Wednesday, March 11, 2009

Romania: On Track

Oxford Business Group's Latest Briefing

Romania is looking to upgrade its transport network to capitalise on its strategic location in the midst of key Balkan trade routes. However, the country must overcome a few obstacles before it can evolve into a regional transport and transit hub.

Although official figures list more than 15,000 km of road in the national network, over 20,000 km of rail lines and 17 airports, as well as ports located both on the Black Sea and along the Danube, these figures mask a more challenging reality.

Less than 300 km of Romania's roads are expressways. Similarly, despite being among the five largest networks in Europe, less than 40% of Romania's rail links are electrified, with around 30% double tracked - meaning the shipping of goods can be a slow process while awaiting clear up or down lines. And while the port of Constanta on the Black Sea is one of the busiest in Europe, its operations are sometimes hampered by weak land transport links, and many of the country's airports are only rated for local traffic.

The disjointed nature of the transport network could cost Romania in the future. While foreign investors may wish to establish manufacturing facilities in the country to take advantage of its lower costs for production and labour, transport bottlenecks could prove to be a deterrent.

According to Florin Pogonaru, head of the Romanian Businessmen's Association, opportunities are being lost.

"Competitivity gains are eaten up by hard access to raw materials," he told Reuters on November 25. "Islands of high productivity develop, but remain isolated unless infrastructure is brought up to their gates."

The need for improvement was highlighted as well in the World Economic Forum's 2008-2009 global competitiveness report, released in October, in which most of Romania's transport infrastructure was rated poorly. Out of 134 economies assessed, the quality of Romania's highways was ranked 126th, its maritime trade facilities 102nd and its airport infrastructure 96th. Only the rail grid turned in a creditable performance, coming in 59th.

The country's politicians acknowledged the shortcomings of the transport network in the run-up to last November's general election. Both the ultimately successful Democratic Liberal Party and the National Liberals placed the issue of improving transport high on their electioneering programme.

One measure being taken by the government of Prime Minister Emil Boc is to step up co-operation with the country's neighbours. In late February, Romania and Bulgaria clinched a deal to speed up the construction of a second bridge across the Danube to connect the two countries, while also agreeing to support proposals to eventually build two more bridges.

In early February, Foreign Minister Cristian Diaconescu briefed the European Commission on a joint proposal from Romania, Austria and Hungary to launch a project to develop transport links in the Danube corridor - a part of the main axis of the Trans-European Network (TEN-T) connecting the North Sea region with the Black Sea. Under the proposal, for which EU funding would be sought, the improvement of transport routes through the Danube corridor would directly connect the ports of Rotterdam and Constanta.

The EU is already a keen supporter of efforts to improve the transport network, both as a means of bolstering the country's own economy and of linking the road and rail grids of surrounding Balkan states with those in the West.

Set to cover the six-year period up to 2013, the EU has allocated more than 4.56bn euros ($5.77bn) to upgrade Romania's transport grid through its European Regional Development Fund (ERDF) and Cohesion Fund (CF) programme. With a further 1.13bn euros ($1.43bn) added to the overall allocation as Romania's national contribution to the scheme, the total comes out to 5.7bn euros ($7.2bn). Of that figure, 3.85bn euros ($4.87bn) have been dedicated to modernising and developing the TEN-T priority axes with the aim of attaining a sustainable transport system integrated with EU networks.

Though EU funding has been made available, work on a number of current major projects has been slowed by contractual disputes and delays in the official approval process. However, the government has moved to overcome these roadblocks. For example, in late February, it settled a dispute with US-based contractor Bechtel, which is building the Transylvania Motorway, over the form of advance payments and the certification of completed works. The settlement should see work on the 415-km long project continue towards its completion date in 2013.

Romania's resolve in sticking to a regional approach should come as a relief to foreign investors, given recent protectionist moves from some of the older EU member states.

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