Books on Romania
Update No: 123 - (31/08/07)
Geoana asks Basescu to support new Cabinet including PSD
In May 2007 Traian Basescu, the Romanian president, only just survived a
parliamentary bid to unseat him after receiving backing from voters in a
Now, the Chairman of Romania's main opposition Social Democratic Party (PSD),
Mircea Geoana, has asked Basescu to endorse the set up of a new government that
would include his party, which is expected to make up a new parliamentary
In mid-August, the PSD announced it will submit a vote of no confidence at the
beginning of September when lawmakers get back from vacation. If the
no-confidence vote passes Parliament it can lead to the fall of the government.
Geoana announced that he would become prime minister if a new government is
created. "The president should make it possible for a government to become
as efficient and as stable as possible," Geoana said, adding that both the
president and other parties are responsible for the type of government the
Currently, the executive arm is made up of Liberals and members of the Hungarian
Democratic Alliance (UDMR), representing Hungarian ethnics in Romania. Geoana is
currently touring the country hoping to gain support in the event the
no-confidence vote passes Parliament and a new government has to be created.
However, several parties announced they will not vote in favour of PSD, citing
lack of confidence in the party and its ideas.
The first direct European elections set for November
Romania and Bulgaria joined EU in January. This is having an effect on its
growing democracy, an unheard-of thing two decades ago.
Romanian voters will cast their ballots for the European Parliament on November
25, a first such vote after the country's accession to the European Union, the
government announced on August 22. Most political parties had backed the move on
August 20, with the exception of opposition Social Democratic Party (PSD) which
suggested a later date, to prepare its election campaign.
Currently Romania has 35 deputies at the European Parliament, but they are
delegated by their parliamentary factions instead of being elected by balloting.
Romania's direct elections for the European Parliament were initially scheduled
for May 13; but the government had postponed them, due to tensions related with
the attempted impeachment of President Basescu.
The Romanian economy
Romania is booming after its recent accession to the EU, with a rapidly growing
construction industry and the world's 'third most promising' economy, writes
Stuart Powls of EC Harris.
Like many countries of the former Eastern bloc, the Romanian economy surged when
the shackles were taken off, although not without problems. Economic growth has
been among the strongest in the region, rising from a GDP of 2.4% in 2002 to
8.3% in 2004. There was a slowdown in 2005 but by the end of 2006 GDP had picked
up to about 8% and is expected to be at about 8.4% over the next five years.
Inflation, which had been a problem for some years, dropped markedly from 17.1%
in 2002 to about 8% in 2005 and should fall to about 5-6% this year, mainly
owing to the requirements of EU accession. The official inflation target for
2007 is 4.4%, but some observers have noted that Romania's consumer price index
fails to accurately reflect the true impact of energy costs, which are rising
faster than average.
Romania joined the EU in January 2007, and as a result, investment in the
country is expected to increase. Romania is considered by multinationals to be a
booming market and was ranked the third most promising economy after Russia and
Turkey for 2006-2007.
Industrial production has made a remarkable recovery after a series of heavy
shocks, primarily owing to a severe appreciation of the domestic currency,
caused by capital inflows and a sharp rise in energy prices. However, exports
have been growing rapidly, up by over 18% in the first half of this year.
Budget revenues have been bulging and have helped to finance education and
infrastructure at a time when EU accession is putting pressure on the government
to boost the production of public goods. Unemployment is slightly above 5%,
though this is largely because of massive migration to other EU states,
particularly Italy and Spain.
However, there are still problems, not least political instability, as we have
On the financial side, current account deficits are rising and external
borrowing by the private sector is surging as commercial banks attempt to
capitalise on the country's assumed bright prospects.
Meanwhile, a number of other factors point to a more sober view for the longer
term. These include inflationary pressures caused by a rise in aggregate demand
after accession, a monetary policy regime that implies exchange rate
flexibility, a likely increase in the burden on the public budget following EU
accession and the need to develop domestic infrastructure. There is also the
problem that government tax revenues are still below where they should be. This
is down to an inconsistent approach to taxation of the masses and also
wide-scale tax avoidance and use of the cash economy.
The Romanian economy needs more fixed investment and better infrastructure and
needs to be sustaining growth rates of above 6% yearly over the longer term.
Unlike when the 2.5% of GDP budget deficit target was undershot, the Economist
Intelligence Unit expects the 2007 deficit to be larger than planned, at about
3% of GDP. A recent World Bank report hails Romania's reforms and creates high
expectations for post-accession years, although a growth rate that ranges
between 5.5-6% annually is more likely in the long term with about 6% expected
The construction market
According to the Romanian Association of Constructors, the value of the domestic
construction market was approximately €5.2bn (£3.5bn) at the end of 2006.
Output in the construction industry increased by 10% in 2005 and 9.9% in 2006.
Looking forward, further increases are expected of 12% in both 2007 and 2008 and
the value of the industry is estimated to reach €10bn (£6.8bn) in 2010, by
which time the number of employees is expected to reach 500,000, compared with
360,000 in 2005.
The growth of the market is impressive especially in terms of real value, rather
than volume, because of the rising cost of construction materials. Overall, the
construction sector remains one of the most dynamic in the Romanian economy.
Outside Bucharest, one of the main focuses for the Romanian construction market
is infrastructure, which accounts for about 16% of the construction market.
Romania's transport infrastructure will get a direct boost from the EU, with
€4.5bn (£3.1bn) to be provided over time to upgrade the country's road and
rail networks. The Romanian state railway will be able to tap into €3.2bn (£2.2bn)
to repair the country's network to redirect freight transport away from roads.
The EU assistance to the roads programme revolves around the European corridors
IV and IX. The high allocation of funds for infrastructure in the new budget
includes €400m (£272m) for roads. There is expected to be further growth in
roads with an extra 1,200km of highway by 2013, by which time a further 8,500km
will be updated. Other investment is going on environmental protection
programmes while foreign companies are investing in modernising harbours,
particularly in Constanza on the Black Sea and river ports on the Danube.
Private investment in construction
Romania is benefiting from huge amounts of inward investment, particularly in
Bucharest, as property developers and investors attempt to get in while the
market is still on the ground. The country suffers from a shortage of modern
property, but investors believe that this market is about to mature as Hungary's
and the Czech Republic's did before them.
Real estate investors face legal issues regarding uncertainty over title. There
are potential problems over building permits and an inconsistency in the
approach by local authorities. However instability is not regarded as a
deterrent to international investors who see it as a nuisance, rather than a
real obstacle. For most foreign investors, the attention is focused on the
construction of office buildings, hotels, shopping areas and hypermarkets. The
residential sector rose by 40% in 2006 although only 6,000 units were delivered
in Bucharest and the residential market has a comparatively low share of the
total construction market.
On the private commercial front, office take-up almost doubled between 2003 and
2005 and it is estimated that office space planned for 2007 and 2008 is
approaching 500,000m2. In Bucharest, the central-north and north districts are
the leading sub-markets while three new office parks are planned on the city's
Demand for high quality retail space is also high, with many international
brands eager to enter the market but still trying to find the right space. The
three shopping malls in Bucharest will soon be joined by five new shopping
centres and the stock of modern retail area could increase four-fold by the end
of 2009. With 2.2 million people, Bucharest has one of Eastern Europe's largest
city populations and its rate of development has seen land prices double over
the past 18 months.
Demand for industrial space is also high, and the market is set to expand