The Romanian-German intertwining: die Reise goes on

Germany has always been a strong partner to Romania and this year is no exception. The country remains Romania's largest trade partner, German investors are confident and keep expanding their business, while high-level visits between the two countries demonstrate that the dialogue is open

2016-10-22 07:37:29 - From the Print Edition

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Alexandra Cioboata talked to important figures to measure 2016′s diplomatic and economic thread.

Germany, which celebrated its national day on October 3, is the third-largest investor in Romania, after the Netherlands and Austria, and Romania′s most important trade partner. At the end of November last year, there were 21,000 companies with German capital registered on the local market, of which around 7,500 firms are estimated to be active. German investors are strongly present in the automotive industry, with players such as Continental, the tire manufacturer and one of the largest suppliers of automotive products worldwide, and Schaeffler Romania, supplier of automotive components and industrial bearings.

The energy sector is also well represented by E.ON, the integrated distributor of natural gas and electricity which, since 2005 when it became operational on the local market, has invested more than 1.3 billion Euro in Romania. The retail segment is not neglected either, with strong brands developing locally, such as Metro Cash & Carry, Kaufland and Lidl. Furthermore, the insurance sector has important representatives like Allianz-Tiriac, Gothaer and Signal Iduna, while Hochland resonates as one of the main local players in the field of processed cheese and cream cheese.

According to a conjuncture report by the Romanian-German Chamber of Commerce and Industry (AHK Romania) in March this year, with 105 respondents, German companies still have confidence in Romania as a destination for investments and look confident at the future, which can partially be determined by the new Government, which began its activity in 2015. Moreover, the assessment of the current economic situation, the prospects for the Romanian economy, as well as the expectations regarding their own business in the sectors in which they operate have registered improvements over the previous year. Romania is currently above the average of the countries in the Central and Eastern Europe (CEE).

Thus, 30 per cent (2015: 15 per cent) of surveyed firms assessed the current economic situation as better than in 2015 and for 56 per cent of them the situation is unchanged. Even if in assessing the economic outlook for the current year compared to last year Romania is above the other CEE countries, the number of which who see better prospects slightly decreased to 49 per cent (2015: 56 per cent). Sebastian Metz, the general manager of the Romanian-German Chamber of Commerce and Industry, tells The Diplomat - Bucharest that the main economic growth stimulator was based on consumption, and without investments the rise is not sustainable on the long run.

"The appetite for consumption has led to this year′s economic growth, which continues that registered in 2015 and which will continue to remain at a high level," says Metz. "The availability of the private sector to invest must be also stimulated through high consumption, because otherwise the positive effect based solely on consumption will be lost. An important pillar for the Romanian economy is represented by the manufacturing industry. And, within this field, German companies have contributed with significant investments over the years."

Regarding the company′s status, according to the same report, estimates for this year are positive. The number of respondents who assessed the situation as good stands at 50 per cent (2015: 54 per cent), while 61 per cent of companies believe that their situation will improve this year (2015: 75 per cent). Thus, even if the figures dropped slightly below those of last year, Romania exceeds the average of countries in CEE in this case also. Almost half of companies surveyed (44 per cent) see an improvement of the conjunctural situation of their industry in 2016 compared to last year, while 13 per cent see a deterioration.

Same old challenges: public administration, infrastructure and lack of qualified personnel

The economic framework conditions witnessed some improvement, but there are areas that still require considerable enhancements, according to the current AHK conjuncture report. Romania has made considerable progress in the last two years, especially in terms of addressing corruption, a positive development which is also seen in the assessments of the companies. Additionally, some tax decreases have led to a better appreciation of the level of taxation.

However, as in most countries in the region, the companies present in Romania are dissatisfied with the legal security, fiscal administration and public administration in general, while the infrastructure is seen as a bottleneck to investments. Also, regarding the availability of the labour force, many companies complain about the lack of qualified personnel.

"Germany is already the third-largest investor in Romania and Romania′s most important trade partner," the Ambassador of Germany in Romania, Werner Hans Lauk, tells The Diplomat - Bucharest. "That means the intertwining of our two economies has already reached a very high level. Nevertheless, I am convinced that there is additional potential for new investments and for expansion of existing activities. However, as you say correctly, challenges in connection with transport and logistics infrastructure, as well as administrative efficiency, need to be addressed. The aim should be to intensify economic development in certain regions of Romania."

Moreover, the German Ambassador adds that the most important factor for successful economic development is human resources. Therefore, he notes that one has to realize that in some parts of Romania - namely in Romania′s booming industrial hubs like Timisoara, Brasov and Cluj - a scarcity of qualified labour, especially at shop level, is already limiting further expansion of existing investments.

"We hope that Romania will increase its investment in the education system," says the German Ambassador. "I understand this is also one of the strategic priorities of the Romanian leadership. This should not be seen as investment that solely benefits private and public companies but rather as investment in the economic and social future of Romania, its citizens, and above all, its young people."

Romania remains a stability point in the region

Even though many companies with German capital are still dissatisfied with certain economic factors, most of these companies would choose Romania again as a location for investment, according to the conjuncture report. When asked whether they would choose the local market again to invest in, 91 per cent of survey participants responded "yes".

According to AHK′s Metz, Romania remains a point of stability in the region and an investment site which, compared to other European countries, has an attractive salary structure for investors.
"Many German companies are expanding their production capacities, so they can achieve a level of production and quality standards corresponding to those of Western Europe," says Metz. "And this is appreciated by the German companies also."

However, Metz goes on to say it is time for Romania to develop other industries as well, which have been less exploited so far. In this respect, he notes that it is important to stress the field of research & development (R&D) and, linked to it, the digitization of the economy and production. Another important pillar of Romania is also the professional training.

"Without a skilled labour force, we cannot achieve the activities necessary to Romania and the country cannot increase its competitiveness," he says. "The Romanian-German Chamber of Commerce and Industry is actively involved and supports the projects related to vocational education in order for Romania to benefit from qualified personnel on the long-term."

Germany, Romania′s largest trading partner

Germany is the most important trading partner of Romania, the bilateral trade representing 23.3 billion Euro at the end of 2015 (an increase of 9.4 per cent compared with the previous year), of which Romanian exports to Germany amounted to around 10.8 billion Euro (19.7 per cent of total) and Romanian imports from Germany recorded roughly 12.5 billion Euro (19.8 per cent of total).
Trade relations between the two countries are in constant improvement. Thus, according to the Statistics Institute of Germany, quoted by AHK, in the first half of this year exports to Germany increased by 12.65 per cent while imports from Germany by 14.03 per cent over the same period last year. Romania ranks number 21 in trade with Germany before countries like India, Canada and Portugal. Moreover, for the current year, the bilateral exchange is expected to increase over the trade growth as a whole. Even so, Metz thinks that Romanian exports should become more competitive.

"Given the trade balance, I would be glad if Romanian exports would become more competitive, because, at the moment, its foreign trade does not contribute to economic growth," says the general manager of AHK. "The increase in imports exceeds that of exports."

The most important items exchanged between the two countries are machinery, electrical equipment, transport means and materials, common metals and textiles.

High-level visits contribute to improving Romania′s image in Germany

Although Romania and Germany share a positive development in terms of economic and political bonds, Romania still faces an image deficit in Germany, says the general manager of AHK, Sebastian Metz, as the German media tend to usually extract negative news and clichés about the local market. Thus, he believes that high-level visits between the two countries, besides strengthening the political and economic relations, contribute to the improvement of Romania′s image in Germany.

The Diplomat - Bucharest reminds that in late June this year, the President of Germany, Joachim Gauck, paid an official visit to Romania, after last year Klaus Iohannis went to Germany to enhance the relationship between both countries. In addition, recently, the Romanian Prime Minister Dacian Ciolos and the Deputy Prime Minister and Minister of Economy Costin Borc paid an official visit to Germany, which underlines once again the good relations between the two countries and their common interest, according to Metz.

"The visit of the President of the Federal Republic of Germany, Joachim Gauck, to Romania is proof that the dialogue between Romania and Germany continues at the highest level and that Romania is an important partner for Germany," says Metz. "The bilateral trade relations were, of course, one of the subjects of the visit, and within the three-day visit President Gauck held discussions with representatives of the German economy in Romania, also attended by the president, the general manager of AHK and several members of the Board of Directors. Such high-level visits, besides strengthening the political and economic relations, contribute to the improvement of Romania′s image in Germany as well."

Nevertheless, Metz believes that the relations between Romania and Germany will continue to have a positive development in the future as investors are attracted by the wages which are still low, by the legislation which is largely adapted to the EU and by the proximity to Western Europe.

"German companies have a special interest in the western part of the country"

German companies have had a special interest in the western half of Romania over the years, where major players such as Continental, Bosch, Hella and Mahle have found business opportunities and invested tens of millions of Euro in the region. Ioana Hategan, the vice president of the German Business Club in Banat and the managing partner of the Hategan Law Office, analyses - one by one - the main advantages the region offers to investors for The Diplomat - Bucharest. She believes that the two most important indicators that made the western part appealing include the German-speaking workforce and the proximity to Central Europe. She notes that this proximity resulted also in additional advantages due to the connection to the highway network crossing Central and Western Europe, thus providing the foreign investors an additional benefit, especially for export operations.

The multilingual workforce in the region is also a highly-qualified workforce, she says, with four Universities covering four of the most important professional directions: technical, theoretical, medical and agronomic, thus enabling foreign companies to recruit employees that are easily trainable. Last but not least, Hategan states that the local authorities in the region proved to be increasingly supportive, granting the investors the necessary conditions, especially for greenfield, as well as facilities to attract foreign companies, especially in the production sector.

"The western half of the country has German business clubs in its most important cities like Timisoara, Arad, Satu Mare, Cluj, Sibiu and Brasov, so the interaction between the German and the Romanian business environments has been facilitated through these platforms," says Hategan. "As vice president of the German Business Club in Banat, I would like to initiate projects which build even more links between the local business community with the German-speaking one, as well as with the local authorities through their representatives."

The lawyer goes on to add that a significant development of the local market is represented by the IT sector which is currently going through a boom considering the high-level qualifications of the local IT specialists, and the current focus on technology and innovation of companies in general.

"Hopefully, after the proposed changes in the legislation of public auctions, there will be other public infrastructural projects in which companies can get involved," she says. "Romania has always had a certain uniqueness compared to other countries within CEE, maintaining its position of a country where low cost and high qualifications combine in an atypical way, making development in all economy sectors possible. We have managed to attract FDI mainly because of this combination. For the time being, these advantages seem to be maintained. If we are able to balance the current production advantage with innovation in technology and services, we will have a chance of remaining competitive as a country on medium term also."

With 15 employees, the Hategan Law Office client portfolio has been steady for the past five years, although the firm felt an increase of the projects since the beginning of last year. Hategan confesses that she is keen to open her clients′ portfolio to companies outside of the German-speaking business circles where it has been very active for the last thirteen years, especially in Banat. "We are keen on developing our portfolio further, as we have gathered valuable experience in complex international projects developed for the past thirteen years, regardless of the fact that our location is outside of the capital Bucharest," she says. "So we are confident that this tendency will continue," concludes Hategan.

WHAT DO PLAYERS SAY?

Next, The Diplomat - Bucharest takes the pulse of large German investors, stressing their business development in the first half of 2016, the challenges they still have to face and their objectives for the coming years.

Noerr: Creating the ′Mittelstand′ remains one of Romania′s challenges in the years to come

Romania′s GDP has risen by 5.2 per cent in H1 due mainly to a domestic consumption boom, stimulated by tax cuts and wage increases. This is "nice to have", but not sustainable on mid and long term, according to Joerg K. Menzer, partner, head of CEE Offices at Noerr, one of the most important German law firms on the local market. He believes that the growth should be sustained through state investments - public health, infrastructure, education, as well as through state aids for several investment projects. However, these factors are missing, especially the latter. The Ministry of Finance denied this August 30 out of 36 foreign investments that, according to Menzer, would have created thousands of jobs and could have helped regions with very low development level.

"While I am glad that some major companies may obtain state aid for further investment in Romania, I have to say that for the other ones - many having investment volumes from 15 to 40 million Euro - this is the wrong message," Menzer tells The Diplomat - Bucharest. "The state aid mechanism leads to a pre-selection based on size, and eligible projects are not evaluated on content. I think this should be the case in Romania, and a sustained effort to consolidate the backbone of an economy. Creating this ′Mittelstand′ [the term commonly refers to German mid-sized companies] - known in Germany - remains one of Romania′s challenges in the years to come. Not to mention a real ′connection′ to Europe by highway."

Nevertheless, the head of Noerr CEE Offices agrees that Romania and Germany have witnessed a strong and positive relation over the years, in terms of both business and diplomatic ties. He believes that an important role was played by the growth of the gross domestic product by 3.8 per cent in the past year, one of the greatest economic growths in the last six years for Romania, and one of the most substantial ones in the European Union. And the figures for August are more than impressive as well, he notes.

"The fact that the macroeconomic business climate remains stable and has the potential of growing clearly matters," he says. "Another aspect is mentioned in a recent report published by the German-Romanian Chamber of Commerce and Industry (AHK): German companies still have confidence in Romania as an investment location due to the new Government who took office in November 2015. The confidence in the Government has increased, and many German companies expand their investment building on hope that the state reforms will be carried on. We have to wait and see if this optimism will last after the General Elections in December."

This year, Noerr′s portfolio of clients remained stable, while the firm diversified its practice into matters of litigation, public procurement and compliance. Real Estate deals grew significantly this year compared to 2015, confesses Menzer. The firm also had important projects in Romania for Nidec Sole Motor Corporation, BayWa, ANV Global Services, Harman and Pringles International Operations (Kellogg Group). One of the main objectives of the law firm for the coming period is to adapt to new conditions and developments.

"Keeping up the pace and remaining competitive is not an easy job, especially when there are so many good law firms out there," says Menzer. "What we are trying to do is not to work only on legal issues, but also act as partners of our clients, who identify business opportunities in the region together with them," he concludes.

Bosch Group: The decision to come to Romania was the right one

The Bosch Group has been present in Romania for more than two decades and only in the past ten years has its investments on the local market surpassed 250 million Euro. A major factor in the company′s decision to invest in Romania on the long-term was the availability of professionals, and even the availability of highly-skilled labour force from major universities, according to Mihai Boldijar, general manager of Robert Bosch and representative of the Bosch Group in Romania. This also allowed Bosch to establish research and development operations that can ensure economic growth of the country, he notes.

"I think the decision to come to Romania was the right one," Boldijar tells The Diplomat - Bucharest. "Even since we opened the first production unit in Blaj, in 2007, we realized that we are in the right place. Romania is an EU Member State and offers the opportunity of economical production at competitive costs and good quality standards. In the past 21 years, we have witnessed a positive development and our employment reached 3,200 people at the end of last year. The growth pace will depend mainly on the projects and the way we will continue to develop, but we will definitely rise further in our locations in Blaj, Cluj and Timisoara."

However, Boldijar goes on to add that the companies from the private sector have started to face some challenges in Romania, especially when it comes to the education of the labour force. According to him, the market needs further qualified people that are prepared for a working environment in continuous and fast development. Thus, he believes that Romania should continue upgrading the skills of its population to meet the Europe 2020 targets.

"Digitalization is currently a preferred topic in the attention both of media and companies when it comes to designing a long-term strategy for the business development," he says. "But digitalization implies a series of significant changes in all areas, including or especially in the human factor area. We need associates that are familiar with the new requirements from the labour market, in production, services, but also in the field of research and development."

Boldijar further submits that the Romanian Government should further support the research and development area in order to ensure a sustainable growth. Currently, according to him, the Romanian Government offers some fiscal facilities that apply to R&D associates, but only in the field of software engineers. "The Government released in June 2016 a regulation, OUG 32/2016, that assures favoured fiscal treatment for R&D associates active in hardware development, but there are no release application norms available yet," he says. "They are urgently needed, in order to stimulate the development sector."

In 2015, Bosch invested in Romania around 40 million Euro, while this year, the investment plan will continue mainly in the further development of its manufacturing sites for Mobility Solutions from Cluj and Blaj. Moreover, the company also targets the expansion of its R&D activities in Cluj and in the business process outsourcing (BPO) sector, represented by Bosch Service Solutions in Timisoara.

In 2015 and 2016, the automotive plant in Jucu added new products to its portfolio, including components for airbags and parking assistance systems for more safety and comfort. In the next period, Bosch plant in Jucu plans to further expand its manufacturing capacity by building a new production hall, for which the company has submitted an application for state aid within the programme offered by the Romanian Government. In addition, in order to meet the growing demand for professional development of its associates, in the upcoming period the Bosch location in Jucu plans to build a training centre equipped with high tech laboratories.

"Practically, this year and the next we will continue the investment plans mainly in Jucu, Cluj county, and Blaj," he says. "Besides the fact that we are partners with a Cluj professional school within a dual system programme - and we are also in Blaj, Alba Iulia and Brasov, we feel the need to build our own training centre for those who will work in the factory. It will be an important investment which will be started and completed next year."

In Blaj, the Mobility Solutions business sector started the production of powertrain components at the end of 2015 and expects a strong increase of production in 2016, by extending existing projects.
In the first six months, the Bosch Group in Romania registered double-digit growth in almost all the business sectors, according to the general manager, both in total net sales and sales to third parties. He expects this trend to continue in the second half of the year, if there are no major changes in the economic and political environment.

"At the Group level, the first half of 2016 continued the previous year′s trend," he says. "It is not as spectacular as last year, but I can tell you that it is a healthy double-digit growth and one of the largest increases within the CEE in terms of our Group. Romania has a very good development pace in terms of revenues and this encourages me to think that the trend will be maintained by the end of the year."

The company ended its 2015 fiscal year in Romania with a turnover of 272 million Euro in consolidated sales. The total net sales of Bosch of 375 million Euro in Romania, including sales of non-consolidated companies and internal deliveries to affiliated companies, amounted to a year-on-year increase of nearly 50 per cent.

Continental Romania: In order to continue the positive development, Romania has to offer support to foreign investors

German-based Continental Corporation, one of the five largest automobile suppliers worldwide, decided 15 years ago to invest in Romania and, particularly, in Timisoara mainly because of the highly trained human resources due to the Politehnica University, the openness of the people and their English and/or German language skills, according to Christian von Albrichsfeld, country head of Continental Romania. In addition, the multicultural background of the city, the support of the local authorities, corroborated with the vicinity of a good infrastructure, just outside the west border, contributed to the decision. Since then, the company continues to expand from, more or less, the same reasons.

"The infrastructure is very important for us and for all companies which export in the UE," von Albrichsfeld tells The Diplomat - Bucharest. "In order to continue the positive development, Romania has to offer support to foreign investors with favourable investment conditions, a good infrastructure, and a transparent legislation with reduced bureaucratic procedures in collaboration with institutions or authorities."

Continental′s country head goes on to add that a good infrastructure will also be a major factor for investments in the future. After the completion of the highway connection from Sibiu to the western border, von Albrichsfeld notes that Continental and many other German investors are expecting it to be expanded to Brasov. "The investments represent one of the growth stimulators due to its influence among economic landscape: it creates jobs, it leads to competition between companies, it develops cities, regions and, therefore, the country," he adds.

From 1999 to 2015, Continental has invested 1.13 billion Euro in Romania - 130 million Euro only last year. For 2016, the company has planned investments of more than 160 million Euro mainly in Timisoara, Sibiu, Brasov and Iasi. Continental had, at the end of 2015, 16,500 employees in Romania, out of which 5,000 are R&D engineers. The company plans to hire an additional 1,000 people this year, half of them in the research and development sector.

"The changes made regarding the Vocational School influence our activity in a positive way," says von Albrichsfeld. "Continental is very involved in the Vocational School programme and the Ministry of Education looks towards this system with more trust this year. For Continental, investing in the development of the Vocational Dual system means that we can prepare the future employees from an early beginning of their career and to help them become the specialists we need in our plants."
The country head confesses that another legislative change that took place lately and has influenced the activity of the company′s business is related to the extension of tax exception in the R&D area.

This way Continental will be able to have well trained people, he says. "Now, there is a lack of engineers and IT specialists in major cities," adds von Albrichsfeld. "Due to our involvement and partnerships with the universities, we task ourselves to strengthen and increase the quality of the curricula in order to have very good specialists after graduation. Continental is very involved in this area. We have over 900 students in our locations, out of which 500 students are in summer practice," he concludes.

Continental is present in Romania through all its five divisions, namely Chassis & Safety, Interior, Powertrain, Tires and ContiTech. The company owns seven production units and four R&D centres in Timisoara, Sibiu, Carei, Nadab, Brasov and Iasi. It is also a partner of a joint venture in Slatina and has a tire distribution centre in Bucharest. Continental Corporation is present in 55 countries and counts 215,000 employees as of September this year. At the end of last year, the company had registered 39.2 billion Euro in revenues.

Allianz-Tiriac Asigurari: Romania is far from a mature market

Although the insurance industry faces a recovery process, it still encounters major difficulties caused by a dysfunctional system and by the lack of a tax incentive - except the health insurance - which should ignite the growth engines of the market, according to Virgil Soncutean, the newly-appointed CEO of Allianz-Tiriac Asigurari. The fact that the insurance industry is dominated by RCA (Motor Third Party Liability - MTPL), accounting for 56 per cent of total Property & Casualty (P&C) market as of Q1 this year, demonstrates that Romania is far from a mature market, he says.

"RCA remains the dominating topic of the day and we find ourselves in a vicious circle from which all participants lose," Soncutean tells The Diplomat - Bucharest. "Insurers have registered nine consecutive years of financial losses, culminating with the bankruptcy of companies that had too much exposure on MTPL and practiced inadequate premium rates to cover all the expenses. Customers witness an escalation of prices which, ultimately, represents a correction needed to cover the actual risk and stop the losses of insurers, while in terms of beneficiaries, the RCA policies are the main source of complaints addressed to the ASF [Financial Supervisory Authority]."

The CEO goes on to add that one can get out of the vicious circle with measures designed to increase traffic safety, by reducing the incidence and severity of events for which Romania ranks first in Europe in road accidents with casualties.

Nevertheless, Soncutean believes that the insurance market offers also opportunities that will grow with the awareness and education of existing and future customers. According to him, health insurance is a positive example that benefits from a favourable tax framework and, although it is still a small segment, it has a tremendous long-term potential. In addition, he confesses that the new provisions introduced by Solvency II largely disciplines the market, provides a new paradigm to the insurance industry, puts pressure on those companies that are undercapitalized and compels the optimization of capital management that insurance companies have.

"We believe that the implementation of Solvency II will help people regain confidence in the insurance industry, in a context where a comparison between the solidity of companies at solvency level will be done with greater ease not only locally, but also at European levels through the standardization of legislation," says the CEO of the insurance company.

Allianz-Tiriac Asigurari posted solid results in 2015, registering an increase of more than seven per cent compared to the previous year, with revenues of over one billion RON (around 225 million Euro), recorded from P&C and L&H (Life & Health) insurance business. For the first half of this year, the company achieved its targets both in terms of revenues and profit, says the CEO, estimating an increase of five per cent in terms of annual revenues at the end of 2016.

"Romania is a market with potential, an island of relative economic and political stability within a very agitated regional context, which favours the country," says Soncutean. "The challenge is to manage to capitalize on this window of opportunity. Regarding Allianz-Tiriac, we remain attentive and open to further investment opportunities to increase company value both for customers, employees, partners, and stakeholders. We have the opportunity and ability to become, on long term, among the top three Allianz companies in Central and Eastern Europe region."

As digitization is shaping the face of the industry nowadays, Allianz-Tiriac Asigurari has followed the trend and has launched last year a mobile application which is constantly being improved. Also, according to the CEO, the insurer is the first company in Romania that introduced the payment of policies by mobile devices (Mpos), starting this summer.

At the end of 2015, Allianz-Tiriac Asigurari had over 1,400 employees. Allianz Group is present in Romania through its subsidiary, Allianz-Tiriac Asigurari, but also through credit insurance company Euler Hermes, Allianz Managed Operations & Services (AMOS) and Allianz Worldwide Partners (AWP).

E.ON: Legislative, fiscal and regulatory area instability continues to cause difficulties to the energy sector

Romania has its strengths when it comes to attracting foreign investors, mainly the large size of the domestic market, labour force accessibility in terms of cost, macroeconomic stability and low external energy dependence, according to Frank Hajdinjak, CEO of E.ON Romania. However, he confesses that the market is also competing with other countries in the region and, "unfortunately", it presents some issues which are less attractive to investors compared to other markets such as the Czech Republic and Poland. He believes that, in general, not only with regard to Romania, the most frequently mentioned issues of the investment environment refer to infrastructure, increasing difficulties to find qualified personnel and legislative instability.

"Legislative, fiscal and regulatory area instability continues to cause difficulties to the sector in which we operate [energy]," Hajdinjak tells The Diplomat - Bucharest. "For example, in 2013, the Government instituted a tax on excess profit obtained as a result of the liberalization of electricity and natural gas market. Although it was to expire in 2015, the tax was extended to December 2016. The special construction tax, also adopted without an impact assessment and without consulting the companies, has been established since 2014 and maintained until December 2016. Consultation with the business environment continues to be an imperative prerequisite when decisions impacting the local business climate are made," he adds.

On the other hand, Hajdinjak notes that the company has been present on the market for more than 11 years and a series of breakthroughs in terms of business environment have been made during that time, expecting them to continue.

In 2015, the E.ON companies in Romania invested a total of around 97 million Euro, the biggest yet of past years, mainly for the modernization of natural gas and electric power distribution grids. A similar investment budget was foreseen for the year 2016, according to the company data. On the natural gas side, 36 million Euro were invested last year, as the distribution system was rehabilitated and modernized over a length of around 450 km and extended by 150 km (almost double compared to last year). For 2016, the projected investment budget is 20 per cent higher compared to last year′s level. On the electric power side, the investment value was a total of 54 million Euro in 2015, while, for this year, investments worth around 51 million Euro were budgeted.

"The performance of the power distribution grid has been considerably improving year by year," says the CEO. "On the whole, in the 2008-2015 period, the number of outages dropped by roughly 38 per cent, while their duration plummeted by around 55 per cent. The continuation of investment works, such as the modernization of overhead power grids (medium and low voltage) and the automation of the distribution system will contribute to the improvement of quality indicators."

Speaking about the natural gas sector, Hajdinjak states that the market has decreased by about six per cent in consumer demand, due to the milder winter that caused a lower natural gas consumption in the first quarter, the decline of the industrial consumption, but also due to energy efficiency programs implemented by consumers. Concerning electricity, he notes - quoting the INS (National Institute of Statistics) data - that final consumption rose by around ten per cent in the first half compared to the same period last year.

Amid this overall market development in the first half of 2016, E.ON recorded a decrease in quantities sold, especially of natural gas, compared to the same period last year. For the quantities of electricity sold in Q2, the company recorded results similar to those of last year. In 2015, the E.ON Romania Group saw a consolidated turnover of around 1.1 billion Euro, while for this year the company expects to see a slight decrease.

E.ON Romania Group activates on the local market in the supply and distribution of gas and electricity, serving over three million customers in 20 counties located in the north of the country. The Group includes E.ON Energie Romania, E.ON Distibutie Romania and E.ON Servicii Clienti.

Miele Tehnica to increase its turnover by up to 20 per cent this year

Last year, Miele Tehnica, the local factory of the worldwide producer of premium domestic appliances, located in Brasov, had a turnover of 40 million Euro, an increase of 15 per cent compared to 2014. For this year, the company expects to continue the positive development and see up to 20 per cent growth, according to Hartmut Hohaus, managing director of Miele Tehnica.

"As far as our company is concerned, we had a good first semester, with an average 18 per cent increase in turnover compared to the similar period of 2015," Hohaus tells The Diplomat - Bucharest. "We estimate that the trend will stay in the same range until the end of the year. (...) Historically speaking, in its seven years of existence, Miele Tehnica′s turnover and number of employees registered an average 15 per cent annual increase. We consider this to be as a sustainable growth which allowed us to maintain and even increase quality and productivity throughout our journey so far."

From 2008 until now, Miele has invested 34 million Euro in Brasov in modern facilities and technology. Only in the last two years the value of investments amounted to over two million Euro. Besides the investment in enlarging its production capacity (e.g. new wave soldering line), Miele Tehnica stepped into a new stage of its development in Romania by opening a software department as of August 2015. According to the managing director, this new division is growing and will continue to do so in the coming period. Serving the whole Miele Group, the team develops apps and firmware that are deployed in a range of Miele devices.

"This year the number of employees increased due to increased activity in the production area," says Hohaus. "The new Software Development department also contributed to an increased number of employees. At the moment we have 250 employees, and for next year we anticipate an average increase of 15 per cent," he adds.

Speaking about the local market, Hohaus tells The Diplomat - Bucharest that Romania has a lot to improve, but continues to be an attractive environment for investment. "German investors are already very well established in Romania," he says. "They have learned to adapt to the local specific and are exercising their flexibility in continuously changing international and local economic environments."

The overall context in Romania has improved lately, but there are still important chapters that need to be edited, especially the infrastructure and the public administration. According to the managing director, there are some challenges with availability of workforce and in this sense the state should focus on a wider education system.

"Nevertheless, we trust that our company′s evolution in Romania will be a positive one, and so do 68 per cent of the German companies that operate here and which took part in the latest opportunity questionnaire conducted by AHK Romania," adds Hohaus. "Partly, the diplomatic ties and an increased level of trust in the technocratic Government appointed in 2015 play a significant role in this positive perspective. Among other reasons, we will continue to invest in Romania because here we find a stable environment, a large market within the EU with a strategic positioning, as well as skilled people, that are willing to learn."

Miele Tehnica is part of German-based Miele Group, which achieved a turnover of 3.71 billon Euro in the 2015/2016 financial year ending June 30, 2016. This represents 224 million Euro or 6.4 per cent more than during the previous year. For the first time, Miele employs a staff of more than 18,000.

Signal Iduna continues the growth path and plans to rise by 20 per cent this year

German-based Signal Iduna, the leader of the health insurance segment on the local market, with around 42 per cent market share last year, closed 2015 with a 20 per cent increase on gross written premiums (GWP), at 33 million RON (around 7.4 million Euro), and reduced its loss by 14.7 per cent, to almost two million Euro. For this year, the company plans to keep up the same growth pace, as in 2018 it plans to reach the break-even point, according to Leslie Breer, the president of Signal Iduna.
"After the financial crisis, the insurance market saw the first year of growth in 2015 and I believe it will keep growing along with the economic environment," Breer tells The Diplomat - Bucharest.

"However, we have always registered increases, because health insurance was one of the few lines of business that had a remarkable growth ability over the last years. In 2014, we grew by over 100 per cent for instance, and by 20 per cent in 2015 . The same goes for this year and we are satisfied with the development. In addition, I can tell you that in 2018 we plan to reach the break-even point."
The president of Signal Iduna also notes that 2015 was a year of standardization for products designed for the SME market. Consequently, the company launched standard coverage solutions for small companies, as well as a post-travel health product, aimed for upselling on standard travel policies.

In addition, Breer states that this year′s development was also marked by a very high renewal rate, which is "a very good sign" of customer satisfaction.

"We experienced positive results with our small-company focus, but we are also glad to be the insurer of choice for large clients that want to implement innovative solutions for employee benefits," says the president of the insurer. "We are also very pleased with our renewal ratio, which says a lot about the quality of our services and customer focus. For the rest of the year, the above will continue to represent our focus, as our mid and long term promise to the Romanian market is to provide quality services and good risk solutions."

Speaking also about the new regulation, Solvency II, Breer believes that the European legislative programme will mainly harmonize and unify supervisory practices and will aid to assess and quantify risks. Moreover, according to him, Solvency II includes measures to avoid artificial volatility of insurers′ balance sheets, measures to prevent pro-cyclical investments, and measures to encourage investment and economic growth. "Solvency II is also designed to prevent the accumulation of excessive risks in the financial system and to anticipate adverse developments from a macro-prudential standpoint," he says. "It will follow up the potential impact of the decisions made by insurers on financial stability and will result in an increase in the quality of available capital items for insurers and reinsurers."

Signal Iduna has over 150 employees and counts up to 80,000 insured members. Around 90 per cent of the business is represented by health insurance, while the rest is life insurance. The company became operational in Romania in 2008.

Hochland Romania: Romanian consumers appreciate German companies and brands

Becoming operational in 1998 on the domestic market, Hochland Romania, one of the main local players in the field of processed cheese and cream cheese, owns two production units on the domestic market, namely in Sighisoara and Sovata. With around 340 employees, the company posted a turnover of 216 million RON (around 48.6 million Euro) last year, expecting a double-digit increase this year. Andreea Marincescu, marketing director at Hochland Romania, tells The Diplomat - Bucharest that the Romanian - German collaboration is a success in many cases, especially because the German seriousness and rigor make a very good match with the Romanian well-trained work-force and its labour costs. She also believes that it is also a matter of macroeconomic stability in the past few years, which allowed the foreign investors to better predict the evolution of their business and to make better decisions.

"Official reports demonstrate that Germany is Romania′s first trading partner and ranks third in terms of foreign investments," Marincescu tells The Diplomat - Bucharest. "Romanian consumers appreciate German companies and brands, they trust their products and services and have always welcomed them in Romania. Take our own example; Hochland opened its local factories in 1998 and 1999 and in time the company has become a great part of the community and a strong player in the local economy. It is now the preferred cheese brand of Romanians and market leader in many cheese categories."

Analysing the economic environment further, Marincescu notes that private consumption along with the expected fiscal stimulus in the run-up to the December 2016 general elections will probably be the main growth drivers for this year. Also, she sees that since 2015 the market is witnessing a significant increase in consumer confidence, stimulated by a TVA decrease and by wage increases in the public sector. Thus, the marketing director believes that Romania will end the year at least as good as the first half, where the GDP registered 5.3 per cent growth, and the company will follow the trend.
"Hochland had very good business results in H1 2016, with a double-digit volume growth compared to H1 2015," she says. "We plan to maintain this growth rate in H2, with strong marketing initiatives in the upcoming months."

Distribution takeover has been Hochland′s biggest project this year. After a long partnership with Whiteland, the company who brought Hochland products in Romania in 1993, the company decided to integrate the sales structure, build its own customer service department and develop all sales support activities and processes within the company.

"Our objective was to build a closer relationship with our clients and to better respond to market opportunities," says Marincescu. "The transition to the new distribution model started in January 2016 and has developed smoothly, as the collaboration with Whiteland continues for logistic and BTL services. The marketing investments increased significantly this year as a consequence of the positive market development. This involved a bigger investment in price promotions and promotional concepts, a greater support for the new launches and better in-store execution and improved visibility."

For the coming years, the company aims to continue developing Hochland and Almette brands and to consolidate its position on the Romanian cheese market. It also intends to increase its business in export countries, especially in Bulgaria and Moldova. "The whole organization, including the two production facilities Hochland has in Sighisoara and Sovata, will develop in line with these objectives," concludes the marketing director.

SAP Romania will reach 500 employees by the end of the year

SAP Romania, the local subsidiary of the German business software solutions provider, will increase its headcount by 100 people by the end of the year, reaching 500 employees, said Cristian Popescu, the newly-appointed managing director of the company, during a press conference organised in mid-September.

"We plan to reach 500 people by the end of this year," said Popescu. "It is both our internal target and the objective assumed by the investment project submitted to the Ministry of Public Finance [to get state aid]." The managing director also added that the recruitments will be made in all three centres held by SAP in Romania, namely in Bucharest, Timisoara and Cluj-Napoca.
Popescu joined the management team of SAP Romania this September after he held the position of country sales director at Fujitsu Romania for the last two years. Previously, Popescu was part of the Cisco team, occupying various positions and becoming, in 2010, the general manager of the company.

"I believe I was appointed to lead the SAP operations on the local market at the best moment, as in the coming years we will see an acceleration of the digital transformation of business in Romania, which will generate in turn a change in hierarchies in various fields," he said. "SAP′s innovative portfolio and expertise in new technologies position us in the first echelon to lead the evolution of IT architectures towards simplification and digitization, generating a new level of performance for companies and public institutions."

Last year, SAP Romania recorded a turnover of 40 million Euro and a profit of 11 million Euro, while this year the company seeks to grow the business given the increasing need of customers to adapt to new business models required by digital technologies.

Currently, over 500 local companies use SAP business solutions, these coming from different fields such as manufacturing, utilities, banking, insurance, transport and retail. Also, 95 per cent of the largest 300 companies in Romania are SAP customers.

SAP Romania, the local subsidiary of SAP SE, began its operations in 2002, being among the first top local IT providers. In the past 14 years, the company has contributed significantly to the local business environment development and the digital transformation of organizations. In 2011, SAP launched a large investment project in Romania by opening the most important consulting centre for Cloud and HANA technologies in Europe, serving SAP customers in Europe, Middle East and Africa.