#countryfocus | German and Austrian investors voice concerns over lack of skilled workers

German and Austrian companies expand their local presence yet they’re finding it increasingly difficult to secure the right labor force.

Simona Bazavan

German and Austrian investors make up two of the best established investor communities in Romania, with a strong presence across the local economy. German investments alone presently total some EUR 8 billion, indicate data from the Romanian-German Chamber of Commerce and Industry (AHK Romania). Moreover, over 10 percent of the foreign-capitalized companies in Romania are German and they employ over 250,000 people, according to AHK estimates.

When it comes to Austrian companies, data show that there are more than 7,200 companies with Austrian capital, out of which approximately 1,500 are active investors in Romania, according to Advantage Austria, the Austrian official trade promotion organization. Their direct investment value amounted to nearly EUR 9 billion in 2016, which represented a share of over 14 percent of all the foreign investments in the country.

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Such a strong presence means that within the last five years, most of the Austrian investments in Romania changed from new investments into enlargement, expansion, replacement and modernization investments, Gerd Bommer, commercial counselor with Advantage Austria tells BR, adding that Austrian investors who want to establish a business in Romania are already here. Metal working, steel, furniture and environmental technologies were the industries that attracted some of the major Austrian investments in 2016 and 2017. One of the most recent examples is Bardeau Holding, which opened the Banat Industrial Park in northern Timisoara this May, adds Bommer. The industrial park’s first client will be an Austrian medical technology firm which plans to invest locally this year and in 2018.

German investors, on the other hand, have a strong footprint, in particular in the automotive field and in other manufacturing industries. “There is also potential in industries such as green technologies, environment, energy, food and agriculture, but also IT&C.  Due to rising wages, trade also has a potential for investments. However, it would be desirable that investments also rise alongside consumption. Germany, who is a leader in technologies for machinery and equipment, could take advantage of that, as Romania needs urgent investments,” explain AHK representatives.

Proximity to Central and Eastern Europe, low labor costs compared to the rest of the EU, a legal system that is in line with that of the EU and the 16 percent flat tax, remain to this date some of the main reasons behind the German investors’ interest in the Romanian market. “The reasons still apply, the combination of a favorable tax system, availability of resources, a mainly well-educated workforce – with a lack in professional skills – and a really strong growing domestic market, are driving the development,” adds Bommer.

While Romania remains attractive in the region due to the previously mentioned aspects, as well as the size of its domestic market, the country needs to upgrade its infrastructure, as its 700 km of highways are far behind those of other countries in the region and this represents a big disadvantage to boosting the country’s potential, point out AHK representatives.

Another downside is that securing qualified employees is becoming increasingly difficult for investors, representatives of both communities say. “One of the major challenges today is the lack of a skilled work force. In Romania, the employment quota is relatively low compared to countries like Austria or especially the Netherlands and Scandinavia. Therefore, we see that workforce in general is available, but the mobilization is difficult,” explains Bommer, adding that both issues are in the hands of the Romanian government. Dual education programs, many of which are endorsed by German and Austrian investors locally, provide a solution to the problem. It is important for Romanian authorities and decision makers to take the necessary steps to develop vocational training, also point out AHK representatives, stressing that long-term development can only be achieved by investing in education.

There is also the matter of continuing the fight against corruption, strengthening the rule of law and ensuring predictability, stability and transparency in order to enable companies to plan future investments, say representatives of the two communities. “The national funds, and especially the EU funds will keep investments at a high level, but the government will have to do its part in order to create even better conditions, especially in predictability of the legal framework and long-term planning and strategies,” stresses Bommer.

In terms of trade relations, 2017 data confirm that Germany remains Romania’s main trade partner. German imports to Romania amounted to EUR 13.8 billion in 2016, which was up by 10.5 percent, while Romanian exports to Germany increased by 14.6 percent to EUR 12.3 billion, according to AHK data. “Total trade between the two countries amounted to EUR 26.1 billion which was up 12.4 percent y-o-y and which represents about some 20 percent of Romania’s exports. Overall, there is an upward trend,” say AHK representatives. Austrian exports to Romania on the other hand, account for EUR 2.08 billion, up by 6.0 percent in 2015 and 4.1 percent in 2016.

Building upon success

Major Austrian investors in Romania are spread throughout the economy. There is oil and gas giant OMV Petrom, lenders BCR and Raiffeisen, real estate companies Immofinanz and S Immo or construction firm Strabag, to name just a few. Some of their more recent investment plans include Rondo Ganahl, a cardboard manufacturer which plans to invest EUR 20 million into upgrading two of its local plants.

On the German side, there are automotive players such as Draxlmaier, INA Schaeffler, ThyssenKrupp, Systems, Continental or HUF, which last year had planned investments worth EUR 14 million. There is also energy player E.ON, insurer Allianz, retailers Kaufland and Lidl, and telecommunications giant Telekom.

An overview of the major German and Austrian investors present on the local market shows that the companies have been overall posting positive results in 2016 and the first part of 2017. Austrian controlled OMV Petrom, the largest oil and gas player on the Romanian market, managed to boost its net profit by 114 percent in the first quarter of this year, against the same period a year ago to some RON 618 million. Higher oil prices and higher volumes of natural gas and energy have also helped the company see its turnover surge by 27 percent. Less positive news came from BCR, the biggest lender in Romania controlled by Austrian Erste Group, whose first quarter profit fell by 33.7 percent to RON 196.3 million (EUR 43.3 million), as the bank grappled with falling banking income and an ongoing process to reduce the non-performing loans book.

According to the most recent data, Kaufland, the largest German-controlled company in Romania, and also the largest retailer on the local market, passed the EUR 2 billion turnover threshold in 2015, some three years earlier than initially targeted. Lidl and Metro Cash & Carry, two other German retail and wholesale players, also posted growth last year. They might be joined by German discounter Aldi who earlier this year was looking for hiring local managers, according to media reports.

Looking forward, both German and Austrian investors have a positive outlook about doing business in Romania. “We do annual business surveys with our Austrian subsidiaries in Romania. The results are overwhelming, while 50 percent of the respondents think that Romania’s development will be good or very good, two thirds of respondents think like this about their sector, but over 90 percent of respondents think that their company’s development will be good or very good,” says the Advantage Austria representative.