IMPETUM Group has kicked off the 10th edition of the CONFIDEX study, the sole longitudinal study in Romania that, over the past four years, has been measuring the confidence of Romanian business professionals in the economy. Entrepreneurs and top executives from Romania are invited to complete the questionnaire in order to assess the confidence in the Romanian economy. Everyone who wants to fill in the Impetum Group survey please click here.

The preceding edition of the CONFIDEX study, conducted in S2 2023, revealed a decline in the business confidence index in the economy to 48.1%, down from 50.2%, the peak value of the index since its inception in 2020, recorded in the first semester of the previous year. This cautious optimism among Romanian managers coincided with several European states entering recession and significant tax reforms adopted by the Government, which sparked considerable concerns and pessimistic forecasts. Despite 62% of the managers surveyed in the previous semester anticipating a downturn in the national economy, official figures on the evolution of key indicators in the domestic economy available to date do not substantiate this pessimistic outlook.

So, Andrei Cionca, co-founder and CEO of Impetum Group, talked about his efforts to develop one of the most complex instruments to assess the health and dynamics of the Romanian economy – the CONFIDEX index, and about the challenges of scaling up the most dynamic local private equity business.

Launched by the Impetum Group in the midst of the pandemic to try and make a sense of what was happening during one of the most challenging periods for Romanian businesses, the CONFIDEX index has grown into one of the most complex tools currently measuring the confidence of managers in Romania and a forecasting tool for trends in the local economy. But things will not stop here, because Andrei Cionca plans to turn it into a highly qualitative content platform, where local entrepreneurs and managers can find the knowledge they need to take key decisions for their businesses.

His other challenge is to have Impetum Group’s private equity business make the leap from startup level to a level where it can help more Romanian businesses grow, consolidate and develop into regional champions.

“We got into this story, driven by the desire to make a real impact and realizing that there are no such tools on the market,” says Andrei Cionca, who used his experience running the biggest insolvency and business restructuring business in Romania (CITR) to launch and develop a new set of instruments for financing local businesses.

The tool set developed by Impetum now consists of a private equity firm – ROCA Investments, a growth fund – Agista, and a venture capital fund – ROCA X, managing combined assets of about EUR 100 million.

“We have Proof of Concept, we have track record, high yield, two exits, and very good team. Now all we need is to convince more investors to join our funds and help us scale this, because we know this will bring benefits to the whole Romanian economy.”

The previous edition of the CONFIDEX index, launched last fall, which measures Romanian managers' confidence in the economy. Why did you undertake this not-so-simple endeavor of collecting market data and calculating this barometer, and how has CONFIDEX evolved since launch to date in terms of number of participants and representativeness?

Andrei Cionca: We started CONFIDEX during the pandemic and we initially thought of it as a crisis journal, that is, we wanted to better understand how Romania's economy would react, considering that at that time there was a total lack of predictability. First, we initiated some online debates where we just wanted to take the pulse of various sectors of the economy, from banking, industry, HoReCa, and so on. The moment we realized that things were working, we decided to also do a confidence study, to go a little more in detail and test how much confidence managers have in the economy, in their sectors of activity, in their companies, and that's how we arrived at this index that consists of 29 items, that is, a rather complex thing.

Obviously, being so complex and because we wanted to have representative samples of all the main sectors that make up the GDP, which necessarily requires a large number of respondents, we ran into the problem of data collection. We tried to work with polling firms to help us collect responses, but we quickly realized that there was no one with a proper database who could take on the responsibility of collecting so many results.

That’s why we took it upon ourselves to do this internally and to use the very large exposure we have in the economy, both through the insolvency business and through the investment funds, which already have 65 investments in Romanian companies.

However, although we know the market and have visibility over the studied sectors, the creation of CONFIDEX is not an easy mission because the index now covered seven sectors and three turnover categories, namely small, medium and large companies, and in order to have representative samples for each sector and category we must collect a minimum of 500 respondents. Usually, the company's activity is blocked for two weeks while we gather answers for CONFIDEX.

How do you propose to develop the CONFIDEX project further?

Andrei Cionca: From the very beginning when we launched the journal and made the first index, we realized that the project could be developed. After nine editions, we realize that it is slowly migrating to a content platform. Why? Because when it comes to understanding the economy, we have a very large gap between macroeconomists and analysts, who understand the evolution of the economy at a deep level but have a relatively closed circle in which they communicate these things, and the large mass of entrepreneurs, small and medium-sized companies who don't have access to this super quality information.

Thus, CONFIDEX, through the tools it will develop, will become a content platform where we will have, on the one hand, information about perception, which looks at the past, present and future, and the dynamics of this perception, over which we also overlay data from the real economy, from the INS, from the Ministry of Finance. And then we can make many parallels and draw conclusions.

Long story short, CONFIDEX, which started as a crisis journal, then as a confidence index, will slowly become a highly qualitative platform, where we meet perceptions, reality, past, present and future, macroeconomics, microeconomics, sectoral and divided by turnover level, in essence an extremely complex tool that provides sufficient information to help us better understand the dynamics of the Romanian economy.

Returning to the CONFIDEX index for the second half of 2023, the data show that managers in Romania are somewhat more pessimistic than in the first part of the year in relation to the prospects of companies and the evolution of the economy, but we see that most respondents are open to exploring alternative sources of financing. What are the first conclusions you draw from these results?

Andrei Cionca: One of the 29 items of CONFIDEX that I think shows very well the mental state we are in is the worry-relaxation indicator, which has a scale from 0 to 10, where 1 means very worried, 10 means very relaxed. In the first semester, this indicator stood at 5.5, and now we are at 4.8.

We also divided the respondents into three broad categories, namely worried, cautious (those in the middle), and relaxed. The percentage of those who are relaxed has dropped from 41% in the first semester to 26%, but I wouldn't say that managers are very worried. I think the word we can use very appropriately is cautious. Romanian entrepreneurs and managers have become more cautious than they were in the first half of the year.

Based on the measurements of the last three years, we noticed that there is some seasonality, in the sense that in the session of the first semester respondents are more relaxed and optimistic, and in the second semester they become more worried and pessimistic. We explained this seasonality by the fact that winter brings more unknowns. Year-on-year, however, the numbers show us that respondents are currently more relaxed, or less worried, than last year.

However, these measurements must be correlated with the macro data, which show that things are not improving, that Romania's economy continues to accumulate debts, that some bubbles continue to grow. Another indicator tells us that the general level of indebtedness of Romanian companies increased in 2022 versus 2021. We have some unresolved problems that keep being postponed due to the protectionist policies of the state and banks. We see a small number of insolvencies, which means that the problems are not solved, they are only pushed into the future.

In this context, we believe the respondents being less worried this year than last year does not necessarily mean that the situation of their companies is better, but that they have become more used to stress and unpredictability and that they no longer worry so much.

We can even talk about an over-confidence phenomenon that is not necessarily based on real data from companies or the economy, but comes from the three years of continuous and very diverse trials to which Romanian managers were subjected.

In fact, we have another indicator that confirms this phenomenon of overconfidence. We measure every time the level of trust managers have in their own companies, in their sector of activity, in the Romanian economy, in the European economy and in the global economy. And for nine editions, the figures tell us the same thing: respondents have the most confidence in their own companies, somewhat less confidence in the sector they belong to, and the least confidence in the national economy. The problem is that this discrepancy has been growing. At the last count, 29% of managers say the situation in their own company will get worse in the next six months, while 25% say it will get better - a somewhat balanced perspective. When asked instead about the national economy, 62% say the situation will get worse, which is almost two-thirds. And the question is how can we explain such a pessimistic perception of the economy when we have balanced expectations for our companies and we, the 550 respondents, form the economy. The answer is that we probably don't trust the national economy as a whole, or we're overconfident about our own companies, or we exaggerate both.

How do CONFIDEX results help your investment activity and other group activities?

Andrei Cionca: We do not make this index to have a direct benefit. But this measurement, the qualitative interviews we do, and the composite index we calculate for each individual sector help us assess the results of the companies in which we have invested.

Thus, according to CONFIDEX, the most optimistic are energy and IT managers, who have a confidence index of over 50, and the most pessimistic are those in agriculture with 45 and industry with 47, which shows us the most affected sectors, which in our portfolio are the most affected. So, we have confirmation that there’s nothing out of the ordinary in our portfolio and that it aligns with the economic reality perceived by the managers.

CONFIDEX also helps us to better understand the general mental state of Romanian managers. If we as managers are more optimistic we shorten a possible crisis and if we are more pessimistic we prolong a possible crisis, so it is important to know how we are at every moment.

Another signal we want to highlight is that the CONFIDEX index for large companies is higher than the CONFIDEX index for small companies. So, the conclusion is that we need to form some bigger companies because they are more resilient to the crisis. This is a very good message for us as an investment fund.

Furthermore, I asked the managers how many of you are open to attracting an investment fund in their companies? And 55% said yes, they are open to this perspective, of which 45% said they are open to it in the immediate future, which shows not just an option in principle but an immediate need to attract such investment.

Also, when we asked what their concerns were, 15% of managers said cash flow was starting to become a pressing issue for them, up from 5% in the first half. Even if the percentage is not high, the dynamics show the problem of indebtedness and cash flow of companies, even in this friendly environment where the state and banks do not put pressure on them yet, is a growing concern of managers and makes them much more open to find sources financing alternatives.

So, there is a lot of information that Romanian managers provide through CONFIDEX and which, once interpreted, provides us with some extremely useful conclusions about the health of the Romanian economy.

*This interview was written by the Romania Insider team for Impetum Group.