duminică, 9 martie 2008

Foreign investment: Pioneers find a gateway to new eastern markets


Radauti, in Bukovina, on Romania’s north-eastern border with Ukraine, has a harder time attracting investment than the strategically-located cities of Transylvania.

A look at the map gives part of the explanation: where cities such as Cluj or Brasov are on the main routes heading west, guaranteeing easy access both to Romania’s large domestic market and to the markets of the wider European Union, Suceava county looks to the non-EU markets of Ukraine, the post-Soviet Commonwealth of Independent States, and Moldova.

Traditionally, timber was the region’s dominant industry, and even today the area around Radauti contains 30 per cent of the soft-wood timber in Romania, though the small-scale furniture manufacturers that once made up the bulk of the region’s economy employ very few today.

Last year, two private Austrian companies arrived in Radauti with the aim of turning the region’s drawbacks to their advantage.

Schweighofer, which operates sawmills, and Egger, which manufactures chipboard, decided together to open neighbouring facilities in the town.

For the two companies, proximity to eastern neighbours was a definite advantage. Nichifor Tofan, director of Schweighofer’s plant in Radauti, explains: “The decision for the location of Radauti derived from the availability of raw material in the Suceava area and the direct connection with the Ukrainian railway system and the possibility of importing logs more easily.”

The neighbouring plants have a private railway siding with parallel tracks in both European and Russian gauges. Schweighofer imports logs from Ukraine, while Egger sells its chipboard – used for making furniture – to neighbouring markets, including those of the CIS. For them, the local traditions in forestry, and access to the east, are strong attractions.

Nor was the remoteness necessarily a barrier, for Schweighofer, at least. “About one quarter of the production will supply the Romanian market, and the rest is for export – especially to Asian countries. Japan is the most important market for us, taking about 50 per cent of our production,” Mr Tofan says. Meanwhile, Egger’s sales office is taking orders from throughout the region, selling to Ukraine, Russia, Azerbaijan, Turkey and Greece, as well as the domestic market.

Schweighofer’s primary output is lumber for construction. Waste wood that is a residue of the cut timber is then passed to Egger’s neighbouring plant where chipboard is manufactured.

Both investments are substantial – Schweighofer’s plant in Radauti will cost €120m, when complete, and will employ some 500 people. Egger’s factory is a €200m investment and will be staffed by 700 workers.

While the companies were to some extent obliged to set up shop near their raw materials, a remote location poses challenges. The logistics of getting products to market are proving a headache.

Mr Tofan is particularly dissatisfied with the performance of the state railway, which has forced Schweighofer to turn to more expensive solutions for its other Romanian plant, which sells to EU markets. “The national railway is not competitive enough. Three years ago we transported 90 per cent of our goods to Europe by rail, but today it is all transported by trucks.”

Amenities can also be lacking in a provincial town. In particular, the lack of adequate accommodation for visiting staff and customers led the company to build a four-star hotel to house them, costing a further €6m. It has proved a blessing in disguise: the venture is already turning a profit, by providing lodgings for tourists visiting a region famous for its natural beauty and ancient monasteries.

Staffing is another challenge. Employment prospects are not as bright in Bukovina as in faster-growing parts of the country as it has attracted relatively little investment. But Suceava county has contributed many of the migrant workers who have swelled the Romanian diaspora in Italy and Spain. Some villages have lost half their population to the exodus.

Even if employees can easily be found, the kind of highly automated industry that the two companies are bringing to the area demands very different skills from the smaller-scale workshops they are replacing. “It is not difficult to hire enough people,” Mr Tofan says. “But it is difficult to hire qualified personnel. Regardless of educational background, only a few local people have had the chance to work with high technology machinery before.”

Egger’s investment was partially funded by the European Bank for Reconstruction and Development, which loaned the company €110m and spent a further €17m acquiring an equity stake in the Egger subsidiary that operates the plant.

The investment fits well with the bank’s new strategy of focusing on private investments in less-developed parts of Romania. Peter Southie, the bank’s principal economist for Romania, says: “Part of our new strategy will be to bring more investment to the regions. There’s less scope now for us to do things around Bucharest.”