Austrian companies already present here in Romania maintain their – already impressive – pace of investments and reinvestments of the last years, says Gerd Bommer, Head of Advantage Austria in Bucharest. ”This comes as no surprise to us, as Austrian companies have proven to be very stable and long-term-oriented investors throughout the past decades.” Although Austrian investors’ sentiment for the economic period is low, for the individual situation of their company, the participants to a recent survey were clearly more optimistic: for most of them, the main key indicators such as sales, order situation and employees have improved or at least maintained stable, while 27% have invested more than the year before, 60% held their level and only 13% invested less than a year before, Gerd Bommer tells Energynomics.
Meanwhile, Austrian-Romanian trade relations are a great success story. The volume of bilateral trade increased from 115 million euros in 1990 to over one billion euros in 2001, four billion euros in 2018, five billion euros in 2021 and will probably reach the 6-billion threshold by the end of this year.
We see more and more companies and investors entering Romania. What was the last years’ trend (2022) in this regard, what is the level of interest from Austrian investors? Which are the major players that have come to Romania this year, and how large were the investments? How about 2023? How does the war in Ukraine affect the investments of the main foreign investors in Romania? What is the Austrian investors’ sentiment for this period?
As for 2022, the latest numbers are not yet available. But in our daily work, we could sense an increasing interest in investing throughout different sectors in the first months of the year, but due to a variety of factors, the interest in new investment has slowed down in the last couple of months. Speaking to Austrian potential investors, they mention overall higher operation and investment costs, energy crisis and labor shortage as the main factors, that are slowing down expansion plans for the moment.
What we saw, was a renewed interest in Romania and its companies as a sourcing market within the European Union, for example in the metalworking sector. We believe that Romania has a very interesting potential regarding re- and nearshoring activities.
Regarding Austrian companies already present here in Romania, they pretty much maintain their – already impressive – pace of investments and reinvestments of the last years. This comes as no surprise to us, as Austrian companies have proven to be very stable and long-term-oriented investors throughout the past decades.
Take for example OMV-Petrom, Austria’s largest and most important investor in the energy sector – and with around 8,000 employees one of the largest employers and the largest taxpayer in the country: They not only invested or approved investments of hundreds of millions of euros in projects like new Coker plants, a new unit for the production of aromatics, or recently a local production unit of AdBlue, a component which reduces nitrogen oxide emissions from diesel engines by up to 90% but have committed by 2030, a further EUR 11 billion of investments in renewable energies and “Energy Transition”.
Of course, there are other important Austrian companies that have been active in Romania for many years and mostly produce energy from renewable sources like water and wind. And there are also newcomers, like i.e., a mid-sized Austrian agricultural company, which is currently developing around 800 MWp in photovoltaic energy production.
What is the Austrian investors’ sentiment for this period?
We recently conducted our annual survey among the Austrian business community covering this topic and received some very interesting results:
Regarding the overall performance of the economy, most of the participants think that it has deteriorated (55%), or remained stable (21%), whereas only 24% considered that the situation had improved in the past 12 months. These results are not in line with last year’s expectations, which were more optimistic. The expectations for the upcoming 12 months are not very high either: Only 7% expect an improvement, 42% see stability, whereas 51% expect a further deterioration.
As for the individual situation of their company, the participants were clearly more optimistic: For most of them, the main key indicators such as sales, order situation and employees have improved or at least maintained stable. Individually, expectations for the next months are on a similar level.
Regarding investments, 27% have invested more than the year before, 60% held their level and only 13% invested less than a year before. The expectations for 2023 show similar levels.
How can Romania be ready for adapting quickly to the new market conditions, in gas, renewables and attract European funds? What should we do to speed up projects and investments in the energy field?
Not only Romania, but also Austria and practically all the other EU countries struggle to adapt to the new reality and – at least as far as I know – no country has yet found a perfect solution, although there have been interesting initiatives, as i.e., in Spain or Portugal, where electricity generated by gas is subsidized, thus limiting distortions created from the so-called “Merit-Order” principle. If initiatives like this one will be successful in the long run is yet to be seen.
It is safe to say that Romania is in a privileged situation, already producing a big share of its energy needs with the option to become fully autonomous or even a net exporter in the next years. In order to reach its full potential without unnecessary delays, we have received some constructive comments from Austrian and other market participants:
- Romania was extremely successful in kicking off the transition with its Green Certificate System. The changes to this system then nearly completely halted all investments in that sector. Distinct changes are necessary in that area in order to facilitate the transition to gain momentum again. The Green Certificate Scheme should be adapted into an area where it’s healthy, for the state, for the companies as well, which means you should find the right balance where you attract investments, but you don’t overpay the investors.
- One concern is for example the current 50 ha limitation for renewable projects. Renewable energy production capacities are often located on extensive surfaces, for example high-power wind farms. Due to this limitation, Romania will probably not be able to attract projects on a larger scale. Sometimes projects on a smaller scale are not economically viable, given the fixed costs i.e., the grid connection or others.
- Construction Law – in some cases it is not clear, whether the zoning is still necessary for the approval of some urban planning parameters necessary for the respective constructions,
- Reducing the bureaucracy – deadlines for issuing official documents (technical connection approval – ATR) from the distribution and transport operators are often exceeded, which results in delays in the commissioning of the projects,
- Technical norms regarding the storage of energy; we must bear in mind that the main problems that will follow in the next 3 – 5 years will not be related to the creation of renewable capacities but to energy storage. If the assumed 10,000 MW renewable capacities will produce in the same period the energy price will collapse as the offer will exceed the demand; as result, under this new status, only the integrated companies (production facilities + storage) will succeed.
- Likewise, legal changes could give a great impetus i. e., if building standards are upgraded in that sense. With legislation, you could massively motivate companies to upgrade their regular investments into production or other facilities to have photovoltaic panels and solar-thermal panels on the roofs of the projects. One could generate subsidy schemes for single-family homes, or for electric cars, which already happened in Bucharest, with a subsidy of EUR 10,000 for EVs, which is quite high, but it ignited an electric vehicle boom. The same can be done with renewables.
What else should Romania do in order to allow an acceleration of investments and to ensure our energy independence?
In general terms, private companies need a stable, transparent and predictable legal and business environment. This is not only valid for those already active in the market, but also for future potential investors who monitor Romania and other countries very closely.
The bureaucracy – red tape – is a real issue. We are in regular talks with the government about different bureaucratic issues. Facilitating businesses to work with less focus on bureaucracy could attract more FDI. Therefore, processes should be streamlined, reengineered and digitalization should be even more of a high priority than the government already puts focus on it. Also, stability, predictability and transparency are the three major words, which foreign investors like to hear.
We have a single Austrian company that invested in 50 different markets; we have companies active in 180 different markets. The conditions are different everywhere, are partially completely different in fact. One can state that investors can adapt to the market conditions, but the important factors are still, that the framework is stable, and it’s difficult working with rules changing every 6 months, partially overnight. The business environment should be stable and predictable because the investment decision for a big investment will have a timeline of up to 2 or 3 years until the investment is operative and an even longer timeline until the investment is recouped. The last important factor is transparency in legislation and decision-making, let companies know what you’re doing and why.
The extraction of Black Sea natural gas could be one of the most important game changers, not only for Romania but also for the rest of Europe. We see also a huge potential for offshore wind platforms as for renewable energy production overall.
One important requirement for these and other investments to happen is the continuous expansion of the grid capacity, both national and also the interconnections between other countries.
Biogas and biomass are two underrated sectors at the moment, both have been shaken a bit by regulations, but if you allow projects in those sectors Romania could produce a lot of green energy.
What is the level of trade between Austria and Romania and how can we expand the trade relations between the two countries?
Austrian-Romanian trade relations are a great success story. The volume of bilateral trade increased from 115 million euros in 1990 to over one billion euros in 2001, four billion euros in 2018, five billion euros in 2021 and will probably reach the 6-billion threshold by the end of this year!
These are just some of the impressive figures that illustrate the constant evolution and the importance of the economic relationship between Austria and Romania: Romania is Austria’s 14th biggest export market and 19th biggest import partner.
And as international trade is a two-way street, hundreds of Romanian companies have found opportunities to expand to and on the Austrian market. From the Romanian point of view, Austria is not only a significant investor but also an important partner in foreign trade: Austria is Romania’s 12th largest export market and 11th largest import partner. This clearly shows Romania’s evolution from a low-wage to a developed, industrialized EU country.
Advantage Austria Romania not only supports Austrian companies willing to expand their operations in Romania, we also put Romania and its opportunities actively on the map: We inform in various formats like webinars, roadshows in Romania and Austria, meetings with government officials and stakeholders, etc. And we organize every year several business delegations, which gives both Austrian and Romanian companies the opportunity to find the right business partners. At the end of November, we organize an “Austria Showcase”, a delegation of Austrian companies in the field of “Energy Transition”, that will be in Romania to find out about the current market situation, meet potential partners and discuss future project plans.
We collaborate also actively with the Austrian and Romanian Investment Agencies, supporting their efforts to promote our countries as attractive FDI destinations.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in December 2022.
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