BusinessMagazin

Tag: economy

  • Don’t say we didn’t warn you

    Romania’s economy is functional and on the rise; next year we will start spending the money from the EU, especially for infrastructure investments, so that we will not have to deal with the depreciation of the economic growth. It is not us saying it now, President Basescu did it last autumn. It was October 21, a little while after the speculations on the forex market that had caused the RON to depreciate suddenly and one month before the parliamentary elections. Coincidentally, on the same day, Premier Tariceanu stated that Romania would post a 4 to 6% economic growth in 2009.

    Back then, as well as now, the way businesspeople and authorities treat the economic information, the events happening before their eyes – in the US, in Europe and here at home, is the first step in the battle against the crisis. Those who look for the information and take advantage of it always stand to gain; those who ignore it either cannot shield themselves from the crisis, or (in the case of the government) only manage to prolong the dangerous illusion that the crisis will eventually pass on its own – unless it has already done so.

    ”Honestly, I didn’t imagine the situation in America would have such powerful effects in Europe, too, and especially in Romania,” admits Florentin Banu, the man who developed the Joe wafers brand and the Artima supermarkets. ”As proof that I did not anticipate it, I am now reeling from the heavy blow in terms of not only my real estate investments, but also of the plastic business.” Banu controls Banuconstruct, which develops apartment blocks in Timisoara and the plastic and mould factory Interpart Production.

    ”Unfortunately for me, I did not anticipate the crisis. When trouble started on the American real estate market I thought there might be repercussions on the Romanian real estate market, too, but nothing more,” Cosmin Alexandru, founder of branding consultancy Brandivia and cofounder of Erudio, in his turn admits.

    Another man who paid attention to the real estate market was Marius Stancescu, chairman of business services firm Riff Holding, to whom, however, the obvious price bubble fuelled by the boom of cheap loans reminded of the Japanese crisis in the eighties, so that he started to ”stubbornly” look for information on similar situations in other parts of the world – South America, South-East Asia, where the overheating of the economies in the nineties caused the well-known crises of the time. ”I found lots of similar events to what was happening in the US and obviously to what was going to happen on the old continent,” he says, confessing he had tried to warn as may Romanian entrepreneurs as he could about what was going to happen, but to no avail, precisely because things looked so good in our country, that the possibility of a crisis seemed out of the question.

    Among those who anticipated the crisis would be imported in Romania, as well, was Marius Sfintescu, manager of private equity fund 3TS Capital. ”I anticipated we would see the expansion of the US crisis to the entire world, including Romania. I used the specialised media as a source of information.” Which is why Sfintescu was one of the few business people who agreed to answer BUSINESS Magazin’s question about what his opinion on the policy of the foreign governments in dealing with the crisis; whether he felt that the relaxation of the monetary policy was too slow in Germany or France, considering the deflationary climate and whether it was important from now on for the developed states to concern themselves with the reduction of the monetary mass in good time in order to avoid a stagflation friendly environment in 2011.




    TRADUCERE DE LOREDANA FRATILA-CRISTESCU SI DANIELA STOICAN


     

  • Reality check: Welcome to Romania

    There ís nowhere like home, and the economic growth of the last few years made todayís Romania different from the Romania of the nineties: sufficient premises for a Romanian who left the country to want to come back. Still, the gap between reality and expectations of those who returned after a few years in London or on the Wall Street is still wide.

    ”If I did not leave the country on business trips once every few months, I think I would go crazy. This is my chance, being able to travel a lot,” Andreia Stavarache, 36, says frankly. She left for the United States through a programme of internship with audit and consultancy firm PricewaterhouseCoopers (PwC) at the beginning of 2000.

     

    Stavarache had applied for an internship with PwC in Bucharest and had been turned down for being insufficiently experienced. “Those at Stamford, Connecticut, accepted me as a trainee for six months,” she recalls. What had started as a half-year internship was later extended by one year and, in mid 2001, the company hired her as a tax associate.

    “When I returned, what I disliked most was the squalor and the “Romanian issues”: people, regardless of whether they have any money or not, complain. Romanians whine instead of looking for solutions. We want the idea to come up, to implement it and get results right away and always envy others for their success. We donít know how to apologize, nor say thank you,” Stavarache says.

     

    The first and most abrupt difference for those that had management or senior positions at the offices abroad of major multinationals is how people work in Romania.

    “In the States, they had some standards I donít see in Romania. Respect and attitude towards the client always came first,” Andreia Stavarache says. Any email from a client that the company received had to be answered within two or three hours at most; that was the organisationís policy with only one exception to it, which stipulated that the answer might be given in 24 hours if it needed thorough research. Even so, one still had to confirm the receipt of the message within three hours.

     

    She believes that the idea of Romanians working harder than others is untrue. “They work at a crazy pace abroad. In Romania, there is no results-oriented management and employees follow the lead of the managers.”

  • Don’t Blame the Economists

    The others could not see – or would not see the signs suggesting that things would go from bad to worse. Now, that businesses are going down, companies are posting losses, and the state is collecting less and less money, everybody is wondering: what good are economists if they did not warn before it was too late that the economic typhoon was coming?

    Although economists throughout the world had the same data at their disposal, few were able to predict the most serious economic crisis in history, and Romania has been no exception. After several years of economic growth, only a few of them have ventured at the beginning of 2008 to say that things would take a turn for the worse. Why has the economic crisis slipped through the economists’ fingers?

    The first explanation given by the analysts is simple and surprising: even those who would have wanted to say that things would worsen did not take the risk of sounding crazy among all the optimism that had become common among analysts in the last few years.

    ”There is a very interesting, though littleresearched phenomenon that occurs – group behaviour. If an analyst makes the same growth prediction as another three hundred analysts and they all turn out to be wrong, nobody blames him. But if he is alone in being wrong, everybody points a finger. Nobody takes the risk of straying from the crowd. It’s better to be wrong when the whole group is wrong than to be the only one who is right,” says economic analyst Aurelian Dochia, 59, a member of Board of Directors of BRD-SocGen bank and a former advisor to the World Bank, the EBRD and the OECD.

    Another supporter of the ”herd mentality” theory is the chief economist of the BNR (National Bank of Romania). ”It’s not easy to stand out from the crowd as the only one with negative opinions, it takes courage and flawless arguments,” Valentin Lazea says. Another reason for the economists’ failure to predict the crisis has to do with the fact that most of them work for banks and have to abide by their employer’s communication policy. ”Many have had to keep silent because their job wouldn’t let them talk,” says Lazea. As a bank analyst, you cannot say there will be no more money on the market, credits will freeze and, even worse, that the bank you are working for is making transactions with financial instruments that are too difficult to be understood by everyone involved, which will lead to significant losses.

  • Who will remain on top?

    Hopes of volumes and profit of the top companies in Romania have significantly dimmed not only compared with last year but also compared with the estimates of the first few months of 2009. The hardest hit are the companies in the industrial sector. First quarter results confirm declines for all the top ten companies by turnover, which could lose more than 4 billion euros this year, as well as their position among the biggest businesses in Romania.

    In Galati, 12,000 employees are expecting options to keep their jobs this year from Augustine Kochurampil, chief executive of Arcelor Mittal Galati. The manager decided after Easter to move to crisis Plan B, and took a few steps to keep things afloat. ”We do not expect things to go back to where they were last year any sooner than two or three years, but we hope for an improvement in demand in the second half of this year and for the time being, even though we did not need 11,700 people to work at 40% capacity, we are looking for options to cope,” Augustine Kochurampil says. The manager’s plan, to work exclusively to order (instead of building stocks), to close the coke and chemical plant, to request employees to take ten days of leave and five days of technical unemployment in rotation, complemented the European strategy of Arcelor Mittal, which decided to close 14 furnaces of the 25 it had in Europe, as well as to completely shut down the plants in Florange (France) and Liege (Belgium).

    ”I’ve been in the steel business for thirty years and I have never seen such a decline in price and demand for steel,” says Kochurampil, who, in his thirty-year career has restructured a bankrupt plant in Germany, another plant that worked based on non-performing barters in Kazakhstan, as well as a plant in Poland where he saw the most difficult strikes, thus going through several crises on the steel market. The current crisis, which reached all economy sectors, has been a hard test for metallurgy in general and for Mittal Galati in particular, with the plant now operating at 40% capacity, without too much of a chance to rebound for the rest of the year.

    The decline of the plant in Galati will probably be the most serious experienced by any major company in Romania this year. The most affected top ten companies this year (which include mostly players from petroleum and telecom industries, as well as from retail, metallurgy, distribution and industry), believes Codrut Pascu, manager of the local office of strategic consultancy Roland Berger, will be ArcelorMittal, Dacia Group, Petrom and Rompetrol, and the least affected will be the retail companies. By ”affected’ the consultant means the decline of the turnover due to the overall decline of the markets, as well as the profitability that will allow them to survive.

    Each company among the biggest in Romania is taking into account significant two-digit declines of its business, with the first quarter results confirming their suppositions: Petrom is talking about 33% lower business in 2009, Rompetrol Rafinare anticipates 50% full-year decline, Rompetrol Downstream could go down by 20%. Mittal has already resigned itself to a potential 60% drop, while Lukoil Romania estimates decreases of 30% (the decline for Petrotel-Lukoil refinery is estimated to be even more serious, around 40-45%). The biggest companies in industry in Romania are now talking about a halving of their business, while the telecom and retail companies are somewhat luckier, as their decline will be less serious this year.

  • A future for Romania

    Theoreticians and analysts have Michael Porter or Robert Reich, politicians have party programmes, entrepreneurs have their own strategies and visions, while journalists take a little of everything. Many people keep repeating that the current economic crisis should be an opportunity for reflection, for catching up on those reforms not done in time and for plans for what to do after the crisis. Can we hope to get a feasible strategy for Romania’s development after the crisis from theories and programmes, from the expertise thus far and from articles in the press? What fields suit us, who should identify them and what should be done?

    Almost all the businesspeople that BUSINESS Magazin has spoken with are talking about the necessity of a national development strategy, with consistency as the key word. The main development sectors are, as you can probably tell, agriculture, information technology and tourism, supported by a solid infrastructure and a quality education system.

    How one should get to such a winning bet list would make for a long discussion. On one side of the fence, of those who support the role of the free market forces exclusively, sits Dinu Patriciu, chief executive of Rompetrol, a firm believer in liberal policies: ”Were we to free the economic environment from constraints, opportunities would be born naturally,” says Patriciu, a billionaire who is the only Romanian still on the Forbes list of richest people.

    More businesspeople, however, believe in the necessity of the involvement of the state in setting economic directions to be followed, in partnership with the business environment, of course. ”The fate of Romania is in the courage with which the government, whatever colour it might be, undertakes the restructuring of public services and businesses from the ground up,” says Marius Stancescu, chairman of Riff Holding International, a business service company.

    ”There are countless models in developed states, we just need someone to do the research and apply the model,” he feels. Otherwise, unless a change of direction occurs, Romania’s economic future will show its ”incurable impotence” in the next ten years. Even pushed forward by EU’s integration mechanisms, if no government takes the risk of fundamental changes and is able to induce the effective use of public resources, we will always be ”the poor relative on a visit to the city,” Stancescu concludes.

    A cooperation between politics and economy would be ideal, Florin Talpes, chief executive of the BitDefender software developer, believes, as well. Ideal not because it is desirable, but because it has not happened until now. ”Romania’s governments have been showing a great neutrality towards the fields of the future until now. As for the political environment, I don’t think it favours medium to long-term strategy building and consistent application of such strategies,” Talpes says.

    The creator of BitDefender, the antivirus thought to be the best-known Romanian software application, says that a solid economy is a project that takes eight to twelve years and requires vision to begin it. ”However, political changes happen at intervals of less than four years and lead to replacement of all public servants down to school principals.” This means lack of continuity in strategies and renders Romania unable to show consistency in policies other than those imposed the structures we are part of, EU or NATO.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican
     

  • Crisis shoping list

    There is already a crisis-related psychosis in many circles, fuelled by the pessimistic news about the soaring unemployment and salary declines, says Mircea Kivu, sociologist and general manager of the Marketing and Polls Institute (IMAS). Under the circumstances, he says, ”the consumer behaviour cannot but change, even though the individuals are not affected in any way by the crisis on a personal level.”

    Though analysts and various institutions are pessimistic about the Romanian economy, the overall state of mind among the average consumers seems closer to cautiousness rather than anything else. Two thirds of the respondents of a survey conducted by market research company 360insights between January 15-February 15, 2009 on a sample of 800 people living in cities say they have no concrete information and do not know exactly what the crisis is, while more than half of them believe even now that everything might be just a momentary exaggeration of the media, because they are not feeling its effects directly.

    A key element that makes people more cautious about their spending is the concern for their job.

    Retailers confirm the decline of traffic in stores. Ilan Laufer, general manager and principal shareholder of Retail Group (the rental broker of Cocor Luxury Store), says that the retailers with which he has discussed lately have noticed a change in the overall consumer spending trends – especially on the electrical and IT, clothing, footwear or accessories segments. ”Sales are much lower in the first two months of this year than in the same time of 2008, with declines ranging from 20 to 50%.”

    The higher the price, the faster the sales decline, which explains the order in which retailers are affected.

    Real estate consultants say such changes occur especially outside the capital. Razvan Gheorghe, general manager of Cushman & Wakefield Romania said a little while ago that those who had opened stores outside Bucharest were the hardest hit, which is especially true for the fashion, restaurant and coffee shop businesses. ”Consumers are no longer going out as often as they used to; everything more expensive than the massmarket isn’t selling any more.”

    Durable goods, electronics and home appliances started to show signs of a slowdown in sales as early as the end of last year, says Ciprian Moga, managing director of iQuest Consulting, a retail advisory firm. Once among top sellers, home appliances are not doing any better on hypermarkets’ shelves, either. Tjieerd Jegen, chief executive of the Real Romania network says that when it comes to non-food products and especially home appliances and IT products, customers focus on promotional offers mostly.

    The fast moving consumer goods market is the least affected by the crisis psychosis and is not experiencing dramatic changes. 360insights’ research director Mihaela Alexandru says that the products consumers are unwilling to give up, for which they plan the lowest expense cuts, are food (11% of the respondents), utilities (24%) and personal care products (28%).

    Shachar Shaine, chief executive of United Romanian Breweries Bereprod, the bottler of Tuborg and Carlsberg brands, is one of the few happy managers, because he can boast a 3% increase so far this year compared with the same time last year. The growth, however, comes from the retail segment, because the on-premise segment is seeing stagnation, as people prefer to drink at home rather than go out to do it.

  • Tourists in the country of the crisis

    On a daily basis, the press from around the world paints the situation in the United States in bleak colours. Consumption has gone steadily down over the last six months, the most famous shopping avenues (Fifth Avenue, Rodeo Drive) are empty, restaurant owners long for the times when Wall Street execs would spend impressive sums in their restaurants and – an utterly unconceivable fact in regular times – Wall Street wives have forgotten all about 500-dollar dinners, and have started to take… cooking lessons. On the other hand, the United States has turned into a destination coveted by tourists, who, stimulated by the still weak dollar, choose to spend their holiday there.

    Business Magazin has talked to Romanian managers who spent their holiday in the famous travel destinations in the USA, and were able to feel the pulse of the crisis in its very core. Alexandre Eram, general manager of SonyaMod, a company that distributes international brands such as Peggy Sue on the Romanian market, and owner of the Z stores, travelled to New York for Christmas. ”Surprisingly, I found a normal country, especially since I was expecting things to be much worse, given the way the press had reflected the crisis. But when I saw the huge queues in stores, I started to wonder where the crisis was,” recalls the manager. However, the manager does not rule out the possibility that things may have changed after the holidays.

    ”I have talked to several American friends, and they told me that one cannot really tell if there is a crisis or not at Christmas time.” Sorana Savu, managing partner at communication agency Premium PR, who spent a two-week holiday in Miami in January, says that the American response to the crisis depends a great deal on the city and the region. Savu has chosen Miami and Fort Lauderdale for her holiday this year, an area she says is favoured mainly by American senior citizens. ”I think it’s absurd that in a city where you see Lamborghinis, Bentleys and Ferraris on the streets, which are expensive by American standards, employees of luxury shops should be very surprised to be dealing with receipts worth several hundreds of dollars. They said the only ones still buying were Europeans and Brazilian tourists.”