The Romanian-German Chamber of Commerce and Industry - The 2015 Conjecture Report
Each year, the bilateral German Chambers of Commerce and Industry (AHK) in Central and Eastern Europe (ECE) are carrying out a survey of the economic situation and investment opportunities of each country. Thanks to its favourable geographic position and its 20 m inhabitants, Romania is an important market in South-East Europe.
German companies have good business prospects here. Among the decisive investment drivers are low labour costs and skilled labour. Romania is increasingly evolving towards a research and development-oriented investment environment. Many German companies already made significant investments in these fields.
Based on the ECE conjecture report, a Romania conjecture report was drafted, enabling a comparison between Romania and other ECE region countries, but also aimed at providing a complex image on the Romanian investment opportunities.
The survey was carried out in March 2015, and consisted in answers from 126 German-owned companies active on the Romanian market.
Framework economic conditions
In general, 2014 can be described as a good year for the Romanian economy, with an increase of the gross domestic product and a significant increase of exports. The 2.8% economic increase exceeded that of many European countries. The GDP increase is particularly owed to increased exports, but also to soaring household consumption. The industry (+3.5%) and trade also followed an upward trend and had a significant share in the GDP growth, while the construction sector lagged behind. The highest increase was seen in the IT sector IT (+11%), which takes 6% of the Romanian GDP.
In 2014,Romanian exports reached 52.5 bln EUR (+5.8%), while imports amounted to 58.5 bln. EUR (+5.9%). The most important trade partner was Germany (for the eight time in a row). The volume of trade between the two countries increased again (+10.3%) and amounted to 21.3 bln. EUR.
Romania also shows a stable macroeconomic environment. With a GDP per capita of 7,600 EUR, an inflation rate down to 1.4% in 2014 (3.2% in 2013) and an unemployment rate 6.8% lower than in the past two years, Romania is very well placed compared to other European countries.
The current survey shows that German companies regain their trust in Romania as an investment location and are optimistic about the future, partly thanks to the election of the new Romanian president in December 2014.
The combination between productivity, low labour costs and staff skills are beneficial for all German companies willing to invest in Romania. These positive perspectives are also inferred from the current ECE survey among German companies.
The current economic situation of the country, of the own company or the sector are better assessed than last year. Romania is leading the ECE countries in terms of economic development. 15% of the respondent companies appreciate the economic situation of the country as being good, while more than half (56%) think the Romanian economy will perform better than last year.
As regards the own company, the expectations are positive for the current year. The number of those assessing their own company position as being better has increased to 54% (2014: 50%, 2013: 36%, 2012: 42%), while as regards the comparison between this year and the last, 75% believe it is improving (2014: 54%). An improvement was also recorded in how company turnovers are perceived. Thus, 71% of the survey participants estimate an increase of their turnover; the expectations are high in this area and increased significantly from 2014. The German companies outlook also improved in terms of exports: 43% of the respondents believe that exports will increase in 2015 as compared to 2014, and just 1% are expecting exports to decrease.
The positive circumstantial expectations are also reflected in higher employment prospects and investment decisions. 41% of the companies believe that investment intentions are on the increase, and just 11% of the respondents believe they will decrease.
More than half of the survey companies (52%) see an improvement in the circumstantial situation of their sector in the current year as compared to last year, while only 16% expect the situation to worsen.
Economic conditions - slight rebound of economic factors
Similarly to previous years, this year’s survey included questions on the investment location. The assessment of the economic factors shows a number of progresses in several fields, both as regards economic policies and the functionality of the business environment and the labour market.
A significant criterion in selecting the investment location is that of the labour market conditions.
Low labour costs in Romania as compared to other European countries are a major advantage. However, they are not sufficient to make certain investment locations appealing. This requires the right balance of costs, skills, labour availability and productivity. What matters in this respect are the quality of the training and the labour flexibility.
As regards labour costs, Romania the lowest hourly rate, with just 4.8 EUR/hour, which is around one eighth of the hourly rate in Germany. German companies are also satisfied this year in this respect (37%, 2014: 31%) or very satisfied (5%, 2014: 7%). Labour costs and productivity have a positive ratio, which determined German companies to keep on doing business in Romania. As regards labour productivity, Romania is above the average of other surveyed countries in Central and Eastern Europe (ECE): 50% of the companies are satisfied, only 10% are dissatisfied, while the rest are undecided.
As regards hiring intentions, Romania is very well placed compared to other ECE countries, namely second: 52% intend to increase their labour force (2014: 46%), and just 7% want to cut their workforce (2014: 14%). This is the best result from 2008. These positive hiring trends should also be considered by political decision makers. Legislative measures should be adopted to boost job creation and guarantee stable and functional conditions on the labour market.
Progress in vocational training. A new beginning of the educational system took place in 2012, when the introduction of new legislative framework conditions led to the creation of more than 11,000 places in the vocational education system. Their number increased to nearly 13,000 in 2013, while in 2014 there were already 35,000 young people in 650 vocational schools seeking for a recognized diploma and access on the labour market. The Romanian-German Chamber of Commerce and Industry has been involved and actively supporting official institutions in the creation of a vocational education system based on the German dual model.
Another positive development as regards the legislative framework conditions for the labour market is the Work-related Inventions Law of June 2014. The former provisions of Law 64/1991 on work-related inventions were replaced with new, clearer EU-compliant provisions, which could encourage the invention potential of highly qualified Romanian employees. The automotive industry and its suppliers were among the first to realize the high research and development potential of the Romanian labour market. The companies in this field provide excellent conditions for creative engineering performance by creation of research and development jobs.
“This will make Romania stronger as an investment venue and particularly more attractive for foreign investors in research and development”, declared Sebastian Metz, Head Manager and Member of the Board of Directors of the Romanian-German Chamber of Commerce and Industry.
However, German companies are concerned over the proposed amendments of the labour legislation, which, according to experts, would lead to impaired flexibility. The proposals are specifically targeted at amendments and additions to the Labour Code and Social Dialogue Law. If the current proposals will be carried over in their current form, it may lead to a reconsideration of hirings by employers and, in the worst case scenario, to a cutting of jobs. As regards labour costs, Romania has the lowest hourly rates, with just 4.8 EUR, i.e. one eighth of the German hourly rate. This year, German companies in Romania are again satisfied (37%, 2014: 31%) or very satisfied (5%, 2014: 7%). Labour costs and productivity have a positive ratio, which determined German companies to keep on doing business in Romania. As regards labour productivity, Romania is above the average of other surveyed countries in Central and Eastern Europe (ECE): 50% of the companies are satisfied, only 10% are dissatisfied, while the rest are undecided.
Conclusion: Overall, the companies are satisfied
Despite some German companies still not satisfied of certain economical factors, most of these companies would still select Romania as an investment location. When asked whether they would still choose our country to invest in, 90% of the survey participants responded “yes”. The regional average is 84%. Romania jumped one position, from 11th to 10th place (out of 20 countries) in the general classification of the most investment-attractive Central and Eastern European states. The most attractive country in the region this year is again Poland, followed by the Czech Republic and Estonia. The last two places are taken by Albania (18), Kosovo (19) and Ukraine (20).
NOTE: This article is an excerpt of the 2015 conjectural report – romania by the romanian-german chamber of commerce and industry. Full report can be found at www.ahkrumaenien.ro.
About the Romanian-German Chamber of Commerce and Industry
The Romanian-German Chamber of Commerce and Industry (AHK Romania) is the official representation of the German economy and the largest bilateral Chamber of Commerce in Romania. Created in 2002, the Romanian-German Chamber of Commerce and Industry includes more than 530 member companies, which are provided with an important networking, information and experience exchange platform.