January 25, 2008 / 4:28 PM / in 11 years

Nokia finds Romania's hidden labor force

CLUJ, Romania (Reuters) - The tiny village of Jucu in northwestern Romania, which will host a new factory making Nokia mobile phones, currently earns its livelihood from farming vegetables such as peppers, tomatoes and eggplants.

The Nokia 1100 phone is seen in this file photo taken in Stockholm May 3, 2007. The tiny village of Jucu in northwestern Romania, which will host a new factory making Nokia mobile phones, currently earns its livelihood from farming vegetables such as peppers, tomatoes and eggplants. REUTERS/Bob Strong

It doesn’t have a full-time doctor, a school-house or indoor toilets. Some 60 houses don’t have running water. But it does — still — have relatively cheap labor.

A decision by the Finnish mobile handset giant to move a major production line to Romania this year sparked rage in Germany over job losses, but in the nearby city of Cluj in Romania it calmed fears foreign investment was drying up.

Over the past year, alarm bells have been sounding all around eastern Europe about a rising shortage of labor that may stunt the growth and long-term development prospects in some of the poorer regions.

“In our area we are only missing workers in the construction sector,” Nicolae Beuran from the Cluj chamber of commerce told Reuters. “Many builders went to Germany, some went to Spain or wherever else they got paid more.”

The fears are that ballooning wages and migration to western labor markets have eroded the competitiveness of manufacturing in eastern Europe and could stop an influx of foreign cash.

Industry observers say Romania is missing hundreds of thousands of workers in some sectors since migration depleted the workforce. Roughly one in 10 Romanians lives abroad.

But Nokia appears to have found a pocket of labor supply around Cluj, a Transylvanian university town dating back to the Roman era, where residents hope that thousands of graduates will attract foreign cash and well-paid jobs.

“We can offer what we have,” said Beuran. “We are a big university centre and have a hundred thousand qualified students.”

Even though unemployment is as low as three percent in Cluj, local officials say foreign investors are managing to attract labor by paying more than local employers.

Average pre-tax salaries are 450 euros a month in Cluj — one seventh of levels in Germany’s state of North Rhine-Westphalia which includes Bochum, the economically depressed region that Nokia is to quit for Romania.

The pay is still low despite Romania’s double-digit real wage growth in recent years as it speeds up towards western European living standards and taps cash from the European Union, which it joined a year ago.

Some foreign manufacturers complain about skill shortages, while the state Employment Agency in Cluj says there is a “crisis” in the labor market.

But city authorities say there is more foreign investment in the pipeline. According to city council head Marius Nicoara, Cluj is talks with several companies, including a large U.S. firm in the auto industry which wants to invest $200 million.

“We are in advanced discussions with other investors but can’t offer them as much land and electricity as they want. So we are in a great position to choose,” he said.

MODERNISATION

For Cluj and the impoverished countryside surrounding it, Nokia’s 60 million euro ($88 million) investment spells a promise of much-needed government cash, modernization and basic facilities.

“We need many things here and I hope they will be resolved faster thanks to Nokia,” said Jucu mayor Dorel Pojar. “Since its arrival, there is a prosperous future ahead of us.”

He hopes the Bucharest government will funnel more cash — and faster — for development projects and infrastructure to spruce up the area, a long valley surrounded by farmland and barren, greyish-brown hills.

Local authorities in Cluj say they are investing dozens of millions of euros on infrastructure projects in the region, building up roads, water networks and industrial parks to bring in foreign manufacturing.

A multi-billion-dollar highway project connecting central Romania with western Europe through Hungary is planned to run just km away from Jucu.

“I will work if I can find work,” said Ana Gherman, 66, a pensioner from Jucu who used to bake biscuits and make juice for the village bar. “I could be a babysitter for a family which moves here to work for Nokia.

“But if it doesn’t happen for me, the Nokia plant is still a future for the children here.”

Nokia, which plans to start production in Jucu in the first quarter, reported a 57 percent rise in its October-December earnings per share on Thursday, with booming demand in emerging markets boosting its global market share to 40 percent.

The company declined immediate further comment on its choice of Romania, but has said the move aimed to lock into lower wage costs to defend its profit margins: at just under 24 percent on cellphones, these are already much stronger than its rivals.

Local authorities hope the boost to the region’s economy should ensure sustainable growth even if Nokia moves factory again after some years.

Like Germany’s Bochum, which has lost its historic mining and steelmaking industries and now is about to see 2,300 Nokia jobs disappear — Cluj lost much of its heavy industry following the 1989 fall of communism.

“Romanians are used to bankruptcies. When we had those, we found solutions, we went abroad to work,” Jucu’s Pojar said.

“Even if Nokia leaves in five years, we will remain with lots of good things, roads, indoor plumbing, etc.”

(Additional reporting by Marius Zaharia in Bucharest)

Reporting by Justyna Pawlak; Editing by Sara Ledwith

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