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ROMANIA


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 60,358 44,428 38,700 52
         
GNI per capita
 US $ 2,310 1,850 1,720 100
Ranking is given out of 208 nations - (data from the World Bank)

Books on Romania

REPUBLICAN REFERENCE

Area (sq.km)
237,500

Population
22,355,551 

Capital 
Bucharest 

Currency 
Leu

President 
Traian Basescu

Private sector 
% of GDP 
40%

  

Update No: 096 - (26/04/05)

The new Romanian stance
Romania is traditionally the most francophile, and francophone, country in Central Europe. One would have thought a natural ally of the French-led axis of the Berlin- Moscow-Paris coalition against the Iraq War. 
Not a bit of it, however. The Romanians know what it is like to live in a totalitarian dictatorship. They did so under Cauecescu for thirty years. The Western Europeans have been spared that fate, if not half a century back, the horrors of military occupation.
This explains the new Romanian stance. Romanian President Traian Basescu believes that his country's future lies in 'new Europe'. He wants to align Romania with London and Washington, as well as with Paris.
Romania sees itself in the Atlanticist, free-trade bloc which has been defined as 'new Europe' by US Secretary of Defence Donald Rumsfeld, and the country aims to forge close links with London and Washington along with its traditional ties with Paris.
Outlining to reporters Bucharest's vision on the eve of the scheduled 25th April signing of the country's Accession Treaty with the EU, President Traian Basescu was quoted by the Financial Times as warning Paris against "lecturing" Romania over its leaning towards Britain and the US. 
"Romania is a country which has respect for itself," Basescu was quoted by the paper as saying. While France is one of Bucharest's main supporters, the country "does not like" to hear French President Chirac tell EU candidate countries to "shut up" over Iraq or French Foreign Minister Barnier to say that Basescu does not have a "European reflex".

Italian Affinity
Actually, Italy is in some ways the EU country with which Romania has the greatest affinity.
Italians have a particular penchant for Romanian farmland. Communication is fairly easy because the two countries' languages share the same Latin origins, their borders are less than 1,000 kilometres apart, and, most important, Romania offers cheap business opportunities to Italian entrepreneurs.
"We get five, six queries from Italian investors interested in buying farmland here," Cristian Terhes Ardelean said, senior consultant at Timisoara-based Archimedes consulting company, which offers advice to foreign investors.
The flow of foreign money is striking because such outside investment traditionally has been frowned upon in Central and Eastern Europe. Haunted by memories of domination by powerful neighbours, Poland and the Czech Republic have feared that Germans might buy back the land form which they were expelled after World War II, changing the ethnic structure of some regions. Romania, home to some 1.4m ethnic Hungarians and at odds with Hungary for centuries over the northwestern region of Transylvania, has similar fears over neighbouring Hungarian investors.
Romania's mere 200 kilometres of major highways and bureaucratic red tape that requires months to research property deeds also have discouraged foreign investors. Domestic politics play a role in the region too, as government seeking to avoid social unrest dole out subsidies that encourage farmers to hold on to their small plots.

'Help our farmers'
Last year, former Prime Minister, Adrian Nastase warned local farmers of the danger of "selling the land for nothing to all kind of foreigners." The liberal government that took over when Mr Nastase's Social Democrat party lost legislative elections last autumn also favours small farmers over large foreign owners. "Our aim is to help our farmers and not the foreigners," said Agriculture Ministry spokesman, Adrian Tibu, pointing to a 70 Euro a hectare subsidy that the government offers this year to farmers who own no more than five hectares.
Despite the official pronouncements, foreign investors are flocking to Romania. Among the appeals: 14.8m hectares of relatively cheap agricultural land, second only in the region to Poland's 18.7m hectares. In Romania, the average price for one hectare of agricultural land was 490 Euro last year, according to real-estate companies and government data. By comparison, one hectare of agricultural land costs an average 14,300 Euro in Italy and 2,500 Euro in the Czech Republic.

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AUTOMOBILES

Dacia opens 18.2m Euro kit plant


The Romanian auto maker Dacia, owned by French Renault, said recently it had spent 18.2m Euro to build a plant where knocked-down models of its popular Logan sedan could be manufactured for export, New Europe reported.
The so-called completely knocked down, or CKD, kit cars would then be assembled overseas, in factories in Russia, Morocco, Colombia, Iran and eventually India, Dacia said. Foreign assembly of the Logan is to start in the Russian and Moroccan plants, which should be able to build 90,000 Logans a year. Plants in all five countries should be up and running by 2007, Dacia said. Dacia has sold more than 50,000 Logans, 6,000 for export, since it launched the model in September. It hopes to be selling the low-cost model in 35 countries by year's end.

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CREDIT RATINGS

Romania's economy faces overheating risk: Moody's

Moody's positive outlook on the nation's Ba1 rating is based on the benefits of European Union accession, stronger economic and political institutions and improved external liquidity, balanced against the risk of overheating, the rating agency Moody's Investors said recently in its annual report on Romania. "The rapid growth of credit to the private sector (particularly in foreign currency), the related share increased in asset prices, and the large widening of the current account deficit all give us cause for some concern," cautioned the report's author, Senior Vice President, Nina Ramondelli.
The analyst explained that "the situation is further complicated by the government's decision to shift the monetary framework from relying on the exchange rate as an implicit anchor to inflation targeting later in 2005; this change occurs at the same time that the capital account is to be liberalised in order to allow non resident investment in local currency instruments."
Membership of NATO in 2004 and the expected 2007 entry into the EU provide Romania with framework and incentives for further reforms, but there are nevertheless other credit challenges that Romania must face. Tamondelli pointed to the stop-and-go nature of economic and structural-reform policies, which calls out for more consistency, and also to the presence of a still large and unrestructured state enterprise sector.
Moody's is optimistic, however, that EU membership will furnish support for sustaining the growth momentum now underway and for further improving the nation's debt and debt-service burden. "Deepening trade, financial and institutional integration with Europe should bolster Romania's ability to withstand potentially destabilising capital flows," Ramondelli stated. "Progress on the EU front is clearly a testimony to the nation's achievements in building and strengthening economic and political institutions," she added.
Moody's March ratings upgrade also was recognition of the improvements that have been made in Romania's external liquidity, and in its government finances and debt. She noted, however, that the EU reserves the right to exercise safeguard clauses for Romania (and Bulgaria), which could delay entry by one year - a practice the EU did not adopt for first-wave accession countries. "This is a reminder of how much more remains to be done," the analyst concluded.
The prospects for EU integration have already set Romania on a virtuous circle. According to the analyst, real gross domestic product (GDP) rose 8.3% in 2004 (about 6% if the exceptional gains of the volatile agricultural sector are netted out), up from an average of 5% per year; in 2001-2003 even as inflation fell from 14.1% in 2003 to 9.3%.
"Imports have been a vent for excess demand," she said, "such that the current account deficit has risen sharply over the past two years - to some 8% GDP by end-2004."
But capital inflows were more than sufficient to cover the country's foreign exchange requirements, contributing to a massive build-up of official foreign exchange reserves to US$14.7bn at end-2004, up from US$8bn in the previous year.
Robust activity and tighter spending controls led to a near halving of the public sector's borrowing requirement (including quasi-fiscal operations) while the role of government in the economy continued to shrink with the landmark privatisation of the oil giant, Petrom and further divestiture of electricity and gas distribution companies.
"These were welcome developments in view of the financial losses of the energy sector and the inefficiencies of industrial production," Ramondelli said.

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ENERGY

Electrica to invest US$350m in development

Romania's main power distributor, Electrica, said it would spend about US$350m this year in development, 80% higher than it had invested last year, New Europe reported.
The investments would be made with their own sources and loans, a company representative said. Electrica mentioned that the funds expected to inflow from the sell off of two of its branches to Italy's Enel were to be used for the development of its power generating facilities, especially for the third reactor at the nuclear plant Cernavoda. Electrica posted a 2004 turnover of 88.9 trillion lei, 21% up year-on-year. It profit before taxes was 1.37 trillion lei last year, reversing the losses posted in the recent years.

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FOREIGN LOANS

Commercial Bank gets US$400m syndicated loans

The Romanian Commercial Bank, the country's largest lender has realised US$400m through five years syndicated loans from overseas banks, said the bank recently in an e-mail statement. The loans, the largest ever obtained by a non-government entity, were raised at an all-in cost of 0.725% over the London Inter-Bank Offered Rate (LIBOR) for three months.
The bank will use half of the money to repay US$200m loan obtained last year. The remaining US$200m would be used for the financing of medium and long-term projects in Romania, which included some local administration loans, BCR executive chairman, Nicolae Danila, said.
A syndicate of 24 banks financed the loans. Bank Austria Creditanstalt (BA-CA), Calyon Citibank N.A. and WestLB AG, London Branch ("WestLB") were the mandated lead arrangers, said the bank. The loan has a 4-year grace period and can be extended for a further four years after 2010.
Albeit the bank raised US$400m through US$-denominated loans, it may use Euro-denominated offerings. BCR's assets in 2004 amounted to some 6bn Euro, 1.6bn Euro more than a year before. The bank estimates a 215m Euro profit before taxes in 2004.

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INFORMATION TECHNOLOGY

Siemens buys IT solutions provider Forte

Germany's Siemens has acquired Romanian IT solutions provider, Forte Company, in a deal estimated at 10m Euro. Forte, one of the main providers of IT services on the Romanian market, was acquired by the Siemens Business Services (SBS) division of the German group, New Europe reported.
Siemens announced last year that it was aiming to achieve an annual turnover to Romania of one billion Euro in the next ten years.
Forte, a low-profile company, is known only to the specialists in the sector. Employees of the former Baneasa computer factory set it up in 1990. The company currently has seven shareholders, with most of the shares held by Cristian Constantinescu, also the firm general manager, who has been running the business for 15 years.

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