Wednesday 28 September 2016

Rich vein opening in Romania's sub-supply and agri sectors

Ladislav Muller

Published 24/07/2016 | 02:30

Ladislav Mueller is Enterprise Ireland director for Czech Republic, Hungary, Romania, Slovakia and Bulgaria
Ladislav Mueller is Enterprise Ireland director for Czech Republic, Hungary, Romania, Slovakia and Bulgaria

Bram Stoker never set foot on Transylvanian soil to research his Dracula story. Despite this, Romanian Transylvania (literally the "land beyond the forest") became the perfect location for his book - an unknown land shrouded with mystery. And Romania still remains an unknown land for many.

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An EU member since 2007, the country has gone through radical political and economic transformation over the past 26 years. With a population of 20 million, the second largest in Central and Eastern Europe, Romania could become a regional information technology hub, an agricultural powerhouse and an even more attractive destination for investors and tourists.

Economic growth in Romania is among the highest in the EU - real GDP increased by 3.6pc in 2015 thanks to a recovery in consumption and investment, and is forecast to accelerate to 4.2pc this year and 3.7pc in 2017.

The country ranks a solid 53rd among the 140 economies covered in the World Economic Forum's 2015-16 Global Competitiveness Report, up six places from the year before. It still lags behind in the quality of its institutions and infrastructure but scores relatively high on macroeconomic environment (34th out of 140).

Romania's ascendency is most noticeable in its attractiveness as a software outsourcing destination. It has moved to third in Europe (13th worldwide), and is in the top 10 countries globally when it comes to certified IT specialists with a pool of about 100,000 people.

Romania has more IT specialists per capita than the US, India, China or Russia and sources claim that the IT sector has annual growth of 9pc and should be worth over €4bn by 2020.

According to the Association of Software and Services Industry in Romania, the country currently has around 50 offshore centres owned by large international IT companies such as Intel, IBM, Oracle, Microsoft or HP. The 2015 Cushman & Wakefield BPO Location Index ranked Romania at number four in Europe. Because of lower costs and geographic proximity, many smaller EU companies (including Irish ones) are outsourcing software services to Romania as well.

Romania has succeeded in attracting a number of major foreign investors in high-value-added engineering and electronics activities including Renault, Continental and Bosch. Irish companies are successful in sub-supply to these multinationals with production technologies, manufactured products and quality and environmental control.

Agriculture is another interesting sector. The EU Commission reports that approximately one third of all farms in the EU are in Romania, with some 3.9m holdings. Average productivity is low, currently 30pc of EU average levels.

According to a DZ report (now Cushman and Wakefield), Romania benefits from diverse farming climatic zones which means there is huge potential for increasing yields and production. Fertiliser use is lower and local agricultural companies are still poorly equipped. This represents a unique opportunity for Irish producers of farming machinery, technology, fertilizers and animal nutrition.

Since 2014, EU-residents as well as non-EU residents have been allowed to buy Romanian land. Both foreign and domestic investors have started to consolidate and create bigger farms.

In 2015, leading Irish agri-services group Origin Enterprises announced the acquisition of Redoxim and Comfert, two leading agronomy services groups in Romania. The Rural Development Programme for Romania shows that between 2014 and 2020 nearly €9.5bn will be invested in farm competitiveness, environment protection and rural development.

Last but not least, according to the OECD this country of breath-taking landscapes and rich heritage received only two million foreign tourists in 2014. Compare this with 10 million foreign tourists in neighbouring Hungary or seven million in Bulgaria.

Romania lacks crucial infrastructure, tourism, marketing and services but can benefit from the current realignment of tourist destinations. Ryanair announced in February 2016 that it will base three aircraft at Bucharest airport, open new routes and grow its traffic by 75pc.

The tail winds are improving for Romania and anyone who can offer solutions to the many gaps in the market can reap rewards.

Ladislav Mueller is Enterprise Ireland director for the Czech Republic, Hungary, Romania, Slovakia and Bulgaria

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