German investors regret deficiencies in infrastructure and complain about a big lack of skilled workers

The economic relationship between Romania and Germany, fundamental for the coherent development of the Romanian economy, is analyzed, with its ups and downs, by Mr. Arvid Enders, Economic Counsellor of the German Embassy in Bucharest, interviewd by HotNews reporter Anne Marie Blajan.

HotNews.ro: Three years ago, Germany was Romania’s second business partner, after Italy. How is the situation now and in which sectors do we have a big exchange?

Arvin Enders: Romanian trade with Germany was on a steady rise for the last couple of years making Germany Romania’s trading partner #1 in 2007 – and again in 2008. According to INS, the trade volume between Germany and Romania in the first seven months of 2008 reached 7,2 bn € – imports from Germany totalling 4,6 bn € and exports to Germany totalling 2,6 bn €. Compared with with the same period last year, figures increase by 10,8 %.

In 2007 Romania’s trade with Germany was almost a quarter of its trade within the EU and 17,1% of its overall foreign trade.

Out of the total 4,98 bn € in 2007, Romania’s main exports to Germany were machinery/electrical equipment (24 %), textiles/clothing (16%), vehicles (14%), and equipment for generation and distribution of electricity (12%).

Out of the total 8,76 bn €, Romania’s main imports from Germany were vehicles (23%), equipment for generation and distribution of electricity (18%), machinery/electrical equipment (13%), base metals (8 %), textiles (7%) and chemical products (7%).

HotNews.ro: You probably know best which are the complaints of German investors in Romania. Which are these complaints?

Arvin Enders: Parallel to the accelerating bilateral trade, German investment in Romania have significantly increased and are continuing to do so. Nevertheless Romania has room to improve.

A) investors regret deficiencies in infrastructure, which currently cannot compete with the countries that joined the EU before 2007.

B) investors complain about a big lack of skilled workers, which cannot be overcome by on the job training or company training programs alone. Investors would like to see a significant extension of Romania’s its non-academical professional training.

C) investors complain about a lack of transparency of administrative decisions such as on state aid and a comparatively low predictability and speed of court decisions. An efficient administration and legal system are crucial for a positive investment climate. Romania made progress concerning the fight against corruption and the establishment of a stable, investment-friendly framework in the last years. It is of interest for investors and thereby Romania itself to proceed on this path of reform.

If Romania continues to work on these weaknesses, it will further increase its attractiveness for German investors.

HotNews.ro: German companies invested in all areas: energy, retail, food industry, banking, electronics. In the context of the international turmoil, does Romania represent an attractive destination for business and which are the opportunities here? Which are the sectors the most appealing for the German investors in Romania?

Arvin Enders: Romania’s economy has a tremendous potential for growth, probably the highest among the new EU members in the short- and medium-run. With its flat tax, Romania offers a very transparent and attractive tax system. Romania also offers the seventh largest market in the EU and is strategically well placed for an access to further interesting markets in the region. German firms are also attracted by relatively low wages and a high level in human capital – which is the case for most sectors. Romania’s workforce is often described motivated and creative and – on the academic level – as well trained.

Not surprisingly therefore, German firms hire Romanian university graduates for their R&D departments. Romania is no longer a mere production site for German firms, but a research site, too. One example is car supplies giant Continental which, of whose 900 employees in Romania in March 2008, 300 were engineers.

Many firms, not only those of German origin, realized the attractiveness of the Romanian market and started investing in Romania, especially in and around Bucharest and in economic centres such as Sibiu, Brasov or Timisoara. Many suppliers for the automotive industry, often coming from Germany’s “automotive belt” around Stuttgart, settled their business there. I expect more such investments in the future – if Romania keeps up working on its weaknesses that I mentioned.

Besides the strong presence of the automotive industry there are particularly big German investments in the retail sector. Well known retailers such as Metro, Tengelmann Group, Hornbach, Obi and others are planning further investments in Romania.

HotNews.ro: The press – both Romanian and foreign – wrote about missing the opportunity to have Daimler in Romania because of poor road infrastructure. Do you think that big German companies, auto companies, would be interested in Romania when we have such problems? Do you think we’ll have the same opportunity in the future, as it was the one with Daimler?

Arvin Enders: A number of reasons were given for Daimler’s decision to chose Kekskemét as location for its plant, such as the proximity to its suppliers and markets and the road infrastructure situation. Therefore – yes, Romania does loose investments due to its comparatively poor infrastructure.

Still, as I already said, infrastructure is not the only critical point. In the particular case of Daimler, for example, some observers see the strikes at Renault-Dacia as one point of concern, too.

Generally I think one should not overestimate the importance of Daimler’s decision. It shows that there is competition for investments and that investment decisions are multi-dimensional. Still, regarding car plants and other big investments, to attract their suppliers is not much less attractive. German car suppliers created 40.000 jobs in Romania – which is much more than there will ever be at the assembly line in Kecskemét.

I do not know when the next German company will be looking for a site for an equally big single investment as Daimler just did. I know, though, that many smaller and nevertheless important investments will be made in the future.

HotNews.ro: Has the Romania’s membership to the EU made it more attractive from the economic point of view and how?

Arvin Enders: Romania will profit from the immense transformation process that secured EU accession for decades to come. Democracy, rule of law and the market economy are secured in Romania. Still, Romania has to continue on its path of reform. More is to be done to remain attractive in an increasingly competitive World.

HotNews.ro: Romania and Germany have always had a good relationship, but the relocating of Nokia factory clouded it at the beginning of this year. German politicians had harsh opinions on Romanian workers, on their qualities. Has the incident with Nokia damaged the interest of German investors in Romania? Has this incident damaged Romania’s image in Germany?

Arvin Enders: The decision of Nokia to open a factory in Cluj and shut down it’s production facility in Bochum had no negative impact on the German-Romanian relations. The city and region of Cluj managed to convince Nokia to do a major investment in Romania. True, there was some strong criticism in Germany on the move, but this was directed not against Romania or Romanians, but against the way Nokia conducted the move. And by the way, Nokia agreed that it had made some mistakes.

HotNews.ro: A German Euro-parliamentarian, Mr. Martin Schultz, wanted an investigation of the European Commission regarding the building of Nokia factory in Romania. There were suspicions that European funds were used. Has this issue been clarified in Germany?

Arvin Enders: This issue of European funds was dealt with within a very short time. There are no European funds aimed directly to Nokia to co-finance its investement in Romania

HotNews.ro: There is a discussion in Bundestag regarding the liberalisation of the labour market for 8 of the new member states of the EU. Romania is not among them, but there are opinions in Germany that there is no risk of heavy migration and that qualified Eastern European workers can make up for the deficit you have on the labour market. I know Germany is one of the strictest countries in the EU regarding the admission of foreign workers and that for Romanians the labour market is closed until 2013, but do you think that liberalisation may arrive sooner?

Arvin Enders: The rules for the free movement of labour in the European market apply in the same way for the new member countries of the 2004 accession round as well as for Bulgaria and for Romania. Member states can decide whether they open their labour markets after 2, 5 or 7 years – the “2-3-2 rule”. In due time, the Federal Government will take the decision whether to open the labour market to all Romanian workers by the end of 2011 or end of 2013.