Most businesses have focused on slashing costs in recent years and the tendency may maintain, but it is high time businesspeople also focused on generating income by developing or introducing new products or tapping new markets.
Access to funding, the ability to diversify funding sources and funding cost optimization have become competitive advantages to a great extent, so that any business strategy should include them.
At the same time, the drive to boost competitiveness through innovation and research should be included on companies’ business agenda and investment budgets in 2015, in Big 4 leaders’ opinion.
Entrepreneurship and the ability to identify opportunities are crucial and the concept of entrepreneur and family business should develop, with the IT sector as the “model”, the consultants say.
Economic growth will top 2% this year, mainly supported by domestic consumption. The main challenges envisage infrastructure investments, bringing new life into the capital market, cutting red tape and corruption, making the public sector more efficient and transparent or maintaining fiscal and political stability.
The M&A market will see further growth and financial services, energy, IT, healthcare and real estate will be the most dynamic industries. The audit and consulting services market will also grow, but at a tepid pace, forecast Big 4 heads.
The economy in 2015. Strengths and vulnerabilities for the Romanian economy
Bogdan Ion, country managing partner at EY Romania and Republic of Moldova
I expect the Romanian economy to post a 2-3% growth in 2015 as well, below its potential and below the level needed to cover structural gaps to West European economies. Europe’s macroeconomic trend will not help us in 2015, as expected growth in the European space will steel be moderate. This is why, considering Romanian exports’ dependence on the European economy, I expect the advance of the local economy to no longer rely on the net contribution of exports as much as it has in recent years. The driver of growth in 2015 should be especially represented by private consumption.
And, in terms of fields of activity, I expect IT&C, with the second largest contribution to GDP growth in the first 9 months of 2014, to further contribute to GDP advance beside industry. On the other hand, as infrastructure investments are dragging and support schemes are scrapped, we see some players in the energy and infrastructure fields withdraw.
Strengths of the economy: the 5% cut in CAS for employers in the autumn of 2014, maintained in budgetary projections for 2015, can be a spur for companies to resume investments in 2015. Also, cutting the special construction tax from 1.5% to 1% is a good sign fiscally for the current year. We might see the adoption of the governmental strategy for SME development as a positive sign as well, but it remains to be seen whether moves with concrete and concerted results are confirmed in this field.
Serban Toader, senior partner at KPMG Romania
Romania has made constant progress in the past two years and the economy returned to growth. Asked about the trend of the Romanian economy, we will hear many voices saying infrastructure, education and health should be on authorities’ agenda. I say that if everybody does their jobs with modesty and professionalism in their field of activity, it is impossible, now in the era of information, for them to fail. But, as I said, it takes seriousness and attentiveness in everything we do.
I cannot help but think of a trivial, but important instance that can hinder us from making progress for a long time to come: rail and road infrastructure are in a poor state, hampering investments. The government should turn infrastructure projects into a priority, using EU funds.
Vasile Iuga, country managing partner at PwC Romania and managing partner at PwC Southeastern Europe
For Romania, 2014 was one of economic growth consolidation and 2015 outlooks are positive provided that the regional and global situation should not deteriorate. Romania should focus on the economic policy issues it can address: boosting infrastructure investments, making the public sector more efficient and cutting red tape and corruption, adopting a well conceived legislation, reforming major public systems. As regards Romania’s strengths, as the second largest country in CEE it has a favorable geographical position, at the crossroads of major commercial routes and with access to the Black Sea region, offering it great advantages for the transport and logistics fields. A well devised and implemented economic growth plan can turn it into a EU gate to and from Central and Eastern Asia.
Through the wide range of its energy resources, geographical position, export potential and the still unexploited deepwater reserves, Romania can become a regional energy hub. Romania also boasts an indisputable agricultural potential. Least, but not least, the country currently enjoys macroeconomic stability, regained after painful moves made during the crisis. However, Romania has always performed well from a macroeconomic point of view.
Ahmed Hassan, country managing partner at Deloitte Romania
For Romania the macroeconomic fundamentals will remain similar to 2014 but it is difficult to see if the projected GDP growth around 3 % would be possible. I believe despite good business and consumer sentiment, the growth rate will remain similar to 2014, i.e. closer to 2% rather than 3%. Key vulnerabilities for Romania remain – the need for credit growth, potential for political changes, fluctuating currency markets and reforms in large companies in the state sector that still have to be completed.
Romania should focus on Talent agenda. Both the State and the private sector should adopt strategies to stop brain drain. Training of work force and better working conditions will not only ensure higher retention but also improve productivity.
Good news is that corruption is being tackled but much more is needed to be done. Similarly red tape should be removed in order to allow the SME sector to grow. In my view, bureaucracy (red tape) is as much of an issue for SME as financing is.
Let’s say a tricky 2015 is expected for both Eurozone and to a certain extent for Romania as well.
The M&A market in 2015
Bogdan Ion
The M&A market has grown at a faster and faster pace in recent years, but it is still below the pre-crisis level. The most dynamic industries in 2014 were the real estate, financial services and energy ones, with the fields set to register further deals and consolidation in 2015. Other fields, such as telecom, healthcare and retail, will also be dynamic in terms of M&A activity. There is potential for major deals in 2015. At the same time, we expect the companies that entered the portfolio of investment funds more than 5-6 years ago to be subject to an exit process in the next two years.
It is the same financial investors that are considering investment opportunities in the field of manufacturing with export potential, consumer goods and services and healthcare. However, the trend of the M&A market in 2015 highly depends on foreign investors’ confidence in the Romanian economy’s growth potential and in the predictability of the fiscal and regulation environment, but also on the external context (the European economy, sanctions against the Russian economy) and the direction of external capital flows in emerging economies.
Vasile Iuga
While the M&A market is still far from the pre-crisis level, there is rising enthusiasm and interest among investors, with some fields being highly dynamic in 2014, especially the banking field that registered several notable deals. For 2015, we expect stepped up M&A activity, possibly spurred by several big deals in fields such as cement industry, electricity distribution, the banking, IT and telecom fields, the private healthcare market, media and advertising, agriculture and the food industry.
Ahmed Hassan
There should be some activity especially within the financial services and real estate.
The business strategy recommended to companies this year
Bogdan Ion
Romanian companies will grow even more aware of world economy trends in 2015, such as fast digitalization, and the need to take them in. Romanian companies still perceive competition as mainly having low costs as the main advantage, according with the latest edition of EY A Vision For Growth. Considering this perception, the cost-cutting drive will still be the main concern of businesspeople in 2015.
At the same time, though, boosting competitiveness through innovation and research, brand strengthening, digitalization should also be included on business agendas and in investment budgets in 2015.
Considering over 50% of businesspeople were confident or highly confident in September 2014 in the growth of the industry they operate in, investments should now be resumed. Also, access to funding, the ability to diversify funding sources and funding cost optimization have become competitive advantages to a largest extent, and hence any business strategy should include them.
I believe the importance of entrepreneurial companies and the development of a dynamic entrepreneurial environment have become obvious for us all. Entrepreneurs mean job creation, economic growth and innovation. It remains to decide on the most efficient moves to improve the core pillars of entrepreneurship: regulation and taxation, education, coordinated support from specialized associations, access to funding and entrepreneurial culture.
Considering youths’ interest in entrepreneurship, these need to be supported. All the public policies need to be devised taking into account implications over SMEs.
Serban Toader
Entrepreneurship and the ability to identify opportunities are crucial. The concept of entrepreneur and family business needs to be developed. The IT field should be the model considering there have been several notable successful entrepreneurs in the field. We provide services for fledgling technology companies. We particularly provide assistance as regards international markets, we bring startups together to blend ideas and we provide fiscal assistance and consulting “clinics”. We try to invest in innovation. This bring cultural change.
Vasile Iuga
In an extremely volatile context, which might also reflect locally, companies should focus on process optimization and improving performances and productivity, on cost control, but always bearing company strategic targets in mind. For family businesses, according with PwC Family Business Survey report, a major challenge will be the need to professionalize the business, amid the tight pressure over prices, rising costs. This needs to be doubled by a “professionalization” of family and its relationships with the company.
Romanian entrepreneurship is going through one of the most important stages of its evolution since 1989 until now, the first generation change. The stage will end either with keeping the business in the family, either with sales and unfortunately even with the disappearance of some companies. The size of these changes is hard to fathom, but we are sure to witness success stories, but also dramas.
Ahmed Assan
Most businesses have focused on cost efficiency in recent years and it now the time to focus on revenue generation through developing/introducing new products or penetrating markets. Better Financial management and strategies will help businesses to take manageable calculated risks. The following industries have a potential to grow:
· Retail and Consumer business will have small growth due to better consumer sentiment but nothing spectacular should be expected
· IT&C sector may start to do better on the back of influx of shared service centers and software developers
· Automotive and Agriculture will remain large contributors but lots depends on external market conditions
(English version by Catalina Apostoiu)