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ROMANIA



REPUBLICAN REFERENCE

Area (sq.km)
230,300

Population
22,364,022

Capital
Bucharest

Currency
Leu

President
Ion Iliescu

Private sector
% of GDP

40%

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Background:
Soviet occupation following World War II led to the formation of a communist "peoples republic" in 1947 and the abdication of the king. The decades-long rule of President Nicolae CEAUSESCU became increasingly draconian through the 1980s. He was overthrown and executed in late 1989. Former communists dominated the government until 1996 when they were swept from power. Much economic restructuring remains to be carried out before Romania can achieve its hope of joining the EU.

Update No: 063 - (23/07/02)

Communist comeback 
Twenty months ago Romania became a source of international concern. Voters were faced with a choice in the run-off for presidential elections between Vadim Tudor, an extreme right-winger known for his attacks on ethnic minorities, the Hungarians, the Jews and the Gypsies, and Ion Ilescu, a former communist. Iliescu had been in power beforehand in the early 1990s when his tenure was deemed one of the main reasons for keeping foreign direct investment (FDI) at bay.
Well, the Romanians went for the communist; and things have turned out remarkably well, so far. Instead of attempting vainly to turn the clock back, Iliescu and his ex-communist premier, Adrian Nastase, have pushed ahead with an energetic round of reforms, involving industrial restructuring and privatisation. The economy has picked up impressively. GDP growth, which was only 1.8% in 2000, became 5.3% in 2001 and is billed to be about 3.5% in 2002, a far from poor performance given the moribund state of Euroland, to which 70% of Romania's exports go. The government has regained international credibility with an IMF stand-by agreement worth more than US$500m.

FDI bonus
Romania was always likely to interest foreign investors at a certain point. It has an educated population. Communism, Romanian-style, had many failings; Ceaucescu, the dictator until his overthrow in December 1989, was a disaster. But the Enlightenment origins of Marxism placed an enormous emphasis on education. The view of Enlightenment luminary, Lessing, that history consists of "the education of the human race," was taken for granted. The Romanian intelligentsia and technocratic elite are beneficiaries of this tradition. Romanian computer buffs are among the best in the world and are much sought-after abroad.
It is not so surprising, therefore that foreign firms are coming into this large Balkan nation of 22 million people. More than US$1bn has been invested in each of the last three years; indeed more than US$1.2bn is expected in 2002, bucking a world-wide trend which has seen FDI fall by more than 50% over the last twelve months. 
The government is pursuing a new strategy of privatisation. Firms, which were considered unsaleable because of a chronic propensity to losses, are being sold for a symbolic US$1, with an agreement to write off state debts and a complete remit to replace existing management. Says privatisation minister, Ovidiu Musetescu, "these new conditions will allow more flexibility according to the specific needs of the companies."
A sale, prior to this practice, was to LNM Holdings of the UK, which bought Sidex, the huge steel firm in the east of the country. The deal caused a scandal in the UK because of a political donation when Premier Blair was intervening on behalf of the UK-based company with Nastase. The company employs 28,000, but hundreds of thousands depend on its cheap subsidised steel.
The government has also privatised Banca Agricola, the leading agrarian bank and Alro, an aluminium producer. All these were under the old dispensation. But the new system of knock-down sales and write-offs should see an acceleration of the whole process of privatisation.

Worker resentment grows
There is one problem which is that the ordinary workers are not seeing much in the way of benefit. Managers are well remunerated but not the workers on the shop floor. There have been cases where foreign firms have found their managers chased out of the factories by indignant workers.
In April, for instance, the US company F & P Holdings Inc. of Temple, Pennsylvania, faced just such a problem. Workers kept F& P's representatives out of the plant, despite its 92% stake.
"We didn't realise what strong-arm tactics would be used," says F & P's chairman, Frederick Giorgi. "If we'd had 20/20 foresight, we wouldn't have gone in."
The workers resent not just poor wages, but the new free market's downside of lay-offs, productions targets and profitability requirements. The FDI surge into Romania is consequently under threat. Setting up quite new concerns is another matter. But taking over old ones has its acute problems. 

Prospects ahead
The outlook generally looks good for Romania, albeit from a very low base. The government is doing well. 2001 was a particularly good year, with 5.3% growth of GDP and a spate of privatisations. It needs to keep up the momentum in a period of problematic growth in Europe as a whole.
EU membership beckons down the road, that is in the second wave about 2007-2010. NATO membership is also on the cards. But widespread corruption threatens both projects. The US has warned that unless it is tackled, NATO membership will be denied.
According to one Western diplomat, progress is being made. "The Romanians are finally understanding that armies do not qualify for NATO membership, but countries do. There has been a definite change of attitude in the past year."

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AVIATION

General Electric sets up aircraft company jv with Romanian firm 

With an eye on potentially lucrative NATO-related opportunities, General Electric's aircraft engines division has just formed a manufacturing joint venture with the Bucharest-based, Turbomecanica. But officials refuse to disclose details of the proposed investments, Rompres News Agency has reported. 
The newly formed company is to be called Turbomecanica Combustor Parts [TMCP] and details have been filed with the Trade Register Office. Work is now underway to renovate a production hall and buy the equipment, according to Stefan Popescu, board chairman of Turbomecanica. TMCP will produce combustor-related components, part of an aircraft engine, which burn energy to propel the aircraft. "If everything goes according to plan I think that we could start production by November," said Petrescu. TMCP will produce aircraft engines, at first for medium-sized carrier planes, according to Dan Ionescu, national executive for General Electric Romania. This is the first production unit GE has established in Romania," he said. 
Turbomecanica manufactures aerospace components and, since 1998, has been a supplier to GE Aircraft Engines and GE Power Systems, producing section parts for various gas turbine engines. GE Aircraft Engines, a division of GE Company, is a maker of jet engines for civil and military aircraft. Turbomecanica was set up in 1975 to make engines, mechanical components and equipment for aircraft. Among Turbomecanica's main products are Turmo, Spey and Viper engines and spare parts, upgrading of Puma helicopters, as well as parts for Rolls Royce. 
Ionescu said GE has been present on the Romanian market for the past 20 years and last year was involved in a failed privatization bid for Romania's largest engine maker, Electroputere. GE competed against other well-known names, including General Motors, Siemens and Karsdorfer Eisenbahngeselschaft, for the 62.47 per cent stake held by the Privatisation Authority. GE's offer was rejected. "As to Electroputere, we believe we made the best offer both for our company and Romania's interests," Ionescu said.

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BANKING

Volksbank Leasing Romania closes 1,500 deals in 4 months

Volksbank Leasing Romania finalised more than 1,500 deals worth 24m Euros, in January-April period of 2002, BBW quoted marketing manager, Octav Dumitrescu, as saying. Volksbank closed more than 3,600 deals in 2001, worth US$61m. Of the total, 99% was made up by automotive leasing agreements. Interest charged ranges between 13% on financial deals that top 51,500 Euros and 14.5% for deals that are under that figure, BBW wrote. 
Market sources were quoted as saying that although the domestic leasing market amounted to almost one billion Euros in 2001, the market has the capacity to expand to four or five billion Euros. This year's leasing market should amount to 1.5bn Euros. Volksbank Leasing Romania launched operations nearly two years ago.

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FOREIGN ECONOMIC RELATIONS

Romania, South Africa ready to strengthen bilateral ties 

Romania's government is willing to bolster its commercial ties with South Africa, according to Senate President, Nicolae Vacaroiu, iafrica.com reported. To do so, Romania will send more trade missions to the African state, the Romanian official was quoted as saying. 
Following an official four-day visit to South Africa, Vacaroiu told reporters that securing ties with South Africa will help Romania forge other investments across the African continent. "Both Romania and South Africa consider that with US$45m two-way annually, our economic relations are not operating to their potential," Vacaroiu noted. "In pursuit of our mutual wish to improve this, we will be developing more trade missions between Romania and South Africa," he added. "South Africa should be the gateway for Romania into Africa. Equally, Romania is South Africa's point of entry into central and southeastern Europe." Vacaroiu spoke with South African President, Thabo Mbeki, during his visit.

Romania, Georgian presidents discuss joint economic projects 

Romania's President Ion Iliescu on 1st July met his Georgian counterpart, Eduard Shevarnadze, and discussed the current joint objectives of Romania and Georgia, highlighting the mutual wish of the two countries to further and deepen friendship and collaboration ties, Rompres News Agency has reported. 
Iliescu pointed out the need for economic relations between the two countries to be enlarged, as their current level does not reflect their economic potentials, despite the existence of an excellent legal framework for substantial economic collaboration . The Romanian head of state added that a session of the joint Romanian-Georgian intergovernmental committee on economic, technical and scientific cooperation should be called that will boost mutually advantageous cooperation in the fields of energy, oil, gas, mining, metallurgy, textiles and leather industries, as well as in the fields of transportation, agriculture and building materials. 
The two heads of state said that the opening in 2001 of a ferry-boat line between the Romanian city port of Constanta and Georgia's Batumi port meant an important step forward towards the deepening of economic relations between Romania and Georgia, an opportunity the two heads of state said should be made the best of. The two presidents agreed that active involvement of Romania and Georgia in boosting general trade on the historical Silk Road connecting Asia to the Caucasus and Europe should also be aimed at. 
Given the traditional ties between Romania and Georgia, Iliescu and Shevarnadze highlighted the need for cultural, scientific and academic exchanges to be stimulated between the two countries. At this point, Iliescu presented the decision of Romania's government to extend aid of 3bn lei to the Antim Ivireanu High School of Tbilisi. The two heads of state also agreed that poverty is the main threat against democracy, which calls for all the necessary measures to be taken that will combat poverty and raise living standards. 
In connection with the domestic development in Romania and Georgia, the two heads of state highlighted the firm commitment of both countries to European and Euro-Atlantic bodies for the consolidation of democracy and a market economy at home. Iliescu and Shevarnadze attended together the signing ceremony of a customs agreement and agreement between the education ministries of Romania and Georgia.

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INDUSTRY

Unicorn Textile Romania prepares major expansion 

Unicorn Textile Romania (UTR), an industrial sewing thread distributor, is preparing to expand its bonded warehouse to 1,000 sq. m. from 420 sq. m. "The actual investment will not be very big, around US$5,000 because we already have the space," BBW quoted UTR's general manager, George Ektoras, as saying. "The most important part of this extension is that we have to apply to the customs officials to inform and get their approval for this extension." 
The company also hopes to inject some funds into the revamp of the Favil Ramnicu Valcea production machinery. "For the moment we have finished and will analyse their operation for the next six months," the general manager said.

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MINERALS & METALS

Romanian Environment Ministry approves new investment for gold mining 

The Rosia Montana Gold Corporation has received authorization from the Environment Ministry for the continuation of the investment in the exploitation of its deposits, Rompres News Agency has reported. 
The head of Alba Environment Inspectorate, Dimitrie Clepan said that Bucharest specialists approved the general urban development plan for the Rosia Montana village and the town of Abrud [western Romania], and also the zonal one which refers to the industrial development of the entire zone in the next 17 years. The Alba specialists will participate on 27th June in a debate, awaiting possible suggestions for the improvement of the two plans. Dimitrie Clepan said that if no special problems arise after the debate, the inspectorate will release the environment authorization necessary for the Rosia Montana Gold Corporation to develop the investment.
Industry and Resources Minister, Dan Ioan Popescu, said by the end of April that the preparatory investments for the project of exploitation of the gold and silver reserves at Rosia Montana, the biggest European project in the mining sector, could start this year. Minister Popescu added that in the preparatory stage, which will last about five years, between 10,000 and 15,000 jobs will be created for the works related to the project.
Subsequently, the Rosia Montana Gold Corporation, a joint venture with Romanian and Canadian capital, will use 5,000 workers for the exploitation of the reserves over a period of at least 20 years. 
The total value of the project-related investments is US$400m of which US$46m have already been allocated for feasibility and evaluation studies, environment projects and the protection of historic vestiges. The Canadian company Gabriel Resources took under concession in 1997 in exchange for US$3m, the land on which the future exploitation will be located. According to the final feasibility study ordered by the company, which holds 75 per cent of the shares of the joint venture established along with Minvest Deva, Rosia Montana mines have sure and probable reserves of over 300 tons of gold and over 1,600 tons of silver.

Government extends bid deadline for Alprom sale

Romania's Privatisation Agency (APAPS) has announced that the government has extended the deadline for any bids submitted for a controlling stake in Alprom, an aluminium rolling mill, according to BBW. The extension was granted after a request made by potential investors.
All bids must now be submitted by July 26th. The 69.92 per cent stake sale in Alprom's 170.4bn lei capital should be finalised by the end of this year, if it complies with World Bank standards.
BBW cited press reports as suggesting that potential investors include Romanian trader Metalexportimport, Russian aluminium producer, SUAL, and Greek group, Alumil.

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NUCLEAR ENERGY

EU to grant 237m euro to Romanian nuclear authority for new n-plant unit 

The European Commission experts will assess on 16th July in Brussels a report on the fulfilment of the nuclear safety requirements at Unit 2 of the Cernavoda nuclear power plant (southeastern Romania), that will lead to granting a 237m euro loan for the power plant's Unit 2, Lucian Biro, president of the National Commission for the Nuclear Activities Control told Rompres News Agency. 
"The British N&C company has recently completed an analysis of the nuclear safety improvements and the discussions that we are going to hold in Brussels will draw closer the deadline by which the EU finance will become operational at Cernavoda," Biro said. 
The Brussels meeting is organised by the General Department for Energy Transports - the Nuclear Safety Division. At the joint meeting with the European Commission's nuclear safety experts, the Romanian side will answer a range of questions about the manner in which the current requirements for nuclear safety are implemented at Cernavoda's Unit 2. The sum of 237m Euros will reach Cernavoda by the end of 2002, Biro explained. Unit 2 of the Cernavoda nuclear power plant represents the lowest cost alternative to a new electricity production capacity in Romania.

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TELECOMMUNICATIONS

OTE to take control of Romanian operator

OTE, the Greek public telecommunications group, has agreed to provide a US$250m capital injection for Romtelecom, securing control of the struggling Romanian fixed-line operator, in which OTE holds a 35 per cent strategic stake, the Financial Times reported on 2nd July.
George Skarpellis, chief executive of OTE International, a holding group for regional operations, said the capital injection underlined the Greek operator's commitment to upgrading Romtelecom's fixed-line network and expanding coverage by CosmoRom, its loss-making mobile subsidiary.
"There's good potential for revenue growth in Romania and we intend to develop our role in the market," he said.
OTE has invested more than US$2bn in the Balkans in a drive to become the region's dominant operator. It has a 20 per cent stake in Telekom Serbia, the state controlled operator, alongside Teleocm Italia, and controls mobile operators in Albania, Macedonia and Bulgaria.
The capital injection would enable Romtelecom to meet debt servicing obligations and accelerate restructuring.
Mr Skarpellis said it would be followed this year by a US$250m debt issue to finance modernisation of the network.

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