples have been requested, but we expect to see the first cases in two-three years,” says Ivanescu. “For example, in the case of leukemia, there are two spikes: around 5 years old and around 50 years old. Our company has been on the market for two and a half years, so it is possible that we’ll see people needing transplants in the future.” But the sector remains in the first stages of research. Managers say that in most cases, expectations linked to these cells are too high, and a lot of people consider them a sort of panacea. Every client must realize that a transplant might not be possible, in the case of a certain illness, or that the treatment might not succeed. Also, players on the market say that it’s not ethical for banks to sell their clients illusions or to overstate the capacity of this method to replace traditional treatments. Furthermore, managers say that clients should be wary of non-accredited clinics that deceive the public. One recent example was discovered by the International Investigation against Organized Crime and Terrorism Direction, where an unauthorized clinic had harvested stem cells from about 20 women. Doctor Bogdan Ivanescu recommends anyone wishing to use this service to ask the stem cell bank to show them the special authorization issued by the National Transplant Agency (ANT), the only authority in this sector. ■
financial opinion
State aid: key incentive of the economic recovery?
O
ne of the main concerns of the world market nowadays is represented by the high indebtedness levels of most countries. This problem started to take a serious form with the beginning of the world financial crisis in 2007-2008 as financing sources decreased drastically and borrowing costs highly increased. The new wave of incertitude and pessimism that flows over the world economy makes investors to be very reticent in planning and implementing new investment projects as they prefer to keep their resources, mainly as a back-up in case things will get worse on the long term. In this context, at the international level, the focus is to reduce the countries’ budgetary deficits and to create sustainable economic development. Minimizing the budgetary expenses is a must in this respect on one hand and, on the other hand, offering various incentives or benefits to the investors are additional measures taken by governments. In Romania, the most important measures for companies are the EU structural funds and the state aid schemes that have as objective the regional development through stimulation of realizing investments and creation of new workplaces, approved by GD 1680/2008 with subsequent changes (“medium scheme”) and GD 753/2008 (“large scheme”). It was also applicable a “de minimis” scheme through GD 1164/2007 but the success was so great that the funds were fully allocated until the half term of the scheme. The table below is presenting the main characteristics of those schemes. The medium scheme is aimed to support large investment projects by granting state aids for projects of at least 5 mil. EUR initial investment and that create at least 50 new working places. The scheme has been enlarged by changing the eligibility criteria, by reducing the minimum thresholds for eligibility from 10 to 5 mil. EUR and the number of new working places from 100 to 50, in order to offer the SMEs category the opportunity to benefit also. The
Evolution of state aid allocation on “de minimis” scheme 700
No of Beneficiaries
595
600
State Aid Amound (mil. EUR)
500 400
295
300 200 100 0
15 1,6 2008
34,1 2009
34,3 2010
Source: Noerr research, Ministry of Public Finances data
enlargement came also as a result as the number of eligible companies on the old criteria was limited and it was a risk that the funds will not be allocated over the life of the scheme. Under this scheme there may be reimbursed 40% of the eligible costs in Bucharest/Ifov region and 50% of eligible costs in the other regions, up to 22,5 and respectively 28,1 mil. EUR. Concerning the types of investment projects that are financed, most of production projects, medical services and tourism are eligible for state aid. The potential beneficiaries are perhaps concerned of the rhythm of allocation of those funds, as the practice with EU structural funds was that the start on each operational programme is slow and the period of obtaining the funds is very long. However, we have analyzed the trend of state aid allocation on the “de minimis” scheme and this is showing an exponential increase of the number of beneficiaries, after a timid allocation in the first year. In the case of “de minimis” scheme the funds allocated for the period 2007-2011 were allocated until 2010, ensuring a positive impact on the Romanian economy.
General presentation of state aid schemes Description
State aid for investments State aid for investments exceeding 100 mil. EUR exceeding 5 mil. EUR
Initial investment (mil. EUR) No. of new work places created Lengh of state aid scheme Total budget (mil. EUR) Financial ratios
>100
5-10,10-20, 20-30, >30
500
50, 100, 200, 300
2008 - 2012/2013
2009 - 2013
575 N/A
Responsible body for implementing the scheme
Ministry of Public Finance
1.000 Solvency Ratio Liquidity Ratio Rentability Ratio Debtness Ratio State Aid Division of Ministry of Public Finance
We strongly expect that this pattern will be repeated also for the medium scheme, with a small number of beneficiaries in 2009 followed then by very bold increases in beneficiaries in 2010 and 2011. As a result, there is very probable that the funds will be entirely allocated before the end of the scheme, in 2013. Until 2010, on the medium scheme the Government financed ten projects totaling an investment of 711 mil. EUR and creating 4,767 new work places. Those projects benefited in total of about 214 mil. EUR, out of which 85 mil. EUR were already paid. According to the public information available at present, in period January - March 2011, on the medium scheme there were issued approvals for two investment projects totaling 39,5 mil. EUR and which will create about 200 working places. The approved state aid is of 18,4 mil. EUR, the estimated medium scheme budget for 2011 being of about 200 mil. EUR. Investments projects are usually generating for 1 EUR of state aid granted by the Romanian Government around 2-3 EUR of benefits back. Moreover, the state aid is supporting, through its nature, more regions in Romania, contributing to their development. These are clear facts to support the idea that the state aid is an important incentive that can contribute to the economic recovery of Romania. Noerr Finance & Tax T +40 21 3125888 Iulian Sorescu, FCCA Associated Partner, Head of Financial Department iulian.sorescu@noerr.com Cristian Dima, FCCA Auditor, Financial Advisor cristian.dima@noerr.com
Source: Noerr research
29
automotive event
Car parts sector shifts Romania’s GDP up a gear A cog in the engine of Gross Domestic Product (GDP), the car parts industry is a big driver of local exports. And Romania still has the capacity to attract investments in this sector – local labor costs, for example, are ten times cheaper than in Germany. However investors are not enjoying a smooth ride. Poor infrastructure and financing difficulties were just two of the topics debated during the Automotive Leaders Power Breakfast organized by The Diplomat – Bucharest. By Cerasela Marin and Magda Purice
A
great contributor to the national economy, the car parts industry posts a turnover twice as high as that of car producers; however, both contributed 8 percent to Romania’s GDP, or EUR 10 billion, in 2010. Top managers and key leaders from the industry’s main companies met representatives of state authorities, ministry and financial institutions at the Automotive Leaders Power Breakfast organized by The Diplomat – Bucharest to get down on paper several main trends which, along with financing and consultancy solutions – could boost the automotive sector and therefore the economy even further. 30 The Diplomat September 2011
Dacia remains in pole position for local exports
The automotive sector, meaning carmakers and car parts producers, is especially important for Romania’s exports, according to National Exporters and Importers Association data. Last year, Dacia helped the country’s exports step up a gear. The industry makes up 12.4 percent of total exports and occupies second place by volume, after the electric, electronic and communications equipment sector. And the sector is the second most dynamic, with a 65.1 percent growth over 2008-2010, after the pharmaceutical industry, which grew 267.8 percent during the same period.
Constantin Stroe, president and GM of ACAROM (the Association of Automotive Manufacturers of Romania) and vice-president of the administration board of Automobile Dacia
Some 58 million new cars were produced globally in 2010, higher than in 2009, but lower than previous years, with China responsible for many of them. The example is not accidental because I want to highlight several key trends to which we should now pay attention. The first trend is that industry synergies are moving eastwards, with non-EU markets becoming production poles for the
automotive event
Dudy Perry, CEO pf Sixt New Kopel Group: The rules of the industry have changed since the era of the huge conglomerates such as GM and Chrysler in the United States, for instance. After 2007, Romania saw a series of regulations and restrictions imposed on importers, which are currently being implemented incorrectly or not even respected
Mihai Ionescu, general secretary of Romania’s National Exporters and Importers Association (ANEIR): Beside Dacia Pitesti and Renault Romania in first place, Continental also ranks quite high – in eleventh – a position it has been consolidating since 2008, when it was 14th. All these positive developments in Romania’s main industries have put our country in first place in Europe for exports
Costin Lianu, GM of the General Division for Export Promotion with the Ministry of Economy, Trade and the Business Environment: Owing to the GO issued in 2002, the ministry has some EUR 10 million available to support exporters, compared with just EUR 1 million back in 2002. The funds have increased tenfold, exceeding the growth in the export sectors
industry: Brazil, Russia, India and China. The second trend is the electric car, which is now a fact. Thermal engines, meaning traditional vehicles, will still be the main market for the next 35 to 40 years, but we expect electric cars to raise their share to 10 percent of the entire market over the next 10 years. Another main trend is the developing markets for the automotive industry. Production centers are being created in places like Hungary, Romania, Slovakia, Turkey and Serbia. Romania still delivers significant inducements for investments in the automotive industry, both in car production and the car parts segment: the success stories of Dacia and Ford, low labor costs on the long term, the recent adjustments to the Labor Code and, of course, its geographical loca-
tion. Regarding labor costs, a Romanian worker earns on average EUR 3.6 per hour in Romania against EUR 39 per hour for his or her equivalent in Germany. I predict that Romania will never exceed 20 percent of the labor costs in Western regions.
esti is Romania’s main exporter, although we have received news from the United States that Dacia has been surpassed by Nokia phones. At an EU level, Romania is still among the top ten countries, in fourth place. Beside Dacia Pitesti and Renault Romania in first place, Continental also ranks quite high – in eleventh – a position it has been consolidating since 2008, when it was 14th. All these positive developments in Romania’s main industries have put our country in first place in Europe for exports. Of the 27 EU countries, only seven have bigger export volumes than in 2008. Romania is first, with a 10.7 percent growth, while Great Britain comes in seventh, with 0.5 percent. Most others didn’t manage to equal their 2008 exports in 2010.
32 The Diplomat September 2011
Mihai Ionescu, general secretary of Romania’s National Exporters and Importers Association (ANEIR)
Half of the automotive industry exports are finished products and the rest are accessories that go to other automotive industry beneficiaries around the world. Also, it is worth mentioning that 45 percent of these exports go to two countries: Germany, with 25 percent, and France, with 20 percent. Export statistics for the first few months of the year show that Automobile Dacia Pit-
automotive event The reasons for this success are, no doubt, aspects of production, creativity, innovation and promotion policies, but also the stability of the exchange rate, which has been our main concern. Romania’s National Bank, with which we have been in discussions, has agreed to our suggestion to maintain the exchange rate at EUR 4.1- 4.3 throughout this year, with Romania still in crisis. I and all the members of the Export Council believe in the promise of Romania’s automotive industry, at least mid-term. This is a reflection of the important part that this industry plays in Romania’s export strategy for 2011-2013.
Automotive industry runs on state funds and available financing
The bond between companies and financial resources is still not as strong as it could be, with both parties complaining about a lack of communication. According to the financial institutions, companies are not asking and seem reluctant to seek financial resources forbo their investment needs. Meanwhile, the companies are complaining that the financing process is too slow. Top
representatives from Eximbank and CEC Bank presented their solutions for advantageous financing during crisis.
Costin Lianu, GM of the General Division for Export Promotion with the Ministry of Economy, Trade and the Business Environment
Romania’s national export strategy is our main focus through to 2015 when we hope Romania will become a competitive pole for the automotive industry in the CEE region. A target in this strategy is for the automotive industry to increase its presence on foreign markets. Accessing nonEU markets is vital for all industries in the future, and especially for an industry with big potential like cars, which can find huge distribution markets in China, India and Middle East. Another very important step is supporting clusters for the automotive industry. This should be a high priority in the future, not only to ensure businesses run more fluently but also to attract investments. Owing to the GO issued in 2002, the ministry has some EUR 10 million available to support exporters, compared with just EUR 1 million back in 2002. The funds have
increased tenfold, exceeding the growth in the export sectors. Doing a quick calculation, exports reached EUR 10 billion in 2002 and EUR 37.3 billion in 2010.
Iulian Sorescu, FCCA associated partner and financial advisor at Noerr
State financing for greenfield investments amounts to about EUR 1.5 billion and we can see real interest from automotive companies. The scheme is similar to that of accessing European funds. Those who fulfill certain terms and conditions, one of which is having more than 50 employees, can access up to EUR 5 million to develop their factories. We currently have over 1,000 financed SME projects running, with funds that have already been used. There is a total budget of EUR 1 billion for companies with more than 50 employees, which can get almost EUR 5 million in financing. Until now, only 20 percent of this budget has been used on this kind of financing. Getting money from the government is something that can take up to six months. We have success stories, such as Pirelli, Dacia and Delphi Automotive.
33
automotive event
Iulian Sorescu, FCCA associated partner and financial advisor at Noerr: An application for state aid now can be evaluated in a few months and signed by the end of the year or the beginning of 2012. After that, the project is started and can be implemented by 2013. The good thing is that for 2011 there are no financial restrictions, which means that nobody risks not being able to do their project because the state might run out of money
Calin Istrate, car parts and equipment sales coordinator at Bosch Romania: We are not talking only about cheap labor, because we mustn’t characterize an advantage only in terms of price, but also in terms of the quality of the people performing that labor. And this is a criterion taken into consideration by other investors too. The quality of labor in Romania, with all the situations that could be discussed and interpreted, is at a very high level
Constantin Stroe, president and GM of ACAROM: Romania still delivers significant inducements for investments in the automotive industry, both in car production and the car parts segment. Regarding labor costs, a Romanian worker earns on average EUR 3.6 per hour in Romania against EUR 39 per hour for his or her equivalent in Germany. I predict that Romania will never exceed 20 percent of the labor costs in Western regions
The Romanian authorities are more flexible and willing to spend this money, and in the past six months we’ve seen more and more companies wanting it. One success story is Automobile Dacia. In the past few months, I’ve seen projects to expand production capacity. One reason is that in Romania labor is cheaper, even if there are still infrastructure problems. An application for state aid can now be evaluated in a few months and signed by the end of the year or the beginning of 2012. After that, the project is started and can be implemented by 2013. The good thing is that for 2011 there are no financial restrictions, which means that nobody risks not being able to do their project because the state might run out of money.
Paul Ichim, vice-president of Eximbank
institutions. Obtaining financing in the form of a grant from the state takes from three to six months.
34 The Diplomat September 2011
From its double role as commercial bank and state financial agent, Eximbank has developed financing facilities and tailored financial products for companies whose operations mostly target exports. EUR 500 million of funds have been secured so far for financing companies with good interest rates. For instance, for loans in the local currency, we have an interest rate of around 5 percent, which I think is a very competitive sum compared to the rest of the financial market. Regarding financial products in foreign currencies, we can’t say that we have the power to compete with commercial banks, subsidiaries of different foreign financial
Marius Vieru, project manager, the financing and financial investment department at CEC Bank
As the newest comer on the Romanian private financial segment, CEC Bank’s current priority is financing for SMEs, agriculture and local entities. By assets volume, we rank fourth among the banks operating in Romania and first for financing granted for agriculture. As a Romanian bank, our financing targets RON-based products and our main advantage is that we operate the largest countrywide bank branch network.
automotive event Currently, we are concentrating on financing companies that have contracted European funds or whose investments have a component related to EU funds. We have three products in this respect, a bridge loan of six months, investment credit of 10 years and a credit line with evolving usage, also for 10 years.
Romania vies with Morocco to attract investors
Companies that have invested in Romania say that the country still has much to offer those who want to open factories, but that the local authorities shouldn’t rest on their laurels as Morocco poses tough competition in the fight to attract FDI. Recently, the German concern Bosch announced plans to invest EUR 70-90 million in Romania, to create new production facilities. For this, the company bought a seven hectare lot in Blaj, where it has two other factories. The German firm acquired the lot last week in an auction, for EUR 1.2 million, VAT not included. This sum also includes compensation for the companies that had leased various parts of the lot. Meanwhile, Yazaki, the world’s largest producer of wir-
ing harnesses for the automotive industry, is opening a work point in Caracal, and has just chosen a location to be closer to the Ford plant in Craiova. But one of the main problems in Romania remains underdeveloped infrastructure, which makes producers spend more money on national roads.
Rogerio Moreira, executive manager at Yazaki Romania
In terms of the micro economy, Morocco had better solutions and we are looking for low costs. Also Morocco is just a few kilometers from Europe. Of course, we know that the culture is very different and the quality requirements I am sure are not the same as we have here in Romania. I think that Yazaki and other manufacturers of automotive parts are always looking for quality. In Romania, we can get this quality, because of the knowledge and the intelligence of the people. We have already started a new plant in Caracal that will supply customers in Craiova. And there will be another plant for components – maybe in 2012-2013 – we are now looking for a 10,000 sqm area. We are looking at growth of 20 percent for next year.
The infrastructure is the main problem here in Romania. For example, we have to put our parts in our customers’ cars in two-three days. So for our trucks to arrive and find the customer, we are not in a good position at the moment. We don’t have good highways, we don’t have quick access. It was promised that by 2015-2016 we would have better ways to get to the center of Europe. We miss out on about 10-15 percent more money because of the infrastructure. We know that we now have a new strategic option in Constanta that we’ll try to use, so from this alone we estimate that we can save about 40 percent on our logistics.
Calin Istrate, car parts and equipment sales coordinator at Bosch Romania
Romania has an interesting position among South-Eastern European countries, one which has to be taken into consideration by those investing in this sector. Also, the recent signs are positive, in the sense that there is an expressed intention to invest in this field in Romania, and I am convinced that this year and in the years to come we will see growth in investments in this sector.
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automotive event
Rogerio Moreira, executive manager at Yazaki Romania: The infrastructure is the main problem in Romania. We have to put our parts in our customers’ cars in two-three days. We don’t have good highways, we don’t have quick access. It was promised that by 2015-2016 we would have better ways to get to the center of Europe
Marius Vieru, project manager CEC Bank: Currently, we are concentrating on financing companies that have contracted European funds or whose investments have a component related to EU funds. We have three products in this respect, a bridge loan of six months, investment credit of 10 years and a credit line with evolving usage, also for 10 years
Paul Ichim, vice-president of Eximbank: Regarding financial products in foreign currencies, we can’t say that we have the power to compete with commercial banks, subsidiaries of different foreign financial institutions. Obtaining financing in the form of a grant from the state takes from three to six months
We are not talking only about cheap labor, because we mustn’t characterize an advantage only in terms of price, but also in terms of the quality of the people performing that labor. And this is a criterion taken into consideration by other investors too. The quality of labor in Romania, with all the aspects that could be discussed and interpreted, is at a very high level. Because of the economic situation, one
can feel the consumer’s tendency to buy lowprice and medium-price items. But 2010 was a very good year for Bosch. Of course we will expand the investment we made in Blaj, this is our intention, and the fact that 2010 was a very good year for us makes us feel confident and gives us strength for future investment in Romania. In the future you will certainly hear more about Bosch and Bosch investments in Romania.
Dudy Perry, CEO pf Sixt New Kopel Group
36 The Diplomat September 2011
The rules of the industry have changed since the era of the huge conglomerates such as GM and Chrysler in the United States, for instance. After 2007, Romania saw a series of regulations and restrictions imposed on importers, which are currently being implemented incorrectly or not even respected. ■
insolvency
Insolvency firms go for broke While construction and transportation companies have been the most likely to fall prey to insolvency, specialists say that small and medium retailers, pharmaceuticals, IT and heavy industry firms are starting to join them in higher numbers. With 96 percent of stricken companies choosing bankruptcy, The Diplomat-Bucharest analyzes the main hurdles in handling the reorganization process, and asks why bankruptcy is now a more popular choice than restructuring. By Dana Verdes and Magda Purice
T
he credit crunch has seriously damaged a lot of industries, with numerous companies facing cash flow problems and accumulating heavy debts, forcing them to restructure their activity in order to try to survive. And although GDP rose by 0.6 percent in Q1 from Q4 of 2010 and by 1.6 percent against Q1 of 2010, and 1.5 percent economic growth is forecast for this year, the results of any such upturn cannot yet be seen in terms of Romanian companies’ capacity to pay their debts. At the end of Q1 this year, a Coface study found that 10,725 companies were in different stages of insolvency, 4.42 percent down on the same period of 2010. However, H1 of this year brought a 2.42 percent increase over H2 of 2010.
Who’s been hit?
The largest number of insolvency cases have come in fields such as trade, construction and transportation, Ana Maria Placintescu, partner with Musat & Asociatii and head of its restructuring & insolvency department, told The Diplomat-Bucharest. “While real estate and construction firms mainly collapsed due to the credit
38 The Diplomat September 2011
crunch, small and medium-sized retailers have additionally felt changes brought about by the aggressive expansion of international retail chains. Furthermore, we have witnessed significant insolvency cases in various other industries, such as pharmaceuticals, IT, heavy industry and transport. It is difficult to find an economic sector totally protected from risk,” said Placintescu. The evolution of insolvencies reflects the fragile economic recovery over the past two trimesters, and the mixed business signals amidst the international turmoil. “We believe that the Romanian economy
11,000 is the number of firms that became insolvent in H1, 2011 and currently insolvency proceedings against about 34,000 firms are pending
is in a period of stabilization, and therefore we also forecast stabilization in the pace of insolvencies in 2011. Only in 2012 can we expect confirmation of the economic trend when growth of 3-4 percent is possible, both because of the increase in consumption and the rising state authorities’ expenses in an election year,” said Anca Catrina, risk manager at Coface Romania. With the insolvency growth rate decreasing in H1 of this year, the evolution of business performances in this period was expected to improve but the statistics have shown that the beginning of 2011 was extremely difficult. According to Coface representatives, reasons included the dramatic decrease in consumption due to the lack of access to financing resources, unemployment, plus the fall in revenues and salaries. Furthermore, among the factors contributing to the low performances, Coface’s research also found the increase of competition in retail resulting from the expansion of hypermarkets, which did not rise in tandem with consumption. The number of bankruptcies on the back of all these factors is the result of the large volume of companies established and launched in the last few
insolvency
“Creditors are not willing to find a compromise and usually don’t accept an agreement if they are not able to recover the total sum involved,” Ana Maria Placintescu, partner at Musat & Asociatii
years in fields such as transportation, retail and construction, due to the affordable costs of opening a business in these sectors.
Who’s getting out of jail?
Away from the statistics telling the same story, attorneys and legal practitioners agree: “Investors will look at areas that are less dependent on political will and action,” said Adriana Gaspar, senior partner at NNDKP. Mona Musat, co-managing partner at Musat & Associates, predicted at the beginning of this year that the industry sectors with high potential such as healthcare, IT and renewable energy represent an investment target for the coming years. According to the data provided by the latest Coface study, the good news regarding the economic recovery is coming from industries such as mining, health and social assistance, production and energy, both thermal and electric, and water and gases, which are seeing the fewest incidences of insolvency. This is a total reversal from 2010. For instance, last year, the extractive industry (mining) posted an 87 percent growth in insolvent firms over the previous year, while health and social assistance registered a rise of almost 50 percent compared with 2009. Financial brokerage insolvencies advanced almost 42 percent in 2010 compared with 2009. The good results achieved this year by mining, energy, social assistance, health and social assistance are attributable to the limited access to investments in these segments and the
small number of companies involved in the process. Elsewhere, textiles, entertainment operations, waste management, agriculture and transportation saw a significant drop in insolvencies this year. The textile industry posted a fall of almost 50 percent in H1 of 2011 compared with the same period of 2010, by the registered volume of insolvency cases. But the wood industry saw a growth of almost 50 percent in 2011 compared with the previous year, with 404 insolvency cases registered in H1 of 2011, compared with 281 insolvencies in H1 of 2010. According to Coface and National Registry of Commerce data on insolvencies and taking into account the value of firm registrations in H1 of 2011, for 1,000 active companies, there were 16.79 insolvencies and 110.74 new firm registrations. The calculation means that for each insolvent company, six new medium and small companies were set up.
Bankruptcy or restructuring?
There is a saying: if your project is too large to be killed, then the banks will be your partner. According to lawyers, lenders do not want to terminate and call in non-performing loans. Their main reason is that the proceeds from the enforcement procedure are usually minimal. The strategy is to rollover bad loans through refinancing and find solutions to recover the debts within insolvency procedures. Both banks and debtors have come to the same conclusion, that solving the debt situation as fast as possible is best for each party, even if the law permits a company to remain in restructuring for up to four years. Restructuring can get underway in the first six months after insolvency is initiated, when the harshest measures are taken, according to Andrei Cionca, managing
partner of Casa de Insolventa Transilvania (CITR). This opinion is shared by Andreea Anghelof, CITR managing partner: “It s almost impossible to apply and make a success of a restructuring plan when the company is already in crisis, with a lack of liquidities, increasing debts and no partners.” According to the specialist, the perception of the insolvency and the level of information determines the behavior of a company in business difficulties and, moreover, can even doom it to failure. “Many businessmen behave like entrepreneurs and owners of a business and not like managers adhering to a business plan. That explains why companies sometimes choose to file for insolvency only when it is too late or much more difficult to redress,” explained Anghelof.
Call for a Code
The CITR official believes that a comprehensive and detailed Insolvency Code must be created, an opinion echoed by other insolvency practitioners. “The premises for building a firmer insolvency framework in Romania are being created, with investors that are interested in different businesses and industry sectors. The current law and the economic context create the possibility of acquisitions, and investors can take over social shares in the distressed company and negotiate with creditors,” said Alexandru Ene, associated partner at Noerr. Still, the lawyer admits that successful reorganizations are few. But in Bucharest,
“It’s difficult to make a successful restructuring when the firm is in crisis, with no liquidities, no partners and in debts,” Andreea Anghelof, managing partner at CITR
39
insolvency
“The premises for building a firmer insolvency framework are being created, with investors that are interested in different businesses,” Alexandru Ene, associated partner at Noerr
the number of reorganization files has risen by 40-50 percent since 2009, according to data from Noerr, a faster rate than the volume of insolvencies. “Insolvency is like a chess game and the practitioners are part of this game. The result must be a solution to rescue the business,” said Ene. According to him, before 2008, only 1 percent of insolvent companies implemented reorganization plans. In 2010, lenders’ main strategy was reassessing the books in order to spirit away the bad loans. “In 2008-2009, banks faced a new challenge: re-evaluating their portfolio and guarantees. They were however reluctant to execute debts as they had no pressure to sell assets and mark a loss,” said Costin Taracila, managing partner of RTPR Allen Overy. But in the absence of an appropriate framework regulating insolvency in Romania, the statistics look better than the reality. According to banks and legal practitioners, restructuring plans “are only pretty colored papers”. Research carried out by strategy consultants at Roland Berger found that 96 percent of local companies involved in insolvency procedures said they were undergoing restructuring in 2010, but the truth is that most companies are reluctant to manage their insolvency and acknowledge their problems.
Investors kept in the dark
According to Iulian Sorescu, associated partner and head of financial advisory and auditing at Noerr, the problem facing
insolvent companies and causing their lack of willing investors is the absence of information on existing state aid relating to the insolvency. The granting of state aid to investors, as an inducement to buy the distressed assets of insolvent companies, is more flexible as of this year. Until 2009, state aid applied to companies with at least a EUR 30 million turnover and 300 employees, while, from this year, these criteria have been relaxed to EUR 5 million and 50 employees. “The big disadvantage of this law is that state aid is granted only to facilitate the acquisition of the assets of the insolvent company and not a participation in the share capital of that company,” said Iulian Sorescu. CITR data shows that 96 percent of insolvent companies chose the bankruptcy option over restructuring, due to the limited funds available for insolvency procedures. According to Cionca, restructuring is not seen as an option for insolvent firms.
Main millstones
In Romania, the average cost of an insolvency file is estimated at EUR 60, while the local market currently reaches EUR 25 million, with 34,000 companies being in different stages of insolvency. According to the CITR, the main challenge facing insolvency practitioners is the difficulty in capitalizing the assets of the ailing companies and the decrease in demand for real estate. The delay in selling the assets will push up the costs of their conservation and marketing, hiking insolvency costs, according to CITR data. “The growth of available financing for insolvencies would lead to an increase in trust and the willingness of insolvent companies to opt for restructuring. The reverse leads to delays in opening insolvency procedures, when reorganizing a company is no
“In 2008-2009, banks re-evaluating the portfolio were reluctant to execute debts as there wasn’t any pressure to sell assets and mark a loss,” Costin Taracila, managing partner with RTPR Allen Overy
40 The Diplomat September 2011
longer possible or very difficult,” said Radu Lotrean, managing partner of CITR. The Musat& Asociatii partner, meanwhile, believes that the most challenging part is to negotiate a mutually beneficial agreement. “On one hand, debtors are in general negotiating the restructuring plan only with the banks, eliminating the other creditors from their chart. On the other hand, creditors are not willing to find a compromise and usually don’t accept an agreement if they are not able to recover the total sum involved,” says Placintescu. Catalina Mihailescu, senior associate at Tuca Zbarcea & Asociatii, says, “When we defend a creditor’s interests, the main challenge is to maximize the debtor’s assets, to cut down the insolvency-related expenses as much as possible and to liquidate the debtor’s assets in the most advantageous manner, so that the creditor recovers most of its receivables, when reorganization is not possible or suitable for the client. In such a case, good cooperation with the official receiver/judicial liquidator is crucial. When we defend the debtor’s interests, if judicial reorganization is possible and wanted, the main challenge is to draft a sound reorganization plan and obtain the support of the various categories of creditors for the plan.” Alexandru Moldoveanu, associate at Tuca Zbarcea & Asociatii says that another challenge is to defend the former management bodies of the debtor (in general, the former directors) in the liability actions on charges of rendering
insolvency the company insolvent. “From our experience, in many cases the chances of recovering receivables in insolvency proceedings are low, due to the debtor’s lack of assets, which drives the creditors to file motions for liability against the debtor’s management,” says Moldoveanu. Recently, Lucian Croitoru, counselor to the governor of the National Bank, said that only 0.7 percent of insolvent companies between 2007 and 2011 had opted for the restructuring option. “Usually, insolvent firms don’t manage to redress, no matter the status of the economic cycle. Between 2008 and 2010, insolvent companies represented 30 percent of the entire number of companies with accounting challenges and incidents,” said Croitoru. According to official data, insolvent entities have run up debts of EUR 500 million so far. The forecasts for this year are that real estate and construction companies will be the most troubled businesses, but the growing pace of insolvencies will decline. According to Arin Stanescu, president of the National Association of Insolvency Practitioners (UNPIR), the danger of insolvency
25
million euro is the current value of the local insolvency market, fairly similar to the figure registered last year will loom for companies that have delayed their debts.
Insolvency, giving business a bad name?
Since 2009, the business community and public have watched in horror as big names have become embroiled in insolvency procedures. With greater market maturity and a better understanding of insolvency, along with the success of some of the insolvency files resolved so far, the phenomenon has lost a little of its bad reputation and has begun to be regarded as a natural step on the way to business recovery. The insolvency market is also reward-
ing for the practitioners trying to solve a company’s problems from the sidelines. 2009 brought Noerr a large project worth EUR 40 million. On the way, the company assisted and represented a major Austrian plastic producer in the acquisition of an insolvent company, also providing advising consultancy on state aid. The firm has also represented several construction companies in litigation over public procurement projects worth from EUR 2 million to EUR 400 million, among other assignments. In 2011, it represented and advised companies on 20 projects. Musat & Asociatii’s insolvency department has seen a 30 percent increase in its insolvency workload in the past year, mainly consisting of voluntary reorganization projects, representing various national and international clients. Elsewhere, CITR, the Insolvency Transilvania House, has so far managed almost 500 insolvency files and voluntary liquidations around the country, with a portfolio of big names and brands such as: Leonardo, Flanco, Diverta, Tiago Malls, Boom and Fortus Iasi. This year, according to data on the market, insolvency companies expect turnover growth of 20-40 percent. ■
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41
china
Chinese companies are branching out In the last two decades, Chinese investors have seen opportunities in Romania in areas such as infrastructure, construction or tobacco. The investment range could be expanded with the help of authorities and a better capitalization of custom fees which would decrease the black market of Chinese imports, especially in the main local import hub, Constanta harbor. By Magda Purice
W
hile the large business consortiums and companies with Chinese capital investing in Romania can be easily counted on the fingers of one hand, the volume of Chinese cash spent in the national economy and local employment are significant and cover the main economic sectors. According to the Romania-China Bilateral Chamber of Commerce, Chinese investors have an interest in Romanian infrastructure, as well as energy, including the renewable segment and agriculture, with investments amounting to EUR 3 billion in 2010. In Q1 of this year, within the bilateral trade between Romania and China, exports registered growth of 15 percent over the same period of 2010, while imports posted an increase of 10 percent. If the current trends keep up, by the end of this year the bilateral exchange between the two countries is expected to reach EUR 3.45 billion, with EUR 450 million representing exports, according to data provided by the Chamber of Commerce. Gabriel Ghelmegeanu, president of the Romania-China Bilateral Chamber of Commerce, says that business opportunities with Chinese investments could be growing if there were better coordination with the Romanian authorities. The main problems of the black
market and fiscal crimes could be solved at least partially through better custom regulations. “If the Constanta customs, the largest source for the black market of Chinese imports, were more active, the black market could be diminished. Because of the black market, the Romanian economy loses at least 60 percent of the taxes generated by imports,” says Ghelmegeanu.
From Greek cognac to Great Wall cars
In 2006, the Chinese car producer Great Wall Motor started to sell on the Romanian market through RoChin Motors, a company that changed its name to Alexandros Motors and which is part of Alexandrion group, best known on the Romanian market for brandies and wines. With some 160 cars sold in 2007 and a similar volume registered over the next few years, Alexandros Motors and Great Wall cars see a long fight ahead against the Romanian sensitivity over Chinese merchandise, especially cars, a product which gets a bad reaction from the Romanian consumer. “Romania, like any other European country, is skeptical about the quality of Chinese products and we have been trying to demys-
“Romania, like other EU countries, is skeptical about the quality of Chinese products and we have been trying to demystify this since 2006,” Bogdan Ciocalteu, GM at Alexandros Motors
42 The Diplomat September 2011
tify this since 2006,” said Bogdan Ciocalteu, general manager of Alexandros Motors. The importers try to counter the Romanian preference for German cars by offering a lesser warranty and, of course, lower prices for the cars. In the boom of 2007, sales of the Hover CUV equaled the sales of another Chinese brand, Ssang Yyong, registering brief success before the general economic crisis. As a comparison, following the better results obtained in Brazil where Alexandros Motors also has operations, Ciocalteu says that buyers in Brazil are more sensitive to the comfort features and performance and are not prejudiced against Chinese products. But while the Romanian market does not seem to be as rewarding for the Chinese importer, Great Wall will start producing cars in Bulgaria, in Loveci, from the second half of this year, after many delays. The estimated production in the Loveci unit is 50,000 cars
Chinese bike-maker Eurosport DHS keeps up the good work, continuing to impress the shareholders Which will be the next move to anticipate from your shareholders? Prophete GMBH, as one of our shareholder, a company with a history of more than 100 years in bike manufacturing, took decision to close in Germany their last factory owned and transfer all production to Romania. They expressed their intention to buy in August this year another 7.5% stake of Eurosport DHS shares reaching a total of 47.5%. Which do you think are the most relevant grounds that made Prophete GMBH act this way? Decisions made by Prophete GMBH (2nd place in bike manufacturing, in Germany) were determined by the high confidence which the German company has in our way of running our bicycle manufacturing business. In Romania sales went well year after year, what about exports? EU is the largest market for Eurosport DHS and exports went up by 200% in first half of 2011 compared to the same period of previous year.
What other novelties to expect this year? Eurosport DHS aims to start assembling battery-powered E-bikes at the end of 2011, mainly for the EU market. How much did the use of bikes change over the last few years? In recent past years, Eurosport DHS group’s strategy was to develop the Research & Development department in order to launch to market bike models, new both in terms of design and utility and equipment (technologies and parts). Together with the Sales team’s great ability based on over 10 years of sales experience on the local market, those were determining factors in our evolution despite the times of crisis, marked by a well-known generalized decrease in consumption. What makes people choose bike over car? For sure, riding a bike is money saving (see oil prices going constantly up), eco-friendly and healthier than driving a car.
Eurosport DHS Address: Santuhalm street, no. 35A, Deva, Hunedoara county Phone: 0254 210001 / 0372546910; Fax: 0254 210004 / 0372546911 E-mail: office@dhsbike.ro
Eurosport DHS is also branching out further into retail, do you consider continuing the trend (expand more)? Indeed, for 2012 we intend to open further stores in large cities like Constanta, Brasov, Sibiu. Eurosport DHS emerged from the financial crisis with a more powerful image on the market. Please tell us more about the market share that Eurosport DHS has these days and about future plans to invest. We are proud that in times of crisis, DHS group not only maintained its market share but developed an intelligent management strategy through a seriousness and the joint effort of all company’s personnel. In the future years, Eurosport DHS group will invest more in educating the consumer to ride the bicycle to a healthier life, as our slogan “Life in motion” suggests. Each and every year we organize two important national contests: “DHS CUP” for school children and “DHS CORVIN MTB MARATON” aiming professional riders.
china
“˝The Romanian authorities need to remember that Chinese investors hold advanced business structures with fast developing plans,” Ori Efraim, partner at KPMG
yearly, with a total investment of EUR 300 million. So far, the Chinese producer has spent EUR 80 million on the production site in Loveci where the Hover CUV, Steed pickups and Voleex vehicle will be produced. In Romania, Alexandros Motors has 12 dealers and after-sales centers. In the last two years, the company has lost only two dealers, but it plans to expand the network to 20 in 2012. Besides the import and service operations for cars and professional vehicles, Alexandros Motors also runs operational leasing through Alexandros Long Term Rental, which represents 65 percent of the overall turnover. In 2010, Alexandros Motors registered a turnover of EUR 1.05 million and a market share of 1.5 percent. The company has 20 employees and is planning investments of EUR 3 million by 2012.
That’s China Town…
Chinese businesspeople have so far established two poles in Bucharest. First came the Dragonul Rosu commercial center in Colentina, started in 2004 by Romanian company Niro Investment Group controlled by Nicolae Dumitru and Chinese investors. And Bucharest has recently seen another Chinese grand commercial development. In July this year, Government representatives, Chinese investors and traders and the local people of Afumati town attended the launch of China Town, a commercial project developed by China Town Romania, a company controlled by Chinese investors. In the first stage the project, located 16 kilometers from Bucharest, delivers 40 hect-
ares of land owned by the Chinese company and over 1,200 stores and 400 temporary storage spaces, but the Chinese plans for the area are larger. By completion, due in 2020, the project will be worth EUR 100 million and will include over 3,200 commercial spaces and 1,380 storage units. The next development stages of the scheme will involve the construction of 300 traditional Chinese houses and a residential compound to accommodate around 15,000 families. So far, the Chinese investors have spent EUR 27 million on the currently operational commercial spaces. Chinatown in Afumati will in fact be Bucharest’s largest outdoor market, where Chinese traders will sell their goods at production prices. From the total amount, 95 percent of the stores have been sold and the rest can be leased, said Alexandru Ioan, executive director of China Town Romania and president of the RomaniaChina Bilateral Chamber of Commerce. The new Chinese development is directly competing with the first China Town in Bucharest, Dragonul Rosu. The commercial area of Dragonul Rosu sits on a 60-hectare plot which now comprises a built area of 200,000 sqm and 5,500 stores. Niro’s China Town will be built around the commercial area of Dragonul Rosu and is going to span over 300,000 sqm of leisure area and a residential complex of 12 blocks and 600 apartments, which will be served by a kindergarten and a school, according to the company’s plans for the area. Furthermore, representatives of Niro Group say that their project will also comprise an exhibition area of 100,000 sqm and a hotel. The entire development is estimated to absorb around EUR 500 million by the time of completion. Now, with the two projects in Afumati and Colentina, Bucharest has two large areas of 40 and 60 hectares respectively designed mostly for Chinese trade and representing an important resource for many small resellers active in street commerce in the capital.
Chinese go cheap and cheerful in telecom
Operating in a very competitive market such as telecom, Huawei Technologies is represented in Romania by Huawei Romania. The company carries out the local operations run by the group’s regional hub in CEE and Northern Europe, which facilitates integrated business solutions and partnerships with all big telecom retailers and operators, like Vodafone, Orange, Romtelecom and Worldcomm, Arsis, Germanos, Internity, Fonomat, Proton and Say. The company’s operations in Romania cover telecom handsets, fixed and mobile, modems and also projects for mobile communication technologies such as GSM, UMTS, CDMA, fiber optics and xDLS. According to Vlad Doicaru, enterprise director at Huawei Technologies, the telecom market is heading towards a momentous stage, when access to internet and mobile applications will be mandatory in order to meet consumers’ expectations and needs. “Huawei sales of Android-based mobile phones and internet mobile cards have registered significant growth in the last year. The growth of smart phones in the telecom market is sustained by large funding by telecom operators, in their need to push data services as much as possible,” Doicaru explained. Another best seller for Huawei is telephones with qwerty key boards. Currently, Huawei has 400 employees in Romania, of whom 78 percent are Romanian. By the end of this year, the firm plans to double its staff and develop a call center and regional financial hub.
“If the Constanta customs, the largest source for the black market of Chinese imports, were more active, the black market could be diminished,” Gabriel Ghelmegeanu, Romania-China Bilateral Chamber of Commerce
44 The Diplomat September 2011
china Printing and packaging industry sees newcomers from China
Yucheng Plate-Making is one of the youngest newcomers on the Romanian market, producing cylinders for the printing and packaging industry. Still, according to company data, its share of the local market is estimated at 60-70 percent. In 2010, the company acquired over 5,000 sqm in the Ploiesti logistics park. Yang Haijun, the company’s administrator, says last year was one of accommodation and market set-up. The company has so far invested EUR 2.5 million in production equipment produced in China, Switzerland and Germany. According to information from the Romania-China Bilateral Chamber of Commerce, the firm has made around USD 7 million worth of investments. With sales of EUR 300,000 in H1 this year, Yucheng is aiming for a turnover of EUR 720,000. Its investments for this year are predicted to reach around EUR 300,000. Currently, the company has 35 employees in Romania, 21 of whom are Romanians and 14 Chinese.
Sofa so good for Greenfiber
Greenfiber International is one of the largest Asia-based investors in Romania operating in a developing industry, such as recycling and green production. The investors are active in the Romanian market through two companies, Greentech and Greenfiber, coordinated directly through their operations and sharing the same board and management. Greentech collects and recycles plastic material waste, while the other company, Greenfiber, produces polyester fibers and PET lines for packaging from the raw material collected initially by Greentech. This link means that 70 percent of Greentech’s turnover comes through Greenfiber operations. Established in Romania since 2002 (Greentech) and 2004 (Greenfiber), the two companies run two production lines in Buzau and Iasi and offices in Cluj and Corabia, in Olt County. Outside Romania, Greentech collects and recycles PET waste from Serbia, Macedonia and Ukraine and exclusively runs collecting operations in Germany and Greece. In Romania, the company works with 230 providers of raw products. “Unfortunately, only 50 percent of the raw materials are bought on the Romanian market,” said Cristinel Dobrota, general manager of Greenfiber International. The fibers obtained at Greenfiber are sold to direct partners of the furniture industry but, according to Dobrota, there are no clients from the automotive or sanita-
tion industries. “Still, the fiber produced at Greenfiber comes back Romania as materials used in Renault and Dacia cars,” says Dobrota. In the first half of this year, the companies notched up a 7.9 percent sales increase for fibers and three times more sales for its PET line. “The largest demand was registered for cotton fiber used in automotive and hygiene products,” said Dobrota. For the Taiwanese company, Romania is a very small fiber consumer and Greenfiber is the sole producer in the country. In Europe, Greenfiber has a 7.5 percent market share and is the second largest producer in Europe for recycled polyester fibers. “All this within the context of a 40 percent import of Asian products in Europe,” adds Dobrota. According to the manager, Romania has a long way to go until it reaches EU level regarding the waste management and recycling business, even though, for marketing and image’s sake, many companies talk “green” to the mass media. According to data provided by the Greenfiber representative and Eurostat statistics, Romania has just a 1 percent reach for waste management in the total economy. “The selective collecting system is still in the pilot stage and relies on the voluntary individual system, which is, in our opinion, an inefficient way to develop the recycling industry,” said Dobrota. The Taiwanese company has so far invested around EUR 35 million in Romania and is planning EUR 8 million worth of investments for modernization works and an increase in production capacity by 2012. For this year alone, the company plans to invest EUR 1.5 million in a waste water management station, modernization works at its production plant and equipment for returning the PET waste of big retailers such as Mega
Image Titulescu in Bucharest and Auchan Titan in Bucharest and Pitesti. In Romania, the two companies currently employ 980 people.
DHS business goes pedal to the metal
“The local business of bicycle producer Eurosport DHS in Deva, controlled by Chinese and German investors, increased 14 percent in H1 of this year against last year. According to the company’s representatives, the boost comes as a result of marketing and production, following the promotion of new types of bicycles, the expansion of the product range for children and the overall greater interest in this type of vehicle. In order to sustain demand and net even better results next year, DHS plans to develop a new production line for electric-assisted bicycles (E-Bike) and open sales offices in Bucharest and Constanta, with EUR 100,000. Besides its existing retail network, DHS has recently opened a 420-sqm sales office in Timisoara, following an investment of EUR 50,000. The improved figures have seen the company hire 50 people this year, reaching a total staff of 300 employees in Romania.
45
china
Chinese presence on the local market China Tobacco International Europe Company
■ Located in Buzau ■ 95 percent Chinese capital, tobacco monopoly in China ■ Investments in Romania: USD 40 million
DH Sport & Eurosport DHS
■ Located in Deva and Petrosani ■ 60 percent Chinese capital, 40 percent German capital ■ Investments in Romania: USD 20 million
Great Wall
■ Located in Bucharest and Ploiesti ■ Carries out trade activities ■ Investments in Romania: USD 12 million
F&J Holding Romania
■ Located in Bucharest and Buzau ■ Makes investments in different industries such as: wood, construction, trade, tobacco, textiles ■ Investments in Romania: USD 15 million
Ricky Impex
■ Located in Bucharest and Afumati, Ilfov County ■ Produces bicycles, motorcycles, scooters, ATVs ■ Investments in Romania: USD 15 million
Ye Lin Activ Cominpex
■ Located in Bucharest ■ Operates in fashion retail trade ■ Investments in Romania: USD 12 million
Yucheng Plate Making
■ Located in Ploiesti ■ Production of cylinders for the printing and packaging industry ■ Investments in Romania: USD 7 million SOURCE: Romania-China Bilateral Chamber of Commerce
46 The Diplomat September 2011
ZTE Romania looks at EUR 3 million investment in Bucharest training center
Chinese company ZTE Corporation, through its subsidiary in Romania, one of the best known producers and local distributors of telecom components, continues to evolve regionally. According to Lorian Vintila, director of strategy and operations at ZTE Romania, the company plans to develop in partnership with the University of Bucharest a training center in the capital to be opened in November-December, with an investment of EUR 2.7 mln financed by the Chinese Government. According to the representative, the project could be expanded to Cluj-Napoca and Timisoara, another two major centers of study. According to the company’s plans, the center will host 100 trainees and should be located near an airport. If it is not a greenfield investment, the investment could be less than EUR 3 mln. ZTE Romania also plans to develop a production line for set-top boxes (the reception equipment for terrestrial digital television) where about 100 employees could be hired.
Bucharest-Beijing official sharing business opportunities
The recently ended bilateral Business Forum of Romania and China saw the authorities sit down with business representatives from both countries in order to establish direct contact and sign agreements for future business partnerships. According to the Romanian authorities present at the forum, along with PM Emil Boc, there were success stories as Romanian companies signed agreements and contracts with business partners in China. Although the Romanian officials didn’t come back with deals for large projects, the Chinese interest focused around schemes such as: the construction of reactors 3 and 4 for the nuclear plant at Cernavoda, the Siret-Baragan irrigation channel, the Bucharest ring road and the construction of the Bragadiru-Voluntari subway line, to name a few. According to the PM office’s statement, another idea raised at the forum was direct flights between Beijing and Bucharest.
China Practice makes perfect at KPMG
In March this year, auditing and consulting company KPMG launched its China Practice, an office designed especially to directly provide consultancy services to Chinese and multinational companies operating or investing in Romania and Moldava. Worldwide, KPMG has China Practice offices in more than 30 countries, including Australia, Canada, Sweden and Japan. Why now and why China? Ori Efraim, partner at KPMG and head of the China Practice, CEE, replies, “For some time, my colleagues and I have been observing the growing interest of Chinese companies in investing in Romania and the CEE region. We set up the China Practice because we anticipated a current need, and also because we expect to see significant growth in Chinese investments in the region over the next few years.” Regarding the activity fields, KPMG’s China Practice office has provided complex integrated services to Chinese companies in developing sectors, such as the telecommunications industry, financial services, renewable, manufacturing and infrastructure. “Services cover financial and legal due diligence for new acquisitions, an introduction to business opportunities, EU funds, market studies and of course audit, tax and other advisory services,” said Efraim. Regarding the local barriers met by Chinese investors in Romania, the lack of coherent legislation and the sudden fiscal changes are the worst enemy of all foreign investors, especially the Chinese. “However, to take full advantage of the opportunities presented by Chinese investment, the Romanian authorities need to remember that Chinese investors hold advanced business structures with fast developing plans. They expect to work in a business and legal environment which is stable, allowing them to have a clear forward strategy, to prioritize projects and to be able to set clear risk and profit allocation structures,” Efraim says. ■
furniture
Polishing a scratched local furniture market What would you do to save and even to boost your business if you were the manager of a Romanian furniture producer in this troubled period? Several furniture firms outlined to The Diplomat-Bucharest their survival strategies on a market that has dropped by a third over the past three years. By Magda Purice
T
he expansion lesson given to domestic furniture producers by the large foreign retailers that have won market share year after year has served them well during this difficult economic period. In the last few years, although the economic downturn has put the brake on expansion plans, local furniture manufacturers have found the resources to get to the consumer. A visit to Lemet’s production and storage facilities close to Campina reveals a case in point. The company, a family business owned by father and son Alexandru and Adrian Rizea, is rolling out its country expansion through franchise – the most cost-effective retail system, say specialists. “We are currently implementing a development strategy to increase our production capacities, use modern storage systems and maintain the countywide retail network,” Alexandru Rizea tells The DiplomatBucharest. The firm’s development plans target the opening of up to four shops per month all over the country this year. Elsewhere, local producer Casa Rusu
is also planning to launch a franchising system. “It is a very nice surprise for us to see that, in a very short time, many partners have stated their interest in operating a Casa Rusu franchise,” said Cristian Rusu, the owner of the company. An audacious move from these companies given that while in 2008 the local furniture local market totaled EUR 1.3 billion, last year it shrank by 28 percent with the once-upon-a-time profits a distant dream. The most optimistic projection is a 5 percent boost this year for the local furniture market, while the worst case scenario sees it stagnate at the 2010 level, according to the Romanian Furniture Manufacturers Association (APMR). The president of APMR, Aurica Sereny, is hopeful for 2011 and estimates that the market could exceed EUR 1 billion
The cost of expansion
With a turnover of EUR 34 million in 2010, representing a 6.5 percent increase y-o-y, Lemet has put its money where its owner’s mouth is. The company’s production lines
have seen investments of EUR 19 million so far. In the last few years, the firm has accessed EUR 6 million of European funds to expand its production facilities and for investments in a new production line. Lemet produces 1.2 million sqm of wooden boards (PAL) and 360,000 items of furniture yearly. The production plans involve over 30,000 sqm. Items under the brand “Lem’s” are sold through a current countrywide network of 102 franchised stores. Adrian Rizea, the commercial director of Lemet Campina, has seen a modest improvement in the Romanian consumer’s spending habits regarding furniture. Compared with the last few years, customers have spent 10 percent more this year in Lem’s stores, meaning up to EUR 70 per client. Casa Rusu also has expansion plans. The firm intends to invest EUR 5 million this year in upping its production capacity for its tapestry furniture (sofas etc) production line, in which the com47
furniture pany invested about EUR 1.5 million in 2010. Following the increased production capacity, the firm has announced plans to hire 400 workers who will produce some 20,000 furniture tapestry units. Since 2005, when it established its first operations in Romania, Casa Rusu’s total investments have reached EUR 16 million in two production plants. The retail network, which comprises seven stores so far, has absorbed EUR 4.3 million. Casa Rusu’s total retail area is 30,000 sqm. In 2009, the company opened five stores in Sibiu, Deva, Cluj, Pitesti and Brasov, and in 2010 it entered the Bucharest market with a 4,200-sqm shop located in the Vitantis shopping center. At the beginning of this year, the manufacturer opened a two-level retail unit of 2,800 sqm in Valea Cascadelor in Bucharest. The expansion plans include the opening two other shops, with one 4,300-sqm unit opened in Arad, in the Armonia commercial center, and the third retail unit to be launched in Bucharest, in the Colentina neighborhood, on a retail area of 3,000 sqm.
Clients hunt on foreign markets
The need for cash flow has driven companies to turn to foreign markets where the money is. The association’s calculations show that furniture exports exceeded EUR 1.2 billion in 2010, 13 percent up on 2009, and players hope the trend will continue this year as well. “Despite the crisis, the furniture market has survived thanks in part to
1.2
Troubled times
billion euro is the value of Romanian furniture exports for 2010, according to the APMR exports. We reached a record in this segment,” said Aurica Sereny at the beginning of 2011. The situation on the market this year has come about mainly due to the decreasing consumption of domestic and imported furniture products, with the consumer choosing to wait for better times and higher incomes. Another problem facing local producers is the increasing cost of raw materials worldwide, such as PAL, accessories, iron materials and adhesives. To compensate for the need to raise product prices, producers have started to renegotiate contracts with suppliers, increase production, implement cost-cutting strategies and reduce profit margins, all on a continuously shrinking furniture market. Still, this year has brought a recovery in employment in this industry, with many producers expanding their retail and even production assets. The situation was at its most dire in 2009, when recruitment in the furniture industry declined 21.3 percent from the 2008 value, according to APMR data.
While furniture producer Casa Rusu and the other group companies notched up a total turnover of EUR 24.2 million last year and the firm expects growth of at least 10 percent due to the increasing retail network, other producers are more reserved. Officials at furniture producer Simex estimate that their businesses will stand still this year. The company saw its turnover decline to EUR 14 million last year, after making EUR 20 million in 2009. The Simex group has ten companies under its umbrella, eight in Romania and the other two in Russia and Ukraine, representing production plants, maintenance and sales offices. The group’s retail network also reaches countries such as Hungary, Austria and Bulgaria. The group hinges the company’s operations on exports, which represent 90 percent of turnover. Meanwhile, Silvarom expected to lose over 20 percent of its turnover, taking the total to EUR 5 million, and register losses of EUR 400,000 in 2010, according to company information. The main problem for the firm has been the drop in sales, but the partial restructuring it conducted to adjust to the stretched market has also been a factor. In 2010, the company was running three production plants and had over 300 employees. According to Ioan Marginean, economic director of the company, Silvarom had to scale back to 150 employees and combine the production plants, one of which did not perform too well last year. “In the meantime, we won some auctions which saved us from taking too drastic measures,” said Marginean last year.
Knocking on insolvency’s door In the past three years major players on the trouble-hit local furniture market have faced significant downturns in sales and had to apply recovery strategies in order to save themselves from bankruptcy. One of the top ten Romanian furniture producers, Staer International of Galati, was declared insolvent at the beginning of this year, after the Galati court approved the company’s request to enter insolvency procedures. According to market information, this is the first notable insolvency case on the furniture segment in Romania. Mihaela Murariu, the associated manager of Elva Cont, the judicial manager
48 The Diplomat September 2011
of Staer, says the insolvency was caused by a plunge in sales which damaged the company’s relations with its external partners. Staer launched aggressively on the Romanian market by opening 30 shops in 2005, reaching at its peak a total of 40 outlets countrywide and a production unit in Galati. Last year, it operated a retail network of 24 stores. According to the company’s financial data, Staer reached a turnover of EUR 12 million in 2010, down EUR 4 million compared to the previous year when the company also had debts of EUR 10.4 million. In 2007, the firm registered its highest turnover, EUR 30.4 million.
furniture
“Despite the crisis, the furniture market has survived thanks to exports which exceeded EUR 1.2 bln last year, a record,” Aurica Sereny, president of APMR
Silvarom, which is owned by the Romanian Paunescu brothers, was established as a company in 1952 and privatized in 1993 through a management and employee buy-out. In 2009, the company had a market share of 8 percent on the segment of residential furniture, 17 percent for office furniture and over 60 percent for school furniture. In 2007, Silvarom had over 700 employees in its three production plants in Bucharest, on the platform in the Giulesti area.
Think foreign, think flexible
A special market segment is made up of several Romanian furniture producers that exclusively produce for foreign retailers. For instance, Amis Impex, located in Reghin, exclusively manufactures for
the German retailer Otto. According to company representatives, meeting the retailer’s standards is difficult, especially because the Romanian producer manufactures rustic pieces for the German market. To meet the demands of its client, Amis Impex has to produce four new furniture sets of 50 models each year. The company intends to find financing to open a showroom near Bucharest, marking its entrance on the Romanian market, but the plans are still under analysis. Along with Amis Impex, there are also suppliers such as Ecolor from Jucu, Plimob in Sighetu Marmatiei, Sortilemn of Gherla and Nikmob from Nehoiu which produce for large retailers like Ikea. For some of them, it is easier and more productive to manufacture for the companies already running large retail areas which provide
a steady stream of revenue. Others, such as Lemet and Casa Rusu, with brands established on the Romanian market, have succeeded in breaking into available market segments and reaching more flexible retail networks. The trend is seen across retail market, with large retailers trying to reach the most remote areas of medium-sized cities, where big volumes can be built through small amounts put together. ■
49
diplomacy
Meeting of the Romanian Diplomacy An event of both symbolic and pragmatic significance
Minister Baconschi, this week you are holding the Annual Meeting of the Romanian Diplomacy (RADR). What is the significance of that event?
This is an annual event of the Ministry of Foreign Affairs, and a good opportunity for Romania’s ambassadors, consuls general and directors of cultural institutes, together with the leadership of the Ministry, to asses the diplomatic activity of the past year, and to establish guidelines for the coming year. This event therefore has both a symbolic significance and a very pragmatic one – to make the necessary stage review.
What are the priorities to be discussed? How will this year’s meeting proceed?
We are going to allot two days to working sessions with our diplomats, so as to have an in-depth dialogue on diplomatic action priorities, the means to improve institutional performance and the contribution Romania can make to approaching global challenges. Special attention will be given to our priorities in Europe. 2012 has special significance for us: it is our fifth year as a European Union member state, and it marks 150 years since the Ministry of Foreign Affairs came into being (July 20, 1862). We shall also be analyzing our diplomatic activity in geo-strategic areas of growing importance to Romania: Asia, the Middle East and Africa, as well as South America. In all these regions, there exist highly favourable prerequisites for cooperation with states having a considerable economic potential. Also to be examined are projects and programmes devoted to Romanian communities abroad. We must make sure that programmes targeted at Romanian communities are efficient. The work of Romanian cultural institutes will make the object of a distinct analysis. I believe in soft power, and Romania has a tremendous cultural vivacity which deserves to be properly publicised. I think that the Romanian Cultural Institute (ICR) under the leadership of Dr Patapievici is doing a great 50 The Diplomat September 2011
job in that sense, and we fully support its programmes. Consular activity shall also be analysed carefully, with an emphasis on refining the ways of getting closer to Romanian citizens living abroad, and on improving relevant services and assistance. It is one of the priorities of my term to strengthen the country’s ties with our expats. We have large numbers of Romanians living abroad, and they must not feel excluded from our country’s destiny. To give further weight to the event, the Prime Minister, cabinet ministers and the heads of the Parliament’s committees for foreign affairs will address the Meeting. The heads of Romania’s diplomatic missions will thus have an opportunity to be presented the latest items on the Cabinet’s agenda, and notably the strategic economic priorities.
Last year RADR was attended by the Hungarian Foreign Minister, as a special guest. Whom have you invited this year?
Three special guests will be attending this year’s Meeting: Sweden’s Foreign Minister Carl Bildt, the head of Turkish diplomacy, Ahmet Davutoglu, and the Minister of Foreign Affairs and European Integration from the Republic of Moldova, Iurie Leancă. It is an honour for Romanian diplomacy, and a signal to our European partners that such outstanding guests have accepted our invitation. Their presence in Bucharest shall also give us the opportunity to consolidate our constant bilateral dialogue with these important partners, and to have a dialogue on topics of interest at the European and international levels. ■
driving
Mercedes SLK gets A-OK The third generation of one of the hottest and most successful convertibles, the Mercedes SLK, is hitting the streets – in a big way! Trying to get away from the model’s image as a convertible for women, the designers of the 2012 SLK have put a lot of effort into changing its lines to give the car a more aggressive and muscular shape that will hopefully appeal to testosterone more than before. By Adrian Ion
M
any call the SLK a baby SLS, and rightfully so if you only take into account the shape of the car: both inside and out, you will find a lot of design features that were implanted to the baby Merc from its super sporty brother. Courtesy of Mercedes-Benz Romania, I drove the diesel powered version, fitted with a 2.2 liter turbo-diesel and 204HP, which take the car to 100 km/h in 6.7 seconds and from 80 to 120 km/h in a decent 4.3 seconds. In terms of consumption, the manufacturer claims 4.9 liters per 100 km on combined cycle and emissions as low as 128 g/km of CO2, but in real-life driving you should expect around 11 liters in city traffic and about 6 on the highway. The 2012 Mercedes-Benz SLK 250 CDI comes with 7G-TRONIC PLUS automatic transmission as
standard. This will probably be the choice for most drivers, due to the fuel efficiency and lower running costs. The other versions on offer are the SLK200 and SLK250, which have turbocharged 1.8-litre direct-injection engines, with the 200 pumping 181HP and the 250 reaching 201HP. The SLK350, which has a 302HP 3.5-litre V6, is the top pick, at least until the AMG version completes the range. The new SLK is much improved in many areas, from the now perfectly fitted and rattlefree metal roof to the roomier and high quality interior. One special feature I must mention is the air scarf that will be useful if you want to drive with the roof down on colder days, as it wraps a “scarf” of warm air through the
headrest vents. The boot is large enough for a couple of bags even with the roof down, with extra space sensibly being offered if the roof is kept closed. The diesel version I test-drove offers a more than decent dynamic performance but I wouldn’t call it a sporty car. If you put the transmission in the Sport mode, the response of the car changes noticeably and becomes a nice boy’s toy. The twin turbo engine offers a great torque feeling and pulls the car in a constant manner up the red zone. The closest rivals of the SLK that will vie for your money are the Porsche Boxter and the BMW Z4. Prices start at EUR 32,500 plus VAT for the SLK 200 and go up to EUR 43,950 for the SLK 350. ■
51
business leader What does it take to set up an insurance company in Romania during a recession? Leslie Breer, president of the management board of Signal Iduna Asigurari de Viata, tells The Diplomat-Bucharest the company’s milestones, its results so far and where it will go from here. By Dana Verdes
Positive Signals on a difficult market G
erman insurance company Signal Iduna came to Romania several years ago just before the crisis struck. “We began to go operational at the end of 2008, not exactly the best time. We were taken completely by surprise, just like everybody else, by the recession. We didn’t put full forces behind this opening, but immediately we backtracked into some investments that we had to do then, like setting up the sales forces in a larger way,” Leslie Breer, president of the management board of Signal Iduna Asigurari de Viata, tells The Diplomat-Bucharest of the beginning of the company’s operations on the local market.
First obstacles
“2009 was horrible for everybody. For us, it wasn’t that horrible, because we didn’t have much of a portfolio, but the business was quite slow and we said, ‘Let’s restart everything in 2010’,” says Breer. Besides the slow start due to the effects of the worldwide crisis on Central and Eastern European states, the company had to deal with problems in establishing its operations in Romania. “It took longer than we expected to set up 52 The Diplomat September 2011
the company and we don’t really know why. We had the capital money in very early for the start-up in February 2008 and money is usually the most important thing they look at. I would say that it was probably just a thorough check as Signal Iduna is not very well-known internationally, so it took time,” reflects Breer.
Investment commitment
His 20 years of experience in the insurance sector brings the necessary know-how to continue the local investment. “We have just finished the greenfield phase and we are now going through a regular administration period for the company. Currently half of our premiums are for health insurance. We did what we do best, meaning build up a very good health insurance company, as it is our major focus. We see Romania as a medium- to long-term market,” said Breer. And the investment plans confirm the company’s long-term strategy. “We have a capital inflow of EUR 12 million which we have boosted in the meantime with an additional EUR 3 million, and we are planning our next capital inflow for the end of this year, of another EUR 3 million,” he added.
In predicting the investment return, Breer is realistic. “In a few years, the investment will show. Insurance companies take a longer time to break-even but then again we are in the long-term business.” According to him, the mother company had money to invest thanks to its prudence. “When everybody was investing in risky stocks, we played it safe. We do not experiment with people’s money.” However, the first results did not take long to appear. “This year we managed to ink the largest health insurance contract with automotive supplier Takata Petri, a company with headquarters in Arad,” said Breer, adding that the insurer is currently negotiating another regular contract worth over EUR 1 million.
State’s contribution
Breer has found that since he arrived in Romania in 2007, nothing fundamental has happened in the health insurance sector. “You get at least 10 different opinions on different issues, as there is not a structured strategy in the health field,” says Breer. He believes that the government’s timid measures are not enough to boost this sector.
business leader “The state has indeed given some incentives to take out private health insurance. One first good step was that companies would insure their employers for a sum from which EUR 250 per employee per year could be deducted. Another step was that, from this year, employer insurer didn’t have to go to the Health Insurance House (CAS). The deductibility of costs and other measures could be reflected in the medical services,” he added. Another issue the Romanian authorities have to resolve – in his opinion – is the lack of specialist managers. “There are no medical economists with technical economic knowledge to understand what profit is about. It is very important to have medical people with an economic understanding to manage the hospitals. Also, there is a need to cut down the administration as it is much too bureaucratic,” he stressed.
The cost of health
The Signal Iduna official said that insurance costs are still low in Romania, compared to other European countries. “You can pay between EUR 35 and EUR 45 per month for a full insurance package in Romania, compared with the price of an equivalent package in Germany which starts at EUR 300
per month. The costs could go lower if there were a unique pricing catalogue for insured services. This doesn’t mean that it cannot be operated on the free market. The existence of such a catalogue could result in transparent costs in the relationship of the customer with his or her insurance company and the medical services provider, to better observe the costs of those services and act in the customer’s best interest,” says Breer.
Future plans
This year, the company targets subscribed premiums of EUR 11 million, five times more than last year’s results, as he considers the need for good medical services universal. “We do not play all our cards on the agent network as in addition we have contracts with brokers and banks to sell our products. Our focus is to customize products and solutions according to individual consumers,” says Breer. “For this year, we are also aiming to come up with lower priced products for a segment that has not been approached so far, low income consumers.” Despite the rough start, the company has the chance to up its speed on a healthcare market growing at over 30 percent and above. ■
Who is Lelie Breer? 2010 – present President of the management board of Signal Iduna Asigurari de Viata 2008 – 2010 Vice-president of the management board of Signal Iduna Asigurari de Viata 2007 – 2008 Leader of the set-up project of Signal Iduna in Romania 2001 – 2007 Member of the management board of Signal Iduna Polska Towarzystwo Ubezpieczen, Warsaw, Poland 1999 Administrator of Signal Iduna Insurance Services Poland, Warsaw, Poland 1989 – 1999 Coordinator of the following projects: set-up project for SIGNAL Hungary, M&A project, SIGNAL Universal Life, Dortmund Reinsurance Ireland, Dublin set-up project
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real estate Green City project puts EUR 60 million into 1,000 houses
Green City Construct, a company controlled by Romanian businessman Dumitru Bucsaru, has started the fourth development stage of the Green City project in 1 Decembrie village near Bucharest, following a EUR 60 million investment, according to company officials. The money will be put into the construction of 1,000 houses. The homes will have 126 sqm of built area and will cost EUR 69,900. Green City is being developed on 120 hectares of land. So far, the company has built around 800 houses and spent EUR 100 million.
H&M to expand in four more Romanian cites by November
Swedish fashion retailer H&M (Hennes & Mauritz) has said it is planning to open four more stores in Romanian cities by November this year. Shops in Cluj-Napoca, Timisoara, Constanta and Bucharest will join its five existing local outlets. In Timisoara and Cluj, the retailer will lease spaces inside Iulius Mall while in Bucharest it plans to open in Sun Plaza Shopping Center. The first H&M location in Constanta will begin trading in November in Maritimo Shopping Center, according to the company.
Constructor Remco Romania wins EUR 6 mln of contracts in Africa Industrial construction company Remco Romania is consolidating its business in Africa, with ongoing construction projects to be developed in countries such as Gabon, Nigeria and Cameron totalling EUR 6 million and an estimated area of 30,000 sqm so far. This year, the firm is awaiting construction permits for its sixth project in Africa, to build a warehouse of 9,500 sqm in Nigeria. Remco Romania won its first contract in the continent in 2010, involving two projects in Gabon, while this year another three schemes have been delivered in the same country. Currently, the company is about to sign deals to build a warehouse in Nigeria and a food processing plant in Cameron. “We are not targeting local
controversial auctions in Romania; instead we are looking for interesting projects abroad. Besides Africa, we are in advanced negotiations for a 46,000-sqm project in Russia,“ said Jan F.J. van Vulpen, Remco Ruimtebouw Holland and Remco Romania GM. Remco Romania, a subsidiary of Dutch company Remco Ruimtebouw, has amassed a total of 100 projects involving over 500,000 sqm, building for companies active in the transportation, warehousing, distribution, trade, services and sport sectors, according to the firm. In 2010, the Dutch group had a turnover of EUR 30 million from its businesses in Romania, Poland, Ukraine, Russia and Bulgaria. ■
Bucharest to see annual residential deals of 20,000 units, says DTZ Echinox
JLL to provide property management services to Colosseum Retail Park
The property management team of Jones Lang LaSalle (JLL) will manage the retail spaces of Colosseum Retail Park, part of a larger commercial project developed by Nova Imobiliare in north-west Bucharest. JLL will be the liaison between Nova Imobiliare and the tenants, for financial issues, day-to-day management, as well as communication and marketing coordination, according to JLL officials. Colosseum Retail Park delivers 53,000 sqm of retail area, from a total retail plan of 190,000 sqm. So far, the site comprises a Carrefour hypermarket, the first Leroy Merlin DIY store in Romania and an Altex outlet.
54 The Diplomat September 2011
The Bucharest residential market is expected to reach a stock of 15,700 new units by the end of the year, according to the latest study carried out by DTZ Echinox, “Residential Market Overview H1 2011”. According to the study, the first six months of the year witnessed the delivery of 300 new apartments. With nearly 1,000 flats announced for completion in 2011, the new supply is significantly lower than the approximately 4,100 apartments finished in 2010. According to DTZ Echinox estimations, the 20,000 units sold annually will remain fairly constant for the foreseeable future, while new apartments will count for about
15 to 25 percent on the medium term. The conclusion of the affordability analysis carried out by DTZ Echinox is that the average inhabitant of Bucharest cannot afford to buy the average home in the city. The reduced affordability is keeping the number of transactions at relatively low levels compared to similar European capitals. While Bucharest registered only 1,500 new apartment sales in 2010, other capitals in the region saw significantly higher volumes. Some 10,260 new residential units were traded in the Polish capital in the same interval, around seven times more than in Bucharest, while Budapest notched up 2.5 times higher sales, at 3,885 units. ■
real estate Mega Image eyes G’Market acquisition The G’Market supermarket chain, operated by Turkish group FIBA Holding in Romania through Gimrom Holding company, is going up for sale, according to a local newswire. Sources on the market, quoted by Mediafax, say large retailers such as Mega Image or Carrefour might be interested in acquiring the four remaining G’Market stores in Romania. In July this year, Gimrom closed its G’Market outlet in Iulius Mall Iasi. At that time, representatives of Iulius Mall said that a major retailer would open a supermarket on the location, without mentioning a name. In 2008, G’Market closed the first store it had opened in Romania, in Bacau, while its Foscani supermarket ceased trading at the beginning of this year. According to official Gimrom data, the four remaining G’Market
outlets have 200 employees in Romania and deliver a net sales area of over 7,000 sqm. In 2009, G’Market posted a turnover of EUR 24 million. ■
BelRom gets EUR 9.5 mln financing for Botosani Shopping Center Belgian developer BelRom has attracted financing worth EUR 9.5 million from BRDGroupe Societe Generale for the completion of a new commercial development in Botosani, Botosani Shopping Center, which will be opened in November this year, according to the company. The retail development will total 15,000 sqm and host tenants such as Carrefour, the main anchor of the park, as well as Domo, Sensiblu, plus fashion brands New Yorker, House of Art, Orsay and Leonardo. The proj-
ect is BelRom’s sixth in Romania, after the company opened similar retail projects in Drobeta Turnu Severin, Bacau, Foscani, Sibiu, Braila and Targu Mures. The last three were sold for more than EUR 230 million to other investors. The retail park in Botosani was due to be opened in 2009, after the company acquired land of almost 53,000 sqm in 2007. The developer’s plans for this year include the opening of another two commercial parks in Craiova and Deva. ■
JLL study sees mixed picture for local real estate market Romania should be able to return to the capital markets for financing, following Fitch Ratings’ recent upgrade of the Romanian economy, according to Jones Lang LaSalle’s report on the real estate market for Q2, 2011. However, the study concludes that the credibility of developers has dropped significantly due to insolvencies on the market, bankruptcies and the halting of projects. H1 of 2011 registered a slight increase in prices on the residential market, which rose 2.2 percent from the beginning of this year. However, JLL consultants doubt the trend will continue, with the number of transactions remaining steady due to the lack of new projects. John Duckworth, managing director of Jones Lang LaSalle in CEE & SEE, commented, “The CEE & SEE markets are fragmented and
operate at different speeds. The more mature markets of Warsaw and Prague are experiencing a relatively broad based real estate market recovery, whilst Belgrade and Zagreb are in much different stages of their development. Budapest, Bucharest and Bratislava are all different again, but here we also see tentative signs of recovery across investors, developers and occupiers.” Some of the most significant transactions quoted in the study are the purchase of Astoria Business Center in Bucharest by the Greek fund Bluehouse Capital, in a EUR 10 million transaction, and the takeover of the remaining 69 percent of Adama real estate developer by the Austrian financial group Immofinanz, in a deal worth EUR 42 million, mainly targeting Adama’s residential portfolio. ■
Century 21 Romania opens new franchise in north Bucharest
Century 21 Romania, the master franchise of the US-based real estate company Century 21 Real Estate LLC, has opened a new office in north Bucharest, in the Aviatiei area, following an investment of EUR 20,000. The new unit is operated by an independent franchisor. Currently, Century 21 is active through eight franchises in Bucharest. By the end of the year, the firm plans to reach 12 franchises, and a market share of 10 percent by the end of 2012. The company plans to extend around the country but only after it becomes market leader in Bucharest, according to officials.
NEPI doubles profit in H1
South Africa-based investment fund New Europe Property Investments (NEPI) registered a profit of EUR 1.7 million in H1 of 2011, 2.4 times more than in H1, 2010. The company earned revenues from rents worth EUR 16.1 million – up by 60 percent – in H1 of 2011 compared with the same period of 2010. Its exploitation expenses also rose by 80 percent, to EUR 4.1 million this year. At the same time, NEPI suffered losses of EUR 3.9 million in H1, 2011, down from EUR 4 million in H1, 2010.
Argo Real Estate Opportunities Fund has pending acquisitions worth EUR 340 million
Argo Real Estate Oppor tunities Fund, which is registered in the Cayman Islands, could own retail projects worth EUR 340 million in Romania, if the fund acquires the two Era Shopping Parks in Oradea and Iasi from the financial vehicle managed by Argo Capital Management, also the manager of Argo Real Estate Opportunities Fund. Era Shopping Iasi, developed by a Cyprus-based company, is worth EUR 83.7 million, while Era Shopping Oradea, developed by the same group, is evaluated at EUR 76.8 million.
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events RECYCLE BY CYCLE: RBS Romania became the main partner for Recicleta, a project developed in Bucharest by the Association for Sustainability ViitorPlus. Recicleta is the first paper recycling project that generates no pollution. The paper is collected by people on low incomes riding cargo bikes, who thereby gain employment.
TESLA TOUR: The European tour, Tesla Goes East,
brought to Romania the Tesla Roadster, the first super sports car with zero CO2 emissions. The main goal of the European tour is to show the world and introduce into the public’s day-to-day lives the 100 percent eco car.
EDUCATION DONATION: The Profi chain of stores
supports education in Romania through the Profi te premiaza! social campaign which will provide 100 schools all over the country with 15 laptops and a server each, and another 100 schools with one projector each.
CATWALK KING: A dismantled building, dozens of gorgeous dresses and plenty of models to applaud the fashion designer’s final presentation. Designer Adrian Oianu celebrated five year of his brand and launched the pret-a-porter collection Nothing to Lose. Two events were held to launch the collection, one in Bucharest at the historical building Palatul Universul, and the second at Kazeboo Beach Mamaia, Constanta. 56 The Diplomat September 2011
COP CAR: The Romanian Police has recently received a Lotus Evora S
car for operations that require traffic surveillance and raids. The vehicle, donated by carmaker Lotus through local company Forza Rossa, will be used by the police for the next two years. Its market price is EUR 76,000 and it can reach a speed of 280 km per hour.
UP AND AWAY: World Machinery Works in Bacau held a press
conference during the final phase of its project running the central executive processing VLO 60 CNC equipment of high complexity for the processing of high precision parts for the aerospace industry.
events POPULAR POLITICIAN: Foreign
minister Teodor Baconschi received the Celebrity of the Year in Administration award at the fourth Celebrities of the Year Gala. The awards went to personalities in various fields, such as television, administration, diplomacy, acting, business, healthcare and politics. They also included prizes for popularity.
BUCHAREST’S TOUR BUSSES: Minister of tourism Elena Udrea inaugurated the
new transport line, made up of four double-decker busses that will run on a special route taking in the main tourist attractions in Bucharest. The route is 15.4 km long, has 14 stations and it is covered in about 50 minutes.
SEOUL MAN: President Traian Basescu visited Daewoo Mangalia Heavy Industries Shipyard (DMHI) on the Black Sea coast to meet the management of the RomanianSouth Korean joint venture and take the pulse of the financial situation. Basescu said that the shipyard needs a massive injection of capital for the modernization of its construction halls.
WHISKEY IN THE JAR: Ludovic Ducrocq, the ambassador of one of the world’s
most popular blended Scotch whiskies, Grant’s, visited Romania to introduce to the best bartenders and the local press five of the Scottish producer’s famous blends. The purpose of the training session was for the guests to be able to recognize the difference between whiskies according to their Scottish geographical origin, type, age and, of course, maturation process, which confers on the drinks their exclusive flavors depending on the wood used: sherry barrels, ale casks or American barrels.
SAND, SEA AND CELLULOID: The International Independent Film Festival, with its slogan “A festival on sand”, celebrated its eighth run between the 8th and the 14th of August at Sfantu Gheorghe, on the Danube Delta. The festival awarded independent movies and films in different categories. Winners included Growing, by local director Roxana Bentu, which was voted Best Animated Short Film. In the feature film competition, the 2011 Anonimul Trophy went to The House, directed by Zuzana Liova. 57
city life Bryan Ferry comes to Bucharest for One Night British singer Bryan Ferry, founder of the legendary band Roxy Music, will play Bucharest on September 18, according to One Event, the company organizing the show. Tickets and information regarding the performance, which will take place at Arenele Romane, are available at eventim.ro. Fans can look forward to hearing hits such as Slave To Love, Don’t Stop The Dance, More Than This, Shameless, One Night and Avalon. Now in his 60s, Ferry is considered one of the major British mu-
sicians of the 20th century. He rose to fame in the 70s, being dubbed “Mr. Cool”, “The King of Cool” and “The Electric Lounge Lizard”. The concert in Bucharest will promote the artist’s new album, Olympia, which features songs recorded both with his former Roxy Music colleagues and collaborations with artists such as David Stewart (Eurythmics), Johnny Greenwood (Radiohead), Flea (Red Hot Chili Peppers), Scissor Sisters, Groove Armada and David Gilmour (Pink Floyd). ■
Countdown to 20th George Enescu international festival Bucharest will host the prestigious George Enescu international festival and contest until September 25, which is now on its 20th run. Besides the traditional location of the open George Enescu Square, another eight main venues will host performances: Sala Mare a Palatului (Great Hall of the Palace), Ateneul Roman (Romanian Atheneum), Opera Nationala din Bucuresti (Bucharest National Opera), National Theatre I.L. Caragiale, Aula Muzeul National de Arta (the National Art Museum) and the Mihail Jora hall of Romanian Radio Station Society. Joining the traditional se-
Famous musician and pianist Yanni comes to Bucharest on September 14 when he will give a show at Zone Arena. The Greek artist’s local concert is part of a series scheduled in Eastern Europe starting in September, to continue onto Asia and Latin America, according to Yanni’s official site. Tickets are available at the Vreau Bilet agency in Uni58 The Diplomat September 2011
ries of performances, this year sees the introduction of a new category, World Music, which will cover a gamut of global strains from ethnic sounds and soul introspections to the lively rhythms of rock, jazz and folk. According to Mihai Costantinescu, manager of Artexim, the agency in charge of the festival, government financing for this year’ s event has increased and covers 90 percent of the total funds needed. Tickets for the festival can be bought online directly from the festival website, festivalenescu.ro at eventim.ro and from shops in the Eventim network. ■
Yanni to play at Bucharest on September 14
He will rock you: Queen fans go Gaga for Freddie Mercury tribute
rea Shopping Center and Carrefour Feeria, at Baneasa Shopping City, with prices ranging from RON 100 to RON 350 and online reservations at vreaubilet.ro. Since last year, the artist, born in Kalamata, Greece, has performed in over 60 concerts throughout the USA, Canada, Mexico, Argentina, Brazil, Chile, Puerto Rico and Panama. ■
A Freddie Mercury tribute concert organized by Fat Cat Advertising will take place in Jukebox on September 22. The show will feature various artists performing Queen and Freddie Mercury hits, in an event timed to commemorate 20 years since the f lamboyant singer died, but also to celebrate 40 years of Queen. Dan Helciug of Spitalul de Urgenta, Zoltan Andras from Sarmalele Reci, Cristina Haios of Impact, Cortez and many other names on the local music scene will take to the stage, with further details on the event website letsrock.ro. Tickets can be purchased on the door for RON 65. ■