Tuesday, September 23, 2014

Romania's leftist government survives no confidence vote

BUCHAREST (Reuters) - Romania's government easily defeated a no-confidence motion brought by the centre-right opposition on Monday, removing what was seen as the final hurdle to Prime Minister Victor Ponta running for president in November.

Ponta is widely tipped to win the presidential race, giving him a pivotal role in appointing a new prime minister and cabinet to oversee reforms agreed under a 4 billion euro (£3.1 billion) aid deal secured from the International Monetary Fund last year. Romania is one of the European Union's poorest states.

The motion needed 288 votes to topple the leftist government, but it got support from only 154 deputies and senators in both houses of parliament.

The Christian-Liberal alliance of Klaus Iohannis, Ponta's main challenger in the presidential poll, accused the government of masterminding a plan to commit electoral fraud.

"It didn't pass, the government goes ahead with its mandate," Marian Neacsu, leader of the ruling Social Democrat group in the lower house, told Reuters by telephone.

The latest opinion poll conducted this month by CSCI showed Ponta getting 42 percent of votes in the first round, followed by provincial mayor Iohannis, an ethnic German, with 27 percent. Ponta is seen winning a Nov. 16 runoff ballot with 57 percent.

Parliament's two largest opposition groups, the Liberals and the Democrat Liberals, voted unanimously to merge in July, hoping to boost their chances against Ponta. They proposed Iohannis to run for president.

Romania's Spy Chief Quits, Will Run For President

BUCHAREST, Romania (AP) — The head of Romania's foreign spy agency has resigned to run for president in the Nov. 2 election, fueling debate about the presence of spies in the country's political life.
Teodor Melescanu quit Monday as director of Romania's Foreign Intelligence Agency.

The news broke a day after a leading TV political talk show host revealed that he was an undercover officer for the defense ministry, which has declined comment on the topic.

The twin developments add to the suspicion that Romania's political life is being manipulated by the intelligence services. Romania has two main intelligence agencies and five smaller agencies not under parliamentary control.

Melescanu, 73, will run as a candidate for the Social Justice Party, the electoral office said, facing Prime Minister Victor Ponta and others.

Thursday, September 18, 2014

Transylvania Draws Charles, Blue Bloods Back to Romania

http://www.businessweek.com

Like Transylvania itself, Alexander Roy-Chowdhury’s centuries-old estate in the Carpathian mountains of central Romania is a work in progress.

The Austria-born Hungarian aristocrat is toiling to give the Mikes estate, once confiscated by the communists, a new life and create jobs in the village of Zabala, where horse-drawn hay carts ply the roads and the closest supermarket is miles away. He started selling lumber and has opened a pension on the estate, an hour’s drive through woods and fields from Prince Charles’s own rural property. Still, one building remains gutted and red tape stymies the 33-year-old economist.

“Despite the difficult circumstances, we’re trying to build up a sustainable tourism and forestry business and create an environment that keeps the young people here,” said Roy-Chowdhury as his two young daughters ran around the pension lobby chattering in German.

A trek through Transylvania, best known abroad for the legend of Dracula, is often like time travel to the 19th century. Almost 25 years after communism ended, aristocrats from as far away as London, including the heir to the British throne, are being drawn to its dark forests and rolling hills to bring long-term investment to one of the European Union’s poorest regions.

Development of infrastructure and availability of skilled labor are paramount to attract investors to Transylvania, an area that’s home to a sizable Hungarian minority and is an important farming region, says Neil Shearing, chief emerging-market economist at Capital Economics Ltd.
‘More Attractive’

“Romania seems to be regaining a lot of its competitiveness in the wake of the global economic crisis, however major investments still tend to be clustered around Bucharest,” Shearing said. “Being one of the poorest countries in the EU, Romania has a greater scope to catch up than some of its more developed neighbors.”

Foreign direct investment to Romania is concentrated on Bucharest and its environs. While the capital city attracted 61 percent of all such investments in 2012, central and western parts received about 8 percent each, according to the latest data published by the Romanian central bank.

FDI “has been picking up in the past three years” in Romania, “although the overall volume of around 2 billion euros per year is still a fraction of what it used to be before the” 2008 global economic crisis, said Vlad Muscalu, an economist at ING Bank Romania.
Driven Out

The communist regime that fell at the end of 1989 drove away thousands of local aristocrats from their homes in the spring of 1949, often ambushing them in the dead of night. The mother of Roy-Chowdhury, a noblewoman of the Mikes family, fled to Austria, where she eventually married a Bengali prince and raised two sons.

Now, on top of battling the state for full restitution, the scions of Transylvanian aristocracy returning to their ancestral homeland are finding a herculean task in redeveloping properties nestled amid poverty-stricken areas.

While Romania, the EU’s second-poorest member, has 2013 gross domestic product worth $184 billion, according to Eurostat figures, the county of Covasna, home to the Zabala village in Transylvania, had economic output of 1 billion euros ($1.3 billion), the lowest of all listed counties by the EU’s statistics office.
Rural Unemployment

Unemployment in rural central Romania, including Transylvania, stood at 9.7 percent in 2013, according to Eurostat, compared with a 7.3 percent national average.

The tourism industry is one way to begin an economic renaissance, returning aristocrats say, as intrepid visitors are more interested in the still-quaint, still-rural experience the region offers.

Strolling hand-in-hand under the ancient trees of the Mikes estate one August weekend, Alex Popa was enjoying the green scene with his girlfriend.

“I promised her I’ll take her to a castle,” the 33-year-old Bucharest architect said. “We feel we’ve traveled back in time to an era long gone.”

About 100 kilometers (62 miles) from Zabala, along pot-holed roads crawling with horse carts, is the Kalnoky Castle in Miclosoara, where Prince Charles has become a regular visitor.

The 25th generation of the Kalnoky family, whose members included a prime minister of the Austro-Hungarian empire, returned to Transylvania to manage the family’s 16th Century manor and guest houses catering to mostly Austrian and German tourists.
‘Untouched Nature’

“People come for the untouched nature,” said Monika Soos, who helps manage the restored guest houses. “Prince Charles’s interest in the region and his friendship with Count Kalnoky is also a magnet for tourists.”

Prince Charles, who occasionally shows up on the streets of Miclosoara, owns properties in Valea Zalanului, a village of about 150 inhabitants surrounded by dense forest with meadows and mineral springs, and in the former Saxon village of Viscri, all open to tourists.

Directly across the road from Kalnoky Castle, Andras Gero leaned against a rickety wooden fence surrounding his patch-work home. As he talked, his wife swept out the dirt-floor shack and yellowed sheets flapped on sagging lines in the breeze.

Despite the outward poverty of his village, Gero said he and neighbors take the visits by the Prince of Wales in stride.

“It’s no big deal,” he said. “Everybody goes around doing their business. He’s just a regular person, like you or me, only with a much higher rank.”
Legal Troubles

Returning nobility often find themselves tangled in legal disputes with the state over restitution. Roy-Chowdhury and his brother, Gregor, who left behind an investment banking job in London to return to Zabala, are still fighting to reclaim about 80 percent of their ancient family holdings.

“Being an aristocrat doesn’t mean you have the means to do business, it’s more a mentality, an attitude,” Alexander said. “Restitution has to be finalized or the issue of ownership remains questionable and a country with a questionable ownership environment is not very appealing for foreign investors.”

To contact the reporters on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net; James M. Gomez in Prague at jagomez@bloomberg.net

To contact the editors responsible for this story: Gelu Sulugiuc at gsulugiuc@bloomberg.net Andrea Dudik

Monday, September 15, 2014

Dacia Thrives as Europe’s Cheapest Cars Revive Romania

Viorel Oprea practically shudders as he recalls working at the Dacia auto factory in communist Romania. The plant in the town of Mioveni was a tumbledown collection of gray-concrete buildings surrounded by rusty barbed-wire fences. In the summer it was a sweatshop, and in the winter Oprea had to layer three coats to stay warm.

“It’s like we’ve gone from hell to heaven,” the 52-year-old maintenance operator said, gesturing back to the glistening white building behind him. The factory is bright and spotless, air-conditioned in the summer and warm enough in the winter that workers sport shirtsleeves on even the coldest days. “Back then we worked in cold, dirt, dust and mud,” Oprea said as he left the plant after the morning shift. “Now it’s like a pharmacy.”

The new order has helped boost efficiency since Renault SA (RNO) bought Dacia in 1999 and started producing Europe’s cheapest cars. The plant runs at 95 percent of capacity, making 343,000 vehicles last year. Before 1989, the factory -- set beneath thickly wooded hills along the banks of the Argesel river 130 kilometers (80 miles) northwest of Bucharest -- employed twice as many workers to produce fewer than a third as many cars.

“Romanians used to have ambivalent feelings toward Dacia,” said Bernard Jullien, an economist at French automotive think tank Gerpisa. “They were proud to have a national carmaker but ashamed that the cars were so bad. The pride is much stronger now.”
Trabant, Skoda

Since communist regimes toppled across eastern Europe 25 years ago -- culminating in the execution of Romania’s Nicolae Ceausescu on Christmas Day 1989 -- Eastern Europe has gone from a place with more than a half-dozen indigenous automakers to one where there are none. But the industry has never been stronger as the region’s new consumers have snapped up inexpensive vehicles like those made in Mioveni.

While the Trabants, Wartburgs, and Polonez are all gone, the region produces more, higher-quality cars than ever. As part of Volkswagen AG, Czech manufacturer Skoda has prospered thanks to $3.8 billion in investment. Renault has plowed some 2.2 billion euros ($2.9 billion) into Dacia. OAO AvtoVAZ (AVAZ), the maker of Lada, Russia’s largest auto producer, expects to return to a profit by next year under the stewardship of the French carmaker and its Japanese partner Nissan Motor Co. (7201)

And with Toyota Motor Corp., PSA Peugeot Citroen and Hyundai Motor Co. making cars under their own brands in the Czech Republic and Slovakia, both countries have pulled ahead of Italy in terms of auto production. The industry, which once struggled to meet even local demand, is the top exporter from central and eastern European countries, according to the McKinsey Global Institute.
Trophy Room

Dacia, though, faces an increasingly rough road with tensions growing across the border in Ukraine and the western European auto market only slowly recovering from a two-decade low. Furthermore, the cheap wages that underpin Dacia’s revival have been rising fast, with union leaders likely to seek another big pay hike in negotiations next month, said Dacia Romania Chief Executive Officer Nicolas Maure.

“We need to think about long-term employment and not only about short-term pay increases,” Maure said over coffee at Dacia headquarters, in a conference room filled with trophies and awards from the government and media celebrating company milestones. “Renault Dacia is a symbol for the country, the symbol of a successful privatization.”

Though Dacia isn’t the biggest of the region’s automakers - - Skoda holds that title -- it’s by far the fastest-growing major car manufacturer in Europe. Its first-half sales on the continent jumped 35 percent to 195,069 units, according to the European Automobile Manufacturers Association.
Mechanics Needed

Dacia was founded in 1966, a year after Ceausescu seized power, to offer affordable cars for the working man. Intended as a symbol of the country’s rising industrial strength by Ceausescu’s nationalist regime, it was named after the Dacians, early inhabitants of what is now Romania.

Its first model, the 1100, was a boxy four-door sedan based on the Renault 8. In 1969, Dacia released the 1300, a licensed version of Renault 12. Sleeker than its predecessor, the sedan was a staple of Romania’s potholed roads for decades.

Though Dacia made some 2 million 1300s until the model was finally retired in 2004, getting one under communism required either connections or years on a waiting list. The cars were known to be so unreliable that people quipped that all Romanians are by necessity mechanics.
Full Trunk

“The trunk was filled with spare parts, and I soon discovered I needed every one of them,” 61-year-old retiree Costica Neagu said of his first Dacia, which he got from his father-in-law in 1979. “You couldn’t drive 50 kilometers without needing to change something or cooling off the engine.”

Dacia’s turnaround has been largely due to Renault’s ultra-cheap car strategy. When the French automaker arrived, the Romanian company was struggling to stay afloat with outdated equipment and falling production. Chief Executive Officer Louis Schweitzer envisioned using the factory to produce a vehicle that he could sell for just 5,000 euros to meet surging demand in the newly capitalist countries of Eastern Europe.

Though Renault never met that goal -- the first of the low-cost Dacia models, the Logan, hit showrooms in 2004 with a starting price of 6,400 euros -- it was a runaway success. From September to December that year, Dacia sold 40,000 Logans. In 2005 it sold more than four times that many.

Renault noticed that many Logans were also showing up in western Europe, even though it didn’t sell them there. So in 2005, the company introduced the brand across the continent, and sales have jumped by an average of more than 10 percent annually since then.
Moroccan Manufacturing

Today, the cheapest Logan starts at 7,700 euros, and the lineup has been extended to five main models, including a hatchback called the Sandero and the Duster, a small sport-utility vehicle. In 2012, Renault started manufacturing Dacias in Morocco.

In the first six months of 2014, the French company sold 571,846 cars in what it calls its entry-level, including Logans and sister models with the Renault brand. The company says the low-cost lineup is responsible for an outsize share of its profit, though it doesn’t break out details.

“Without their entry-level program, they’d lose money,” said Philippe Houchois, an auto analyst at UBS AG. Houchois estimates Renault’s gross average operating margin for entry-level cars is about 8 percent, about double the level for its more-expensive vehicles.
Battery Leaks

To keep Logan prices low -- and those profits flowing -- Renault has worked hard to control costs. For the latest Logan, released at the end of 2012, the company knocked 15 percent off the price of seat frames by limiting the number of sub-components. A small tray that sits under the battery to collect leaks was redesigned to cut its cost by 30 percent, to less than 90 euro cents.

“Our main competitor is the second-hand market with two-to three-year-old vehicles,” said Arnaud Deboeuf, head of Renault’s entry-level program. “We’re constantly looking for additional savings on parts, including the small one-euro components.”

It’s proven harder to keep a lid on wages. The average monthly salary at the Mioveni factory -- including extras such as shuttle buses, subsidized meals in the company cafeteria and bonuses -- is 4,228 Romanian leu ($1,240), or about 950 euros.

While that’s about a third of what Renault pays factory hands in France, Dacia’s 17,000 workers in Romania are among the country’s best paid. The company says wages at Dacia are up 170 percent since 2008, while inflation in Romania has been about 30 percent over the same period.
Mom’s Factory

“Everybody wants to work for Dacia,” said Simona Toma, 45, who joined Dacia in 1987 and now oversees 28 people on the engine assembly line. She should know: Since she started, her husband and son have also joined Dacia.

“It’s almost a pattern: if my mother works there, then I work there,” Toma said in a small room beside the production line where teams get training on efficiency and assembly procedures.

Rising pay has sparked tensions between management and Sindicatul Autoturisme Dacia, the union that represents Dacia employees. In March 2008, Dacia workers demanding a 50 percent pay hike went on strike. Management called the SAD “unrealistic” and persuaded a judge to declare the strike illegal. After a 20-day walkout, the two sides agreed on 28 percent. With a new round of negotiations due in October, Dacia Romania CEO Maure cautions that the union needs to be “more reasonable” in its wage demands.
Contentious Relationship

“What we’re trying to do is to maintain the competitiveness of Romania,” Maure said. “Our relationship with the union remains very contentious.”

Maure says Renault might implement greater automation -- which means fewer jobs -- or shift production to Morocco if he can’t keep wages in check.

Moving production away from Mioveni “is a constant threat,” said Ion Iordache, a union leader for SAD, who has worked for Dacia since 1975. “Management tends to bring up that issue during negotiations to put pressure on us.”

Romania’s government recognizes the contribution Dacia makes to the country. The company’s 4.5 billion euros in revenue represented about 2.9 percent of Romania’s gross domestic product last year, and when suppliers are included, the company is responsible for about 200,000 jobs, the Economy Ministry estimates.
Carpathian Highway

The country has offered Renault tax breaks and other incentives valued at some 200 million euros, and it has exempted Dacia and other big industrial producers from regulations requiring that they get part of their electricity from sustainable resources.

Now under consideration is a new 120 kilometer highway through the Carpathian mountains northwest of Mioveni, which Dacia has been lobbying for because it says it could help lop another 20-30 euros off the price of each of its cars.

Dacia “is a company that we have to help,” Economy Minister Constantin Nita said in the massive gray ministry in central Bucharest, just down Victory Street from the building where Romania’s auto industry was mapped out a half-century ago. “It’s a big success that illustrates the transformation from an underperforming management style to a more efficient and capitalist one.”

To contact the reporters on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net David Rocks, Robert Valpuesta

Wednesday, September 10, 2014

Romania parliament defies president, IMF, to approve tax cut

BUCHAREST
Tue Sep 9, 2014

(Reuters) - The Romanian parliament's lower house approved a cut in employment taxes on Tuesday, going against the advice of the president and the IMF two months before a presidential election in the EU's second-poorest state.

The leftist government of Prime Minister Victor Ponta first approved the 5 percentage point cut in social security contributions for employers in June to spur growth.

The International Monetary Fund, which warned the cut will leave an unsustainable revenue gap, has postponed a review of Romania's 4 billion euro precautionary aid deal pending the election, which Ponta is widely tipped to win.

President Traian Basescu opposes the timing of the tax cut, saying it is unsustainable and could mean other taxes will have to rise after the election. He had sent the law back to parliament for re-examination, which he can only do once.

The lower house struck down his request and approved the bill. It has the final say. The lower house also decided not to claw back money from pensioners, mothers and some public sector workers who were over-compensated.

Earlier this month, Ponta said the government would lower a tax on special buildings just months after it took effect. That tax had hurt companies' earnings.

The 5 percentage point cut in employers' tax to 15.8 percent - lower than 16.26 percent in neighboring Poland or Hungary's 27 percent - rate from Oct. 1 will create a revenue shortfall of 850 million lei ($247.72 million) in the fourth quarter of this year.

Ponta has offered assurances the budget deficit will not rise above this year's target of 2.2 percent of gross domestic product. In 2015, the social security tax change will cost 4.8 billion lei, just under 1 percent of GDP.

Latest data showed the economy grew by a significantly less than expected 1.2 percent on the year in the second quarter, and recorded a second consecutive quarterly drop, pushing Romania into a technical recession.

Romania collects taxes equivalent to 33 percent of GDP, well below the average for the 28-nation European Union. Tax evasion stood at 16.2 percent of GDP last year, according to the Fiscal Council, an independent watchdog.

Friday, September 5, 2014

The Economist: Ponta v the liberals and the ladies

Victor Ponta is running against four centre-right candidates
Sep 6th 2014 | BUCHAREST | From the print edition

ROMANIA’S centre-left prime minister, Victor Ponta, is feeling very confident in the run-up to the presidential election that he is contesting. With a comfortable lead, and around 40% in opinion polls, Mr Ponta said that he will “sit back with a bag of popcorn” in the first round of the election on November 2nd and watch his challengers debate.

He later apologised for this “bad joke”, which reflects the divisions of the centre-right opposition. With the popular but polarising president, Traian Basescu, unable to run for a third term, the centre-right failed to rally behind a single candidate to succeed him. Instead four politicians hope to challenge Mr Ponta in the second round on November 16th.

A liberal, Klaus Iohannis, the German-speaking mayor of Sibiu, a Transylvanian town popular with German investors and tourists, has the best chance. Mr Iohannis was put forward by Mr Ponta and his allies in 2009 as candidate for prime minister, but Mr Basescu preferred to appoint someone from his own political camp.

Mr Iohannis hopes to translate his local success to the national level and promises “less talk, more things done” than his ally-turned-foe, Mr Ponta. But questions about how he acquired several houses in the centre of Sibiu and a pending case against him on alleged conflicts of interest could still thwart his candidacy. Another liberal, Calin Popescu-Tariceanu, has also announced his intention to stand and is forecast to get around 10% of the vote.

The novelty of this campaign is that two women are in the running, both from the Basescu camp. One is Monica Macovei, a former justice minister who pushed through reforms when Romania’s European Union membership was threatened by rampant corruption. Ms Macovei, who is still a member of the European Parliament, is running as an independent. She is a candidate, she says, “because the political establishment has become a cross-party business which I am ashamed of, because my country is still struggling with corruption and economic underperformance, competition is distorted and honest business and people suffer.” A poll in August, a week after Ms Macovei announced her bid, put her at just 2% percent.

The other female candidate is the fiercely ambitious former tourism minister, Elena Udrea. Earlier this year Ms Udrea formed her own party, the Popular Movement, which won 6.21% of the vote in the European elections in May.

The economy, back in recession, is likely to dominate the campaign. The more the candidates can distance themselves from the established parties, the more chance they will have with voters, predicts Barbu Mateescu, a sociologist. “There is no significant party with a clean image; every party has had several figures behind bars,” he says. The two women, one an independent and the other leading a new party, may yet confound expectations.