Sebastian Metz, Director General and Member of the Board of Directors of the German-Romanian Chamber of Commerce, AHK Romania, claims that Romanian-German trade could reach a new historical high of 40 billion euros at the end of 2022. At the same time, investments German investments in Romania increased to more than 12.5 billion euros at the end of last year, with Germany being the most important foreign investor in Romania, according to the BNR, with 15 billion euros invested so far.
We see more and more companies and investors entering Romania. What was the last year’s trend (2022) in this regard, and what is the level of interest from German investors?
For several years now, we have noticed an increase in the interest of German investors in the Romanian market. If in the first nine months of 2021, the volume of trade was 24.5 billion EUR, this year we had an increase of 17.7%, reaching 28.8 billion EUR. Thus, exports to Romania amounted to EUR 14.8 billion, which means an increase of 8.8% compared to the same period in 2021, while Germany’s imports from Romania are approaching EUR 13.1 billion, up by 20.6% compared to the situation recorded in the first nine months of last year. These results place Romania in 19th place among Germany’s top trading partners regarding exports and 21st regarding imports.
Bilateral trade has a real potential to reach a volume approaching EUR 40 billion by the end of 2022, which means historical highs in bilateral trade relations. And this in the year in which AHK Romania celebrates 20 years since its establishment. This is also an important indicator regarding the increased interest of German companies to be active in the Romanian market.
In recent years, the quality of German investments in Romania has increased. In almost all fields, German companies have made significant investments in high-quality research & development activities. In Timișoara, Cluj, Sibiu, Brașov, Iași, Bucharest, but also in other locations, there are development centers of German companies, where important technological projects are developed, often in collaboration with local universities, which address the current challenges of digital transformations.
Around 9,500 companies with German capital are active in Romania, most of which are based in Bucharest and Timiș. But the counties of Brașov, Sibiu and Cluj are also highly sought after by German investors. The balance of German investments increased from 11.07 billion euros at the end of 2020 to over 12.5 billion euros in 2021. The numbers speak for themselves!
Which are the major players that have come to Romania this year, and how large were the investments? How about 2023?
There are numerous German companies that look with confidence to Romania, and many of those already present here are expanding their production capacities or research and development facilities. To list just a few: emz-Hanauer, producer of components for household appliances, Coratec, producer of bicycles and Fressnapf, products for pets are newly entered on the Romanian market, and Continental, Bosch, Preh or Hella, active in the automotive field, expand their presence, especially in the field of research/development. It is increasingly evident that Romania has developed from an investment site for production to a high-quality one for R&D activities. We hope to see more and more investments in the manufacturing industry, but also in logistics, energy, GreenTech and trade.
How does the war in Ukraine affect the FDI of the main foreign investors in Romania?
The armed conflict between Russia and Ukraine will have an impact in the short, medium and long term. The shortage of raw materials and the predictable shortage of gas, oil and coal from Russia present new and unexpected challenges for the industry.
Our business model, our prosperity in Europe, especially in Germany, was largely based on getting cheap gas from Russia. Furthermore, our energy transition, which we need to achieve to keep our planet habitable for us humans, was to take place with the help of gas, the „bridge form of energy” – in other words, our plan was to phase out forms of energy with high CO2 emissions, such as coal, with the help of gas and then gradually expand the share of renewable energy sources. Because the expansion of renewable energy sources takes time. Germany has even given up nuclear power. This energy transition faces enormous challenges due to Russian gas supply disruptions, both in terms of energy availability and, of course, in terms of how much energy we can get. That’s what we’re facing right now – in Europe we’re living through a time when the availability and affordability of energy is facing unprecedented challenges. And, of course, economic actors also face these challenges. And the question is: can companies manage these challenges in such a short period of time, through cost-saving measures, through increased productivity, through technological progress and innovation? Will they be able to compete with other regions of the world where energy is much cheaper? My opinion is that without strong support from the state, many companies will not be able to withstand this competition – especially those companies where energy has a high added value. We risk that many industrial sectors will dismantle their plants from Germany, from Romania, from Europe and set them up again elsewhere. Thus, our economic resilience, that is, reducing our independence from other regions of the world, such as Asia, in terms of raw materials, primary products, etc., which we actually want to strengthen – this was a lesson learned from the pandemic crisis – will increase significantly if we fail to ensure that these industrial activities survive in Europe.
But I don’t want to talk only about risks and dangers. The conflict in Ukraine made Romania, a member of the EU and NATO, even more attractive as an investment location for the relocation of production (keyword: nearshoring). The fact that Ukraine and the Republic of Moldova have been offered the prospect of joining the EU also means that Romania is no longer on the periphery of Europe. Logistics, infrastructure and more now have a completely new strategic perspective and therefore many new business opportunities. In addition, Romania has recently proven to be much more present, more reliable and more active on the international stage, especially when it comes to supporting Ukraine. This view is viewed with great sympathy by foreign investors and has led to significant reputational gains. Let’s hope that, in this sense, Romania will soon be able to call itself a new and proud member of the Schengen area.
What is the German investors’ sentiment for this period? What was the result of the latest trade delegations here, in Romania?
We had numerous business delegations from Germany to Romania this year. In particular, we are very proud that in May we were visited by a delegation from the logistics and transport sector, which we accompanied to Constanța. And, of course, I brought them together with company representatives and from the local administration in Brăila and other cities, because a lot is happening in Romania in the field of logistics. In addition, just last week (November 7 – 10, 2022) we welcomed in Bucharest a high-ranking delegation from the field of energy efficiency and renewable energies. At the right time, one might say.
All the delegations from Germany were impressed by the economic dynamics in Romania, by the practical mentality of the private sector, but also by many local and regional administrations, which have significant amounts of European funds at their disposal.
German companies are, in general, very satisfied with the choice of Romania as an investment location. Of course, like everyone right now, they are somewhat uncertain about the future, as the challenges are enormous. But overall, current business activities are going very well. Of course, here in Romania too, there are things to do: the lack of qualified personnel is the biggest problem (after the price of energy) that German companies face. Also, the expansion of the transport infrastructure must advance more alertly. And we need more investment in education infrastructure, which is of central importance to Romania’s prosperity.
Trade data show sustained dynamics of bilateral economic relations and are an indicator that German companies want to continue investing in Romania. New investors have shown interest in strengthening these bilateral relations, starting from previous experiences, which they consider success stories. In addition, if it takes the right measures in time, Romania has the chance to become both an energy hub for the whole of Europe in the next five to ten years, as well as an industrial and technological one.
How can Romania be ready for adapting quicker to the new market conditions, in gas, renewables and attracting European funds? What should we do to speed up projects and investments in the energy field?
Romania, like the other states in Europe, needs an increase in both production capacity, especially renewable energy, and an increase in energy efficiency measures. Network losses are very high. Industrial and public building consumption is also high. Moving out of the coal era largely involves the creation of smart distribution networks, the decentralization of energy production – it is more resilient – and also greater storage capacities.
Now there is a legal framework at the EU level, Repower Europe and Fit for 55, which also allows Romania to get out of this crisis. But we simply need more energy to keep prices down. I know that Romania plans to produce up to 7 gigawatts from renewables by 2030. The foundation must be created to build this network and production capacity, which must be integrated into the existing network. A continuous upgrade of the network is needed to absorb these new resources.
In the framework of investments in renewable energies, hydrogen plays an important role, due to its storage and transport capacity, it is also included in the European financing mechanisms.
Germany is very interested in finding partners for hydrogen production, and Romania can even become an energy hub, due to its high level of independence from external energy resources, but it needs more installation capacity to build this infrastructure and industry of hydrogen.
In the summer of this year, together with the members of the chemical industry and energy working groups, we developed the White-Paper Energy. The novelty of this document consists in approaching the current energy paradigm from a double perspective – it recommends policies for the energy transition, with a focus on maintaining Romania’s industrial competitiveness. The solutions proposed by AHK Romania experts are described in stages, in the short, medium and long term, and the final goal represents our commitment to support an optimal governance model for the Romanian industry. In this publication, we support the idea of a revised National Energy Strategy, which should take into account the principles established by the new legislative package Fit for 55, with an emphasis on the development of a hydrogen-centric economy. Fit for 55 is a coherent, comprehensive set of proposals to review and update EU legislation, covering all sectors of the EU economy and addressing climate targets more rapidly.
We believe that in order to deal with the current geopolitical situation, the focus of existing policies should focus on short-term solutions, especially on ensuring security of energy supply at the most affordable costs. Second, the authorities should focus on optimizing or supplementing its already implemented support schemes to ensure the economic viability of all actors in the energy supply chain, including the end consumer. On the other hand, Romanian industry representatives should benefit from a clear program for development. Resource efficiency and energy use through digitization are also important elements.
What else should Romania do in order to allow an acceleration of investments and to ensure our energy independence from supplies from Russia?
Although Romania has a balanced energy mix, production costs are high, due to the lack of efficiency. There are big investments to be made in Romania in the next 10-20 years. We need specialists, construction companies, technology. There is also a need for an energy reconversion and an extended electrification at all levels: transport, distribution, the industrial field, where the entire production must be taken over from renewables. In order to achieve them, political decision-makers, public administrations must quickly create the necessary framework conditions, maintain political and economic stability and maintain an open dialogue with the business environment, in order to attract the necessary investments. I believe that the Romanian authorities should give priority to public policies related to energy efficiency measures, in parallel with a medium and long-term investment strategy to facilitate the development of new production capacities.
The second element is the security of supply, the elimination of dependence on the Russian Federation, – this requires time to find the best solutions, primarily at the European level. Funding is needed for the implementation of green energy production – wind and solar energy, which are of strategic importance for the energy system in Romania.
I believe that the current situation of high energy prices will accompany us for a longer period of time and that is why there is a need more than ever for close cooperation between the public and private sectors, but also between countries and the EU to find the most good long-term solutions for the Romanian population and the economic environment. It is our goal, for all of us, that Romania, Germany, the entire European Union remain a competitive, prosperous and, at the same time, sustainable and therefore resilient investment location.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in December 2022.
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