As the European Union (EU) continues to expand, so too do the opportunities for trade. Joanne Birtwistle takes a look at the EU's two newest members, Romania and Bulgaria
With their dramatic mountain scenery and coastlines on the Black Sea offering a cheaper alternative to skiing in the Alps or lazing on the Costa del Sol, Romania and Bulgaria have become increasingly popular as European holiday destinations. But their entry to the EU in January 2007 should mean that North West companies find it easier to access trade opportunities in these Balkan countries and provide further boosts to their economies beyond tourism.
The EU can be easier to access than other overseas markets because many of the trading practices, regulations and standards apply throughout the single market. But what opportunities are there in the new ascension countries for North West companies? After all, Romania and Bulgaria have now contributed more than 30 million new consumers to the EU's internal market: 22 million from Bulgaria, 7 million from Romania.
These two are the poorest members of the EU, with GDP per head at about a third of the average. Together they make up 6 per cent of the EU's population, but less than 1 per cent of its GDP. But both are growing quickly, so it could prove wise to get in now before their economies really take off.
Bulgaria is undergoing a major shift from a predominantly agriculture and manufacturing economy to a service-focused one.
"The upgrade and further development of the economy towards EU standards is a long-term effort and requires substantial amounts of overseas investment and foreign expertise," says Kenneth Broux, financial markets economist at Lloyds TSB Corporate Markets, who adds that areas of particular demand are tailored towards services and infrastructure and, more specifically, towards telecoms and electrical machinery.
Exports from the UK to Bulgaria totalled £3320m in 2005, an annual increase of 40 per cent that is partially the result of strong economic growth and trade agreements between the EU and Bulgaria. Broux expects exports to continue to grow over the next few years as Bulgaria continues to raise its living standards and modernises its economic infrastructure.
He adds that Bulgaria has been successful in positioning itself as a business location because of its favourable tax structure. "Corporate profit tax was 15 per cent in 2006 and new legislation is proposing a decline to 10 per cent in 2007. This is roughly one-third of the current UK corporate tax rate," he says.
Romania, meanwhile, has twice the value of an export market for the UK at £3648m. The UK is already one of the leading foreign investors in Romania, with close to x803.5bn of direct investment, and key markets include automotive, ICT, financial services and transport. Around 200 UK companies have a presence in Romania, which Broux again says "is possibly linked to the favourable corporate tax regime, set at 16 per cent - half the UK rate".
Romania's strong economic growth is expected to drop towards 5 to 6 per cent in 2007 because of macro-economic reforms that will help steer the country towards membership of the euro. "A reduction in inflation may require higher interest rates and this may cool economic activity to a more sustainable level in the future," says Broux.
Colin Gardner is the director of the International Trade Centre (ITC) for Greater Merseyside. He says there are many North West companies doing business in Romania, citing Stanley Leisure, Halewood Vintners (the makers of Lambrini) and United Utilities as examples. "Then there is a whole raft of UK companies involved in the supply chain for environmental remediation, freshwater and waste-water treatment, and infrastructure development" some of them from the North West, but all of them benefiting from a slice of the x803bn that the EU granted to Romania prior to accession this month," says Gardner.
Indeed, Bulgaria will receive x8011bn of EU financial assistance between 2007 and 2013, while Romania will get x8013bn, to improve infrastructure and bring standards in line with the rest of Europe.
Rainford-based Showers and Eyebaths Services is interested in targeting emerging EU countries, precisely because this money is available. "We are very much legislation driven - we benefit as people are forced to improve their health and safety," says managing director Allen Yates, who has already made some headway in Romania and says a visit to Bulgaria could be on the cards too.
The company, which employs 12 and had a £3700,000 turnover in 2006, makes and installs emergency safety showers, decontamination units and eyebaths. Its products are used in industries where people work with hazards, such as in the chemicals industry, water authorities (United Utilities is the company's biggest customer in the UK), and offshore gas and oil.
Showers and Eyebaths Services already exports to countries all over the world, including Australia, Saudi Arabia, Russia, Finland and Germany and in 2005 - the same year it won the North West Passport to Export award for the Greater Merseyside area from UK Trade & Investment - it started exporting to Romania.
Yates certainly knows where to start. Petrom (privatised in 2004) is the largest gas and oil group in the country. It ordered a couple of units from Showers and Eyebaths Services that were suitable for its off-shore locations. "We can adapt our products for any environment and Petrom wanted them to be suitable for marine use. Under salt conditions, stainless steel can be attacked, so we did one that was suitable for that, which we stress analysed," explains Janet Dickinson, operations manager for the company.
Then, in January 2006, the company went on a trade mission to Bucharest with the ITC. "That whetted my appetite to go out and meet Petrom and other companies in the chemicals industry such as Unilever," says Yates. "Petrom have got a few of our products and they obviously like them, so we are talking about going out there again."
One thing that struck Yates on the trade mission was how few Romanians were in senior positions at the companies he visited, with many being from Western Europe or educated in the UK. He adds that this could be because his high-end products draw the attentions of large multinationals, "so the smaller companies, who require a simpler product, would not normally go down our route".
But the point is also picked up by Chris Hyde, operations and sales director of international property agency and developer Eyes Abroad, who says that a lot of blue-chip companies are entering Sofia, Bulgaria, too. "The business park in Sofia is expanding all the time and major hotel chains like the Hilton, Radisson and Holiday Inn are building hotels there," he says. "A lot of UK businesses are relocating or having additional offices in Sofia."
Eyes Abroad is based in Stockton Heath, but also has an office in Sophia, which it opened in July 2006. Hyde, who organises inspection visits to properties, visited Sofia 17 times in 2006. He says the country has seen a huge increase in new-build properties over the last three years. But again, according to Hyde, a lot of the investment into Bulgarian new builds is coming from Western Europe.
"A lot of the developers that we are dealing with are Western European or Irish. They are controlling the development, although obviously the builders are Bulgarian. And some of our sales have gone to workers from English companies that spend time in offices in Sophia," says Hyde.
However, Andrew Lovelady, financial director of the Ethel Austin's Property Group is more cautious. "There's lots of media hype around Romania and Bulgaria being the new investment opportunity of Europe, but their economies are not well established and people are investing in a highly speculative market," he warns, adding that you only have to look at past examples to see the pitfalls of this. "Hungary saw a surge in property prices after joining the EU in May 2004, but values hit a plateau and then fell amid Hungary's endemic economic problems."
Ethel Austin's Property Group has invested in countries like Poland in Eastern Europe, which Lovelady says have more stable currencies and government. "We've avoided emerging markets like Romania and Bulgaria, which offer a more risky prospect. Any company considering investment in these countries needs to exert caution, know their market and do their research," he says.
And it may be worth bearing in mind that Bulgaria and Romania didn't join the EU in 2004 with other countries because they were slower to carry out political and economic reforms and are only now judged to have met the EU's basic membership conditions, with substantial ongoing EU funding a sign that yet more needs to be done.
Hyde says Bulgaria is a lot more secure now it has entered the EU, but admits that corruption is something the company has to deal with and protect itself from. "The corruption comes from Bulgarian developers, who offer us amazing deals, but the chances are that there is a land grab issue, so it might never get built or the quality could be inferior. So we don't touch those," he says.
"We get offered a lot of stock from Bulgarian developers, but we use professional firms in Manchester to perform our due diligence. We make sure that each of our developers has a clean title, that the land has been passed from agricultural to commercial and that he does own the land."
Gardner advises potential companies not to embark on an expansion into Romania or Bulgaria without a keen and trusted partner in the market: "There is still more than a vestige of serious bureaucracy, as with all the former communist states in Eastern Europe."
Also in: February 2007
-
A risk worth taking
Accustomed to innovation and risk-taking, Manchester has taken the plunge again with its new international arts festival. Lisa Miles meets the man who everyone's counting on
-
Can't stop the music
Stockport-based discount music retailer Music Zone called in the administrators in January. Does it mean the death of niche retail, or is it an example of bad borrowing on buyouts? Michael Taylor presses play