Czech Ambassador: 'Romania is taking large steps towards improvement'

The Czech Republic shares with Romania not only similar history, but also economic grounds. The country ranks 14th in the top 20 foreign investors in Romania, with a total FDI of one billion Euro, counting more than 800 companies registered on the local market. Alexandra Lopotaru talks to the new Ambassador of the Czech Republic in Bucharest, Vladimir Valky, and to Czech investors to discuss the bonds between the countries

2015-06-13 19:32:00 - From the Print Edition

Romania and the Czech Republic share common history and witness strong diplomatic ties. Romania was among the first states to recognize the independence and sovereignty of the Czech Republic on 18 December 1992, after the separation of Czech Republic and Slovakia, the actual existence of the two new states entering into force on 1 January 1993. Between June 21 - 23, 1994, the President of the Czech Republic back then, Vaclav Havel, paid an official visit to Bucharest and the Agreement on Friendly Relations and Cooperation between the Czech Republic and Romania was signed.

The last visits at the heads of state level took place on 15-16 July 2009, when Romanian President Traian Basescu at that time visited the Czech Republic, and on 20 to 22 May 2014, when Romania received the official visit of the President of the Czech Republic, Milos Zeman. On 25 to 26 November 2013, Bucharest saw the visit of the Prime Minister of the Czech Republic, Jiri Rusnok, at the meeting of heads of governments of the states of Central and Eastern Europe and China. Moreover, from 11 to 12 March 2013, the official visit to Prague by Romanian chief diplomat Titus Corlatean took place, while on 6 October 2014, the Minister of Foreign Affairs of the Czech Republic Lubomir Zaoralek paid an official visit to Bucharest.

The countries experience also social and cultural bonds within the CEE. About 5,200 Romanian citizens are officially in the Czech Republic, according to Ministry of Foreign Affairs data, the number of Romanian citizens working in the territory increasing after the latter accessed to the EU in 2004. In addition, in Romania, particularly in southern Banat, there is a Czech minority surrounded by a population of Serbian and Romanian origin, which has kept its language, customs and traditions. Economically, the bilateral exchange between countries is constantly increasing and more than 800 Czech companies are registered in Romania, among which the most important investor is CEZ, a state-owned company which produces, distributes and sells electricity. Between 2005 and 2013, the company injected around 1.3 billion RON (292 million Euro) into the local market.

In a friendly political, economical and cultural context, the relationship between both countries is permanently rising, according to the new Ambassador of the Czech Republic in Bucharest, Vladimir Valky, who returned to Romania in late January this year after 30 years. "The relations between the Czech Republic and Romania are intensive, in particular of economic and cultural affairs," the Czech Ambassador tells The Diplomat - Bucharest. "Romanian people are well educated and, of course, an educated nation could open the door to economic and cultural cooperation. Between our two countries, there are no problems in politics or in strategy of security and the relations are on a very high level."

After 30 years, Romania has changed enormously, says the Ambassador. Moreover, only after a few months spent on Romanian soil, he notices how the country is combating negative factors, such as corruption and the weak rule of law. "Before coming here, I didn′t know about many factors that can influence Romania," says the Ambassador. "However, after spending already several months here, I have noticed that Romania is combating negative factors in a very positive way, such as corruption and the somewhat weak rule of law. The situation and the environment in Romania in the sectors of politics and economics is definitely improving," he adds.

Although Romania and the Czech Republic share common history, being under communist dictatorship until 1989, the Czech Republic managed to develop faster than Romania, entering the EU in 2004 and in Schengen area in 2007. Romania managed to access only the EU in 2007, waiting for the opportunity to become a member of the Schengen area as well. An explanation of the fact that Romania still lags behind is that the political system under the ruler Nicolae Ceausecu on the domestic market was tougher than the one in (then) Czechoslovakia, Hungary or Poland, says the Ambassador. Furthermore, nowadays the selection criteria for the Schengen area are more strict than eight years ago due to some current security issues.

"The situation is a little bit different nowadays," says the Czech Ambassador. "The threats that existed back then are more intensively felt now and I am referring to the so-called Islamic State. We can add also the problem with exporting the democracy of western style to other regions in the world that proved to be not very good applicable in praxis. [...] The EU is now focused on security, a topic also part of the CVM (Cooperation and Verification Mechanism) concerning Romania and Bulgaria. Maybe this mechanism is more complicated for EU countries than it was during the accession to Schengen of the other CEE countries. So, maybe now it looks like a disadvantage, but it is a reaction to today's problems of international security."

Nevertheless, the Ambassador of the Czech Republic goes on to add that his country supports Romania to enter the Schengen area because it understands exactly what Romania is going through. "The Czech Republic not only must support Romania, but wants to support Romania [to access the Schengen area]," says the Czech Ambassador. "This is connected to our common history, starting with the Austro-Hungarian monarchy and during communism. Only the countries with a communist history can evaluate other countries that underwent the same experience. Western countries cannot understand this problem. If something positive is done, we can see that the step is enormous, but for other countries it looks like a small step. We understand Romania and we see that is taking large steps towards improvement."

The bond between the Czech Republic and Romania seems to have deepened in the past few years since the launch of the Danube Strategy, designed to develop the riparian region. The Danube Strategy was adopted by the European Council on June 24, 2011, as a macro-regional strategy for the entire European Union. The project brings together 14 countries, out of which eight are EU Member States (Germany, Austria, Slovakia, the Czech Republic, Hungary, Slovenia, Romania and Bulgaria), and six are not (Croatia, Serbia, Bosnia and Herzegovina, Montenegro, Moldova and Ukraine).

It consists of four main segments that could help develop and enhance the Danube region, which starts with Germany and ends with Romania and Ukraine: connectivity, in terms of intermodal transport, culture, tourism and energy networks; environmental protection, for water management, biodiversity protection and risk management; prosperity and growth for the Danube Region, involving education, research and competitiveness; and improving the system of governance, institutional capacity and internal security. Each objective of the strategy corresponds to specific areas of action, grouped into 11 priority areas, each being coordinated by two states.

The Czech Republic is active together with Hungary at the priority area number two, sustainable energy encouragement, while Romania is active with Austria, Bulgaria and Hungary in inland waterways, in promoting culture, tourism and people-to-people contacts and in environmental risks management. "It is very important that both EU members and non-EU members cooperate within this strategy," adds the Ambassador.

Sharing economic grounds

Romania and the Czech Republic collaborate on economic terms also. At the end of 2013, the Czech Republic ranked 14th in the top of foreign investors in Romania, with a total FDI of more than one billion Euro - 1.8 per cent of total FDI, according to the 2014 report by BNR (National Bank of Romania) and INS (National Statistics Institute).

By the end of 2014, the bilateral exchange between both countries stood at 2.8 billion Euro, exports from Romania to Czech Republic registering 1.2 billion Euro, a 20 per cent increase compared to 2013, while imports from the Czech republic to Romania recorded 1.6 billion Euro, a nine per cent growth over the previous year. The main items exchanged between both countries were automobiles, spare parts, mobile phones, communication equipment, electricity infrastructure and pharmaceuticals.

On 31 December 2014, the subscribed share capital of the 848 companies with Czech capital registered in Romania equalled over 422 million Euro, according to the Ministry Of Foreign Affairs. However, since companies are not obliged to register at the Embassy or to other responsible institutions, the number of companies is likely higher than the official figure, says the Ambassador.
"The trend of the economic relations between Romania and the Czech Republic is very positive and one can see the presence of a lot of Czech companies in Romania," says the Czech Ambassador. "We have more than 800 Czech-based companies registered, but the statistics can be a little bit confusing. Companies don′t have the obligation to register at the Czech Embassy, so those 800 are those that are in contact with us. I think there are far more than 800 firms. Furthermore, there are some Czech companies that are not established locally, but are doing business from the Czech Republic by short business trips their representatives take here. We can also add to the list the Czech minority living in Banat, for whom the main business is the economical cooperation with Romania."

The most important Czech investor in Romania is by far CEZ, a state-owned company which produces, distributes and sells electricity. Between 2005 and 2013, the company injected around 1.3 billion RON (292 million Euro) on the local market, being the owner of the Fantanele-Cogealac wind project, which has an installed capacity of 600 MW. Furthermore, Czech-based S Group Holding completed the Green Gate office building last year, one of the largest office projects that were delivered in 2014 in Bucharest, with a leasable area of 31,000 sqm and an investment of 55 million Euro. In addition, APS Romania, investor and manager of performing and non-performing loans, expects to reach 400 employees in the following 12 months from the 250 it currently holds, while MTD Quality Control, a Czech-based company located in Ploiesti (Prahova county) that provides quality control services, expects to see a 30 per cent increase in its turnover by the end of 2015, to almost 1.5 million Euro.

In the context of an active environment in terms of Czech investments in Romania, The Diplomat - Bucharest talks to several players to reveal their objectives for this year and to detail the status of the market in which they are doing business.

APS's Angelescu: "2015 will be the peak for non-performing loans transactions"

Czech-based APS Romania, investor and manager of performing and non-performing loans, acquired over 60 portfolios since it became operational on the local market in 2007, with a current nominal value of assets under management of around 2.1 billion Euro. Last year, the company was involved in three major transactions with non-performing loans (NPLs) portfolios - a package of 500 million Euro sold by Volksbank and two sets of 350 million Euro and 430 million Euro respectively sold by BCR. According to APS Romania's general manager, Victor Angelescu, Romania will register in 2015 the highest NPL transactions in terms of value and small banks will exit the local market.

"The non-performing loans market has grown in the last years and this year will record the peak in terms of transactions value," Angelescu tells The Diplomat - Bucharest. "I am very positive that BCR will sell at least as much as last year if not even double, close to two billion Euro. BRD should also be active, because so far it wasn't involved in such transactions. Moreover, two or three banks will exit the market and we will be witnessing other transactions. Starting next year, however, the market will begin to decrease and in two to three years it will reach normality, where transactions will register maximum 1.5 billion Euro."

One of the main catalysts for the market activity is BNR, who initiated an action plan for cleaning the system of non-performing loans, says Angelescu. In the past year and a half, BNR started to put pressure on banks to admit their losses and to clean their balances in order to re-establish the financial environment. This year, APS Romania hopes to double the nominal value of its portfolio and to win between two and three billion Euro.

APS Holding is present in seven countries in the CEE, APS Romania being the largest office within the group. If the Czech company has up to 500 employees in total, Romania holds half of them and expects to reach 400 in the following 12 months in its three branches in Bucharest, Iasi and Timisoara, says the general manager. The local subsidiary posted last year 30 million RON (more than 6.7 million Euro) turnover, a 66 per cent increase compared to 2013, and this year it expects to almost double it, to reach 50 million RON (11.2 million Euro). The profit of APS Romania stood at around seven million RON (1.5 million Euro), representing more than 50 per cent of APS Holding's profit, and it is expected to grow up to ten million RON (2.25 million Euro) by the end of 2015. Regarding the future, Angelescu is optimist.

"In the last year and a half, the lending in Romania returned to a natural trend," says Angelescu. "As harsh as it might sound, this is very important to us, because if banks lend again, there are chances for non-performing loans to exist in the future. In the following period, we will try to be very active and participate at many tenders as possible. We will keep growing for sure," he concludes.

LLP Romania plans to have a ten per cent increase in clients this year

LLP Group, headquartered in Prague, provides consulting, development and business software services in ten countries, including Romania since 1997. With more than 100 employees, the Group's revenues grew by 11 per cent in 2014, from 7.8 million Euro in 2013 to 8.7 million Euro last year, while profit before tax grew 23 per cent, from 1.4 million Euro to 1.9 million Euro. Within the Group, LLP Romania remained with a share of five per cent in terms of number of employees and six per cent in terms of revenues after the company sold the Microsoft Dynamics division - present in Romania also - to Hungarian-based XAPT. However, by the end of the year, the local subsidiary plans to strengthen its position and to grow by 15 per cent in terms of revenues and by ten per cent in terms of clients, a portfolio which currently includes names such as HBO, KPMG and BRD Sogelease.

"Currently, we have around 50 clients, from small to large companies, of which 37 are active within the maintenance services," Ioana Rentea, Business Unit manager at LLP Romania tells The Diplomat - Bucharest. "In 2015, we'll continue to be a consulting-oriented company, providing guidance on business processes and management reporting, advising on the right software systems to meet an organisation's needs. In addition, we plan to increase our client portfolio by ten per cent by the end of the year."

Furthermore, the local company plans to enlarge its business lines also. If the Group operates with three main areas - namely Infor's financial systems, software solutions from the company's subsidiary systems@work and Microsoft's CRM products - in Romania, the latter is currently missing. However, by the end of next year, LLP Romania could have a complete business agenda. "One of the most important objectives for next year is to expand the CRM division on the local market, which is currently the largest Microsoft CRM practice in the Czech Republic," says Rentea. "We will have training classes for our employees and maybe we will even hire new consultants."

Currently, 80 per cent of LLP Romania's revenues come from Infor's financial systems division, with 20 per cent from the systems@work segment, which developed time@work and expense@work applications. By the end of 2015, Rentea expects to have a 75 per cent - 25 per cent ratio (meaning a 25 per cent increase for systems@work) and plans to attract an important client for the second division in the following period. "Time@work is a cost surveillance application which we internally use and was developed to be sold further," says Rentea. "One of the most important clients of the Group is the British Parliament. We would like to reach the Romanian Parliament also. If we intensify our actions, in two-three years we could meet our target."

LLP Group became operational in 1992 in the Czech Republic and since then it expanded to Slovakia, Hungary, Bulgaria, Romania, Belgium, Luxembourg, Mexico, Russia - which decreased four times in terms of employees and workload because of the Ukraine crisis - and North America. During 2014, the Group worked on projects for around 400 clients in 57 different countries and plans to grow its team members up to 115 people this year.

MTD Group plans to reach 170 employees and increase its turnover by 30 per cent this year

MTD Quality Control, Czech-based company located in Ploiesti (Prahova county) that provides quality control services, from source materials to the final product, plans to grow its team members by more than 17 per cent this year, to reach 170 people, according to Roman Stulik, the managing director of MTD Group. Furthermore, after posting at the end of 2014 revenues of almost five million RON (1.1 million Euro), the general manager expects to have double-digit growth by the end of the year.

"In 2014, the business became bigger and we registered increases in our turnover and number of employees," Stulik tells The Diplomat - Bucharest. "We landed projects outside the country and we feel that customers are satisfied with our activity. 2015 will record growth as well - the target is around 30 per cent - and it will be the year of making the team stable and develop in needed areas."

MTD Quality Control counts up to 15 clients, most of them active in the automotive industry, amongst which one can find Johnson Controls, Martur Automotive Seating Systems and OKE Group. As a development strategy, MTD wants to enlarge its area of activity and become a national-level player, targeting also production. For the future, MTD plans to bring another business line into Romania, by opening a LED factory, but given the fact that the process is ongoing, no further details could be provided.

However, the investment in the training of the employees will remain a priority in the following period, say the representatives of the company. "The training of our people is very important," Anca Patrascu, project manager at MTD Quality Control, tells The Diplomat - Bucharest. "This is giving confidence to the customers that we are investing in our teams and we can keep a high level of performance."

Speaking about the local environment in general, MTD's Stulik notices that the Romanian market started to be more stable in the last three years and it should keep the trend going since companies need continuity. "Romania should continue to prove that it is more and more aligned to EU regulations and that it registers transparency in terms of management of the budgets and developments," he concludes. MTD Quality Control became operational on the local market in the first half of 2013 and is part of MTD Group, with operations in Czech Republic and Macedonia.

Hame Romania expects to grow despite difficult conditions

Czech-based canned meat manufacturer Hame, present in over 40 states around the world and counting 200 employees locally, posted last year 70 million RON (15.7 million Euro) in turnover in Romania, a nine per cent increase compared to 2013. For this year, the company expects to see further growth despite the negative impact of the programme launched by the Ministry of European Funds regarding the food aid to the underprivileged 3.2 million people, according to Sorin Bozdog, general manager of Hame Romania.

"The objective for this year is to maintain the upward trend of turnover," Bozdog tells The Diplomat - Bucharest. "We expect also in 2015 an increase of two digits although it is a year of great challenges given the programme of the Ministry of European Funds. Through this programme, it was offered, for free, to underprivileged families - about 3.2 million people - an amount of canned meat equivalent with annual consumption of Romania. This action will affect, for the rest of the year, the sales of several important categories such as pate, meat and ready meal in which Hame Romania activates."

Comparing the retail structure in the Romanian market to the one in the Czech Republic, Bozdog confesses that Modern Trade in Czech represents more than 70 per cent, while Romania stands at 52 per cent although the segment is in a continuous process of developing. "This aspect has many impacts on business, one of them being also the logistics approach: while in Czech deliveries are concentrated on eight or ten central warehouses, in Romania we have to deliver across the entire country," says Bozdog. "Also from a consumer communication point of view, the Romania market is different. Due to Latin character, Romania has mostly an emotional communication type for its consumers, while other markets from the group, with Slavic character, predominate functional communication."

However, going further with the comparison between both countries, the general manager notices that Hame has made continuous efforts to adapt to the Romanian market, which is the only market with Latin character from the group, and which has a lower purchasing power. "These sustained efforts were rewarded by significant results in conditions of a market with different features from those in Czech Republic and the other markets from the group," says Bozdog. "We are talking of the Romanian market which has a lower purchasing power than the rest of the group. However, there are foreseen opportunities of consumption growth in the coming years due to the positive trend of the average salary in the last eight years."

In terms of objectives, Hame Romania plans to continue developing and increasing its sales. Hame Holding owns eight production units in the Czech Republic, one in Slovakia, one in Russia and one in Romania, covering a wide range of canned food products, including pate, meat, vegetables, ready meals, canned fruit and ketchup. The first exports to Romania were registered in 1995, while the company later on strengthened its position on the market together with the takeover of a production facility from the former Romconserv, in 2005. Hame Romania represents eight per cent of total Hame Holding, being the fourth market after Czech, Slovakia and Russia.

Confima's Voicu: "Since 2014, our business intensified due to increased calls launched by MFE"

Czech-based consultancy firm Confima focuses primarily on advising Czech companies wishing to access European funds in Romania, offering them assistance since their entry into the Romanian market and stressing the opportunities one can get due to European funds. In recent times, the development strategy of the firm focused on projects designed to support the social economy, working closely with non-profit associations. Thus, Confima's business is correlated to the activity of the Ministry of European Funds (MFE), depending on the project calls it launches. If in the past years only a few activities could be recorded, since last year MFE intensified the calls and Confima's business is expected to grow, says Cristina Voicu, managing partner of Confima Romania.

"2014 was an extremely busy year for us, because the Ministry of European Funds started to launch more calls than in previous years," Voicu tells The Diplomat - Bucharest. "This year we expect to keep the same trend as well, because we have to manage the projects that have received approval for in 2014. As a result, our turnover will grow exponentially."

Voicu goes on to confess that the main challenges Confima faces in Romania include both the new generation of European funds that Romania should absorb in the 2014-2020 period and the development of social enterprises, entities that use the profit earned to create new jobs for underprivileged people, which lack financing. According to Voicu, social economy enterprises count two million entities that represent ten per cent of all European enterprises and employ over 11 million paid people, the equivalent of six per cent of total EU employment, out of which 70 per cent are employed in non-profit associations, 26 per cent in cooperatives, and three per cent in mutual organizations. Social economy enterprises are present in almost every sector of the economy such as banking, insurance, agriculture, commercial, health and social services. The lack of funding the sector faces affects the social economy in general, says the managing partner of Confima.

"The lack of visibility of the social enterprise sector is seen as a major constraint for the development of the social economy in general," says Voicu. "In all European countries, social enterprises seem to have a big common problem: lack of funding. This problem can be interpreted as an internal barrier as in Latvia for example, where, according to experts, the lack of financing is a consequence of human resources issues, lack of donations raised and lack of publicity. It can be also interpreted as an external barrier, as in France, where social enterprises suffer from a lack of funding especially because subsidies are decided on an annual basis. This makes it very difficult to build a medium-term programme," she concludes.

Confima became operational in Romania in 2008 and plans to invest in people and IT systems in the following period to cope with the increased activity the market experienced over the past year and a half. Furthermore, taking into account the projects it currently runs and those that have been approved or are in the final stage of approval, the company expects to triple its 2015 revenues compared to 2014, to a value of about 50,000 Euro.