Monday, October 19, 2009

Crisis-hit Romania not losing investment shine

BUCHAREST, October 18, 2009 (AFP) - Romania may be mired deep in recession and political turmoil but that is still not taking the shine off the EU's newest member for international investors in the longer term, experts insist.

"I don't think that interest in Romania has gone down," Hans Smaling, economic and trade counselor of the Dutch embassy in Bucharest, told AFP.

"Perhaps some firms are delaying their plans a bit, but I think that's more a consequence of the global economic downturn than the latest political developments."

The Netherlands currently has some 3,500 companies present in Romania with investments totalling 3.78 billion euros ($5.6 billion).

Romania, struggling to pull itself out of recession, found itself without a government this week, when Prime Minister Emil Boc and his Liberal Democrats (PDL) were booted out by a stinging no-confidence vote in parliament, just weeks after the Social Democrats (PSD) quit the ruling coalition.

The political turmoil could not have come at worse time, just ahead of crunch talks with the International Monetary Fund over the next instalment of its 20-billion-euro ($29.5-billion) bailout.

Furthermore, the political hiatus looks set to drag on. While President Traian Basescu has named Lucian Croitoru, an economist and Bucharest's former representative to the IMF, as Boc's successor, the opposition parties have said they will block his appointment in parliament.

The national currency, the leu, has taken a knock from the crisis, weakening from around 4.2 leu per euro on the day before the Social Democrats stormed out of the coalition to 4.3 leu per euro this week.

The IMF, however, seems to believe the political turmoil will not jeopardise the bailout talks nor lead Bucharest to renege on its commitments to implement difficult reforms in exchange for the financial lifeline.

The Fund "is closely following political developments in Romania and does not anticipate an interruption in the Stand-By Arrangement (SBA) with the country or a change in policy as a result of these developments," it said in a statement this week.

French, German and Austrian officials also believe the situation is unlikely to alter foreigners' investment plans for Romania.

"People who want to invest in Romania do so from a long-term perspective," a French economic source told AFP, speaking on condition of anonymity.

"Romania is the European Union's newest member and investors know that countries that have joined the bloc have progressively benefitted from membership. The political crisis won't change this."

According to data compiled by Ubifrance, a French agency for international business development, four French companies -- Renault-Dacia, BRD-Groupe Societe Generale, Orange and Distrigazsud-GDF -- all generated turnover of more than 1.0 billion euros in Romania in 2008.

Admittedly, direct foreign investment in the country has slumped 53 percent in the first eight months of this year, the latest official data show.

But Romania is faring better than its neighbours in the region. Taking just the first half of 2009, Romania saw a decline of 42 percent, compared with a drop of 52 percent for Bulgaria and as much as 86 percent for Poland.

"The decline of the investment and trade volume is primarily a consequence of the international (economic) situation," said Rudolf Lukavsky, commercial counsellor of the Austrian embassy.

Austria is Romania's biggest trading partner in Europe, with banks such as Raiffeisen and Erste Bank and oil giant OMV all active there.

"Everybody is expecting improvement for 2010. Investors here are not looking at short-term profits and gain," Lukavsy said.

"I do not think that the current political situation has a direct impact on foreign investment. What's more important for Austrian investors are progress in the public administration and a well-defined legal system."

"Of course, (German) investors wish to see a stable government" in Romania, said Annika Pattberg, of Germany's foreign trade and inward investment agency GTI.

But the situation was "not total chaos. Romania still has many opportunities for German investors, especially in sectors such as infrastructure, transport, agriculture, renewable energy, food-processing, and environment."

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