Since the opening of the economy, romania has been one of the fastest growing economies in europe. Given the nearshoring discussions in the context of the covid-19 pandemic, the country could even become more important for german industry. Sebastian Metz, managing director of AHK Romania, speaks in an interview about location advantages, challenges and potentials for companies.
SEBASTIAN METZ
Executive Member of the Board of Management
AHK Romania
Sebastian Metz has headed the German-Romanian Chamber of Industry and Commerce (AHK Romania) in Bucharest as an Executive Board Member since 2012. Previously, the graduate banker and graduate economist worked as a CIM expert (Center for International Migration and Development) for the AHK Algeria and in Nepal.
In the wake of the Corona pandemic, the global supply chain system has been shaken up. The blockage of the Suez Canal in March 2021 by the container ship Ever Given also clearly showed how vulnerable a globally outsourced supply chain can be. However, nearshoring can only work if the framework conditions are right. Companies that want to outsource need security, good transport links, stable political conditions, enough skilled workers and a cost-effective price level. With a population of almost 20 million, Romania can play an increasingly important role for the German industry in the future. Economic experts and entrepreneurs have freed themselves from old preconceptions and recognize the enormous progress the country has made in recent years. Since the economic opening, Romania has been one of the fastest growing economies in Europe and was also able to overcome the recent Corona crisis without major upheavals. And what does the future hold? What opportunities are there for investors? Sebastian Metz, Managing Director of AHK Romania, spoke in an interview about location advantages, challenges and potentials.
Mr. Metz, Romania is often still treated as poor relations in corporate circles. Is this justified or can the country stand out thanks to special location advantages?
Romania is firmly anchored in the European Union. The country has been a member of the EU since 2007 and of NATO since 2004. Domestically, there are also clear signs of stabilization. In other words, the framework for direct investments is set. In addition, companies benefit from the large number of well-qualified workers available. This is also due to Romania’s long industrial history. One major advantage of the location is, of course, the cost factor: In European comparison, the country is one of the most favorable production locations. The growth figures are also impressive: In the first quarter of 2021, Romania recorded an increase in GDP of 3.8 percent – putting it in the lead in the EU. In the year of Corona 2020, the decline was comparatively small at just 3.9 percent. These good conditions are increasingly attracting German companies, ranging from mechanical engineering and the chemical industry to metal and plastics processing, and of course automotive.
Which industries are particularly well represented in Romania?
The automotive sector is clearly in first place. For German direct investment, which totaled more than 10.8 billion euros in 2019, this sector accounted for around two-thirds. Major German automotive suppliers such as Bosch, Schaeffler, Continental and Dräxlmaier are represented here, as are numerous smaller companies. But Romania is also becoming increasingly interesting for German companies in other areas. From the retail sector, for example, well-known chains such as Kaufland, Lidl and Rewe are active here.
Is Romania primarily perceived as a “workbench” for German manufacturers or are more complex tasks also carried out here?
The area of research and development is becoming increasingly important. The automotive supplier Continental alone employs around 20,000 people here, almost 40 percent are engineers, most of whom perform development tasks. And Continental is not an isolated case. Bosch also has a large development department with around 1,500 employees in Romania, and Dräxlmaier develops innovative interior design ideas here. In addition to manufacturing, the tech industry is also gaining in importance: Chip manufacturer Infineon operates a development center here, and Deutsche Bank maintains a technology hub for software. In other words, the area of development is well covered in Romania, but as far as research is concerned, we still see potential. The AHK therefore advocates for closer links between universities and the private sector. Our newly produced brochure “R&D Locations in Romania” provides comprehensive insight into the R&D scene on this topic.
Is there already a shortage of skilled workers?
This varies greatly from region to region. Much of the German investment is concentrated in the Carpathian arc, university towns and areas with good access to Hungarian transportation infrastructure. Skilled workers are in high demand there – and the labor market is correspondingly tight. We therefore want to direct more investment into third-tier cities, for example in Transylvania, where there is still a great deal of untapped potential and where the labor market offers many opportunities.
How can the AHK provide support?
We follow two approaches: On the one hand, we bring universities and German companies together and strengthen joint projects. The second topic focuses on dual vocational training. Romania, following the German model, introduced a dual education system during communist times. This has been undergoing a revival since 2012. We see this as a good opportunity to get young people even more involved in technical professions in order to build up the pool of skilled workers. Compared with other locations, Romania has done a very good job of developing this area, and German companies in the country are benefiting from this. From vocational school classes to curricula to final exams, there is a uniform set of rules. Currently, up to 36,000 students are involved in this program. We comprehensively support this in order to make the skilled labor market fit for the future. Labor migration from Romania to Germany is still problematic, but with a rising standard of living in Romania and better framework conditions for families, this situation will certainly ease in the long term – the first positive approaches are already visible.
Romania continues to be burdened with many preconceived notions. What is the situation like for companies locally?
As an EU member, Romania offers investors legal certainty. There are no problems at the macro level. One stigma that still clings to the countryside, but in my opinion is no longer justified, involves corruption. Romania has made enormous progress in this area and is also cited by the EU as a role model in the fight against corruption. The anti-corruption prosecutor’s office is doing its work, high-ranking politicians are convicted and put behind bars, and the implemented structures are proving to be effective. Of course, there is still work to be done, but Romania is now considered a role model in Eastern Europe and has achieved important milestones in the fight against corruption. Those who only dwell on old stereotypes miss opportunities and overlook progress.
“Because especially with regard to the nearshoring discussions in the wake of the corona pandemic, Romania is extremely well positioned.”
SEBASTIAN METZ
Executive Member of the Board of Management
AHK Romania
Are there also disadvantages regarding the location? In which areas does Romania still need to catch up?
Transportation infrastructure remains its Achilles’ heel. For the size of the country, the highway network is insufficient. Although good progress has already been made, in Transylvania, for example, much remains to be done. As before, connectivity in the south and east of the country is still inadequate. A second disadvantage is administration. While it mostly works well at the local level, central administration urgently needs reform. It is inefficient, unstable and unprofessional. On a positive note, the government has recognized this shortcoming and is undertaking major reform to get the administrative system on track. It must also do so because the Corona “Recovery and Resilience” package now makes enormous sums available for investment: a total of 32 billion euros. This money must be invested quickly and in a targeted manner, not only in infrastructure but also in areas such as education, health and energy. But this can only succeed if the administrative processes behind it work.
How do you assess Romania’s future prospects in the medium term?
The Corona crisis did not hit Romania particularly hard. As a result, the country is now in an excellent position to offer the opportunity of a lifetime. Because in addition to the “Recovery and Resilience” stimulus package, there are still funds from the old financial framework. If these EU funds are now invested properly – and above all quickly – Romania can make enormous progress. We already benefit from relatively stable framework conditions and a good skilled labor market. In combination with reorganizing the supply chain, German companies will increasingly appreciate these advantages. This is because Romania is extremely well positioned, especially with regard to the nearshoring discussions in the wake of the Corona pandemic. For me, therefore, there is only one conclusion: I am very positive about Romania’s future. Certainly, the country is under pressure in international competition, but if administration here were slightly better positioned, we will have overcome the worst.
AHK Romania regularly produces comprehensive brochures with important economic key figures and information about Romania. It is a helpful and valuable document for all those who are interested in Romania as a sales and procurement market as well as a production location. You can download the latest location brochure “Romania. Economic development” here:
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