Manufacturing in Romania

Ada Bacalum & Alina Ionita Finpro Romania September 2008

Romania
Quick facts: - population: 22, 2 mio - area: 238,391 sq km - biggest cities: Bucharest (population: 2,1 mio, 0.8% of Ro area) - inflation: 6.6 (2007) - EU 2007 / euro est. 2012 - avg. (gross) wages 440E (2007). - social costs for employer: 27.75- 39.85%
2006 Nominal GDP (EUR, bn) Per capita GDP (EUR) Real GDP, yoy (%) Inflation (CPI), yoy, avg. (%) Unemployment rate (%) Current account balance/GDP (%) FDI/GDP (%) 97 4,500 7.7 4.9 5.4 -10.3 9.3 2007e 121 5,390 5.7 6.6 4.3 -14.5 6.0 2008f 128 5,830 5.4 5.8 4.2 -14.8 4.8 2009f 154 6,570 5.0 4.4 4.2 -14.5 4.1 2010f 7,260 4.7 3.7 4.1 -14.0 3.6

Key Industries: -Energy industry -Manufacturing industry -Construction industry -Telecommunication industry Logistics and infrastructure: -The present state of the infrastructure and services, which can be qualified as having a poor quality and not responding to the present needs, is a major obstacle to social cohesion and economic development. It impedes competitiveness, the transition of goods, labor force, business settlements, investments. -The upgrading of transport system is considered urgent and requiring huge investments, but financial constraints require prioritization based on straight objectives. Materials: steel production amounted 7.5 mill tons in 2007 and it is forecasted to reach 8.8 mill tons in 2010. The biggest steel producers in Romania are: 2 AcelorMittal,Mechtel.

About Technology Industries

Romania's manufacturing sector is dominated by machine-building, metals, IT products, chemicals, and textiles, all of which have had to turn from supplying the domestic market to finding export markets. Investment has been a key issue, as they try to update the outdated equipment many of them were left with when communism fell. Many of the previously state-owned firms have also been sold to private owners in an attempt to bring in money and improve management. Some of the biggest firms, seen by the government as strategic, have still to be sold, however. The total number of enterprises activating in the manufacturing sector is 58.878, out of which 57.835 are SMEs.(2006) The number of persons working in the manufacturing sector is 1.5 million. Export of transport machinery & equipment amounted 9,235 MEUR in 2007 being 33.9% of the total exports. Export of manufactured items amounted 6,012 MEUR in 2007, being 22% of total exports. Export of manufactured products mainly classified by raw material amounted 6.040 MEUR in 2007, being 22.2% of the total export. The output in 2005 of different manufacturing sectors was: 558 MEUR for metallurgy, 201.4 MEUR for metallic constructions and metallic products, 186.9 MEUR machinery & equipment (except of electrical and optical), 157.2 MEUR electric machinery and equipment, 277.5 MEUR means of road transportation, 121.3 MEUR other means of transportation (except road transportation). The production indices (September 2007/September 2008) are: 129.4 for metallurgy, 122.3 for metallic constructions and metallic products, 121.3 for machinery & equipment (except of electrical and optical), 139.4 for electric machinery and equipment, 225.2 for means transportation (296.6 road transportation, 146 other means of transportation). The Romanian manufacturing industry is dominated by multinational companies. The multinational companies have a 21% of the turnover of this field. Some weak points of the manufacturing industry in Romania are: the low productivity, the small percentage (2%) of the research & development costs, the small percentage of using Internet in the process of buying-selling, the small percentage of employees using PCs. The growth of the industrial sector was the principal stimulus to economic development. In 2007 manufacturing industries accounted for approximately 35 percent of the gross domestic product and 29 percent of the work force. The structure of export in the first trimester of 2008 by main groups of products was totally : approximately 10.975,6 mill euro, of which: 4.3% agro-food products, 9.2% chemical and plastic products, 10.5% mineral products, 11.2% transport means, 16.1% textiles, clothes, footwear, ready-made products, 16.3% metallurgical products, 22.7% machinery, electric appliances, equipment and mechanical devices, 9.7% other products (furniture and construction materials). The structure of import in the first trimester of 2008 by main groups of products was totally: approximately 18.133.3 mill euro, of which: 7.1% agro-food products, 8.9% textiles, clothes, footwear, ready-made products, 10.8% metallurgical products, 13.4% mineral products, 13.9% chemical and plastic products, 14.4% transport means, 23.5% machinery, electric appliances, equipment and mechanical devices, 8% other products (furniture and construction materials).
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About Technology Industries

Automotive Industry -Romania is one of the most important market in SE Europe concerning automotive industry. -Much of the Romanian manufacturing industry consists of branch plants of EU firms, though which there are some important domestic manufacturers, such as Dacia Logan, Daewoo. -About half a million cars are produced each year in Romania. -Renault and Ford are very active investors on the Romanian market. -Renault will plan to invest over 600 mill euro this year.Logan is a very famous Romanian brand all over the world. - Ford will invest 675 mill. Euro in the former Daewoo car factory. -The automotive manufacturing industry needs investments more than 25 bill. Euro -The number of companies from this sector is 1.243. -The gross output is more than 4,000 mill Euro. -The production of cars is more than 200.000 units. -The number of persons working in this sector is 110.591. -The turnover of the companies activating in this field is 4.447,8 mill Euro. - The Romanian automotive industry strengths are: low cost of the labor force, proximity to western countries, internal market is expanding fast, a big potential in the future. Metal constructions and metallurgy -The metallurgical industry is one of the oldest industries in Romania. - Recently, the Romanian production and foreign trade in metallic construction products have increased remarkably due to the general growth of Romanian economy but also due to international trends. - Romania is an important exporter of metallic construction products, having high quality products and competitive prices. -Romania exports mainly steel and iron. - The metallurgical industry plays a significant role within the Romanian economy having in view that in 2005 it had a 11,5% share of the industrial output (although it employed only 3.4% of the total industrial personnel) and a 14,5% share of the total exports of the country. - The number of companies from the metal products sector is 7.474. - The turnover of the companies activating in the metal products sector is: 2.968,8 mill Euro. -In 2007, the steel production was as followed: the liquid steel production was: 6.2 mill tones, warm rolled pieces production was 5.5 mill tones and pipes production was 0.7 mill tones. -In 2005, the pig iron output was 4 mill tones and aluminum output was 0.3 mill tones. - The manufacturers are scattered all over the country; however, the most important clusters are located in Hunedoara, Galai, Cara Severin and Trgovite regions. Machinery building -The machine building industry was created and developed in Romania after the Second World War and, today, is one of the most important industry of the manufacturing industry; - The most important branches are: electric and electronic equipment, equipments and technological aggregates (mining, oil, machines) - the most important trade partners for Romania are: Germany and Italy. - The total number of companies from this sector is 1.748. - The turnover of the companies activating in this field is 1.102,8 mill Euro. - The number of employees of this sector is: 97.491.

Availability of labour force

In 2007, the budget for education was 5.2% of the GDP, but much of it was wasted uselessly on supporting what is called "useless teaching". Higher education in Romania is provided by universities, polytechnic, vocational schools, and other institutes. There are 6 Technical Universities in Romania which are accredited. There are 24.054 students which graduated Technical universities. The largest technical university in Romania is the Polytechnic University of Bucharest. It is one of the most difficult faculty of the educational system. Studying technical universities, English language is compulsory and sometimes, French or German. More than 90% of Romanian young people speak English, more than 47% of Romanian people speak at least one language, 26% speak two languages and 6% three languages. Engineering became unpopular after many industries closed down (1990), but, became again hugely popular in the early 2000s, after the new boom in industry (communications, metal industry, chemical industry, cement etc.) and construction. Recruitment The recruitment process takes long time in Romania (2 weeks-one month or more). In Romania, most of the people have higher education and is a great demand of jobs, especially technical and economic jobs. The recruitment process is usually made using recruitment agencies or Internet recruitment pages. There are also many job fairs especially for new-graduated ones.

Unemployment
Region Bucharest South-West North-East Vaslui County ( North-East) Timis County (near Hungarian border) % 2 6.8 5.9 11 (max) 1.6 (min)

Labor Productivity: GDP/medium number of employees: 121 bn euro/4.7 mill employees= 25.7 bn euro/employee Number of employees in manufacturing: 24.2 bn euro/1.46 mill =16.57 bn euro/employee

Wages, social costs and taxation

Wages
Type Welder CNC programmer Metal worker Labourer Project manager Avg. salary (gross Eur) 735 EUR 515 EUR 690 EUR 405 EUR 845 EUR

Social costs & taxation

Type Social cost for employer % Min - 27.75 % 25.95 % (as 01.12.2008) Max - 39.85% 38.05 % (as 01.12.2008) Corporate tax Income tax VAT 16% 16% 19%

Source: Information received from HR companies, Adecco and Aims

Regional differences in salaries

Bucharest and Ilfov: with 1/3 more than the medium salary North-East: 86.7% of the medium salary South-West: 99.5 % of the medium salary Center: 91.3% of the medium salary

Investment Incentives
Several different types of incentives: grants, financial allocations, tax redemptions Both national and regional level incentives. Local incentives usually tax holidays on property taxes or cheap land and connections to local infra Incentives to manufacturing to both large companies (max 5 Meuro) and to SMEs (max 1,5 Meuro) Investments to more environmentally friendly production can have separate funding Incentives for Micro-Enterprises:
Starting from 1 January 2007, several amendments are brought to the micro-companies taxation regime. Thus, the companies that have opted for the micro-company regime (annual turnover up to EUR 100,000 and between 1 and 9 employees) must fulfill a new condition, namely they have to derive more than 50% of their income from activities other than consultancy and management. Also, the income tax rate is 2% of revenues earned in 2007, 2.5% of revenues earned in 2008 and 3% of revenues earned in 2009. The income tax is payable each quarter, by the 25th of the month following the quarter for which the tax is paid. If during a fiscal year a micro-company derives revenues higher than EUR 100,000, it becomes a profit tax payer starting from the quarter in which the limit was exceeded; its first tax computation should include all revenue and expenditure from the start of the fiscal year.
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EU Funding
EU funds are a type of public support. As a result, EU funding is regulated by state aid thresholds. Focus is placed on SMEs that are regarded as the most flexible type of company, likely to increase the competitiveness of EU products. The following activities may benefit from EU funding: acquisition of fixed assets (buildings, equipment); acquisition of intangible assets (patents, trademarks and know-how); research & development; IT development; human resources; participation in fairs and exhibitions; standardization and certification of companies.

ALLOCATION of EU FUNDS 2007-2013 (millions Euro)

Operational Program SOP Competitiveness SOP Development of Human Resources SOP Environment SOP Transport Regional Operation Program Allocated Funds 3,011 4,089 EU Funding 2,554 3,476 National Funds 457 613

5,611 5,698 4,383

4,512 4,566 3,726

1,098 1,132 657

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Key locations Romanian manufacturing companies (national companies)

Key locations: brand owners

GERMANY CONTINENTAL AUTOMOTIVE PRODUCTS (Timisoara, Sibiu) CONTINENTAL AUTOMOTIVE SYSTEM tyres, software CONTI TECH LISA DRAXLMAIER (Pitesti, Satu-Mare, Timisoara) cable and wires PHOENIX AG - (Carei) - rubber car parts KROMBERG & SCHUBERT - (Timisoara)-car cables DAIMLER-CHRYSLER (Cugir) gear boxes INA SCHEAFFER (Brasov) bearings; HONSEL- (Slatina)- casting alloys LEONI WIRING SYSTEMS - (Arad, Bistrita) wires&cables BAUMEISTER & OSTLER - (Arad) aluminium and plastic car parts SIEMENS AUTOMOTIVE (Timisoara, Iasi ) software SCHLEMMER (Satu Mare) MARQUARD SCHALTSYSTEME (Sibiu) HELLA (Timisoara) electronics FRANCE MICHELIN - (Floresti, Zalau, Bucharest) - tires VALEO - (Pitesti) - electric wiring systems SNR ROULEMENTS - (Sibiu) - bearings FAURECIA - (Sibiu) - seats covers AUTO CHASSIS INTL. (Mioveni) - auto chassis RENAULT-NISSAN (Pitesti) gear boxes

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Key locations: brand owners

JAPAN SUMITOMO ELECTRIC WIRING SYST. - (Hunedoara, Deva, Orastie) - wiring systems YAZAKI CORP. - (Ploiesti, Arad) - wiring systems KOYO SEIKO - (Alexandria) - ball bearings TAKATA CORP. - (Arad) - airbags and steering wheels CALSONIC KANSEI (Poiesti) - air condition and cooling units USA JOHNSON CONTROLS - (Mioveni, Ploiesti) - seats HONEYWELL GARETT - (Bucharest)- spare parts for turbochargers ALCOA FUJIKURA INC. - (Chisineu-Cris and Caransebes) - wire harnesses DOW AUTOMOTIVE - (Pitesti) - chemical compounds BORLA ROMCAT - (Curtea de Arges) - mufflers, catalizers LEAR CORPORATION - (Pitesti) - wiring systems DELPHI (Iasi) car components DELPHI PACKARD - (Sannicolau) - wiring systems TRW (Timisoara) steering wheels DURA AUTOMOTIVE - (Timisoara) ITALY MAGNETTO GROUP - (Dragasani) - wheels MOMO - (Brad) - steering wheels PIRELLI - (Slatina) steel cord and tires

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