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viy2008 iecee'08
 
ECONOMIC PROFILE - ROMANIA
 

Reforms and Economic Development

Type of economy

Since early 1990, Romania has had a free market economy despite continuing government presence in the industrial sector. Successive governments have taken steps to liberalise and privatise the economy.

Romania sits on the crossroads of many historic trade routes that allow access to another 200 million consumers within a 1,000-km radius of Bucharest. The main channels of these routes are the Danube river and the port of Constanta, one of the largest ports on the Black Sea, which is linked to the North Sea by a new navigation route through the Rhine-Main-Danube Canal. Romania has a large skilled workforce experienced in areas such as engineering and manufacturing and cheaper labour costs compared to many other East European countries. Many of the country’s big cities boast of a large industrial infrastructure, which along with Romania’s considerable natural resources offer substantial potential for exploitation and development.

General economic trends

Like many countries in Eastern Europe and the former Soviet Union, Romania had been struggling to turn its command economy into a market economy. Successive governments have found it difficult to turn the economy around because of a lack of hard currency and the inability to secure external funds due to the country’s high budget deficits, much of it accrued from financing loss-making state industries. Old economic and financial structures have been slow to change just like the bureaucratic culture inherent in many old institutions. In the last five years, the overall business climate has improved and the economic indicators look healthier.

The table below illustrates the main economic indicators for the past three years and the estimates for 2007:

Leading industries

Manufacturing and engineering are Romania’s backbone industries. The country also possesses substantial energy resources and agricultural land. Most sectors of the economy remain under-exploited and offer great potential, particularly
manufacturing, agriculture and tourism. The technology sector continues to play an increasingly important role in the economy due to the high level of skill among its workers and rather low wage costs. The real estate sector also offers significant growth opportunities.

Sectors that attracted foreign investment in recent years include oil and natural gas, automotives, metallurgy, banking and finance, food processing, heavy engineering, telecommunications, construction and consumer goods manufacturing. Investors have expressed interest in newlyprivatised industries as well as in greenfield projects.

Government-owned industries and privatisation Romania’s government has reaffirmed its commitment to privatise the remaining stateowned companies, particularly those in energy, heavy industry, pharmaceuticals and utilities. The relevant privatisation strategies are formulated, approved and executed every year by the concerned ministries in collaboration with the state privatisation authority, the
Authority for the Disposal of State Assets (AVAS). Most of the companies up for privatisation are listed on the two major capital markets – Bucharest Stock Exchange and RASDAQ. Privatisation is often carried out on these markets through electronic auction, public equity offer and/or firm commitment underwriting. Moreover, in the
case of big state-run companies undergoing privatisation, direct negotiations are a common practice.

Foreign direct investments increased by 75% last year to EUR 9.1 billion, including EUR 2.2 billion from the privatisation of the Romanian Commercial Bank (BCR), according to the National Bank of Romania. In 2005 Romania attracted EUR 5.2 billion in FDI. For 2007, FDI is projected to be around EUR 6.5 to 7 billion.

Last year, foreign investors showed a special appetite for the automotives sector, electronics and household appliances, construction, pharmaceuticals and bio-diesel production. Automotives was appealing to investors because of its long tradition in Romania. Production of consumer electronics and household appliances benefits from the ample availability of skilled workforce. The construction sector flourished due to the continuing boom in the real estate market and bio-diesel production benefited from large areas put to fuel-yielding crops.

The Information Technology and Communications (IT&C) sector has also attracted foreign investment due to the availability of highly qualified IT specialists.

AVAS has announced that it would put up 62 companies for privatisation in 2007, hoping to collect RON 1 billion this year, 60% of it coming from privatisations. The procedure to release shares are already under way in the case of nine of these 62 companies, while share packages of another 26 companies should be put up for sale by the end of the third quarter. Moreover, AVAS is expecting to put up for privatisation another 27 companies which were taken over from the National Office of State Shareholding and Privatisation in Industry (OPSPI) portfolio. The most important companies from the OPSPI portfolio are the power plants in Turceni, Rovinari and Craiova and power distributors Electrica Muntenia Nord, Electrica Muntenia Sud, Electrica Transilvania Nord and Electrica Transilvania Sud.

Regional and international trade agreements and associations

Romania has been a signatory to the General Agreement for Tariffs and Trade, the World Trade Organisation, the European Free Trade Agreement and the Central European Free Trade Agreement. Besides, Romania has entered into over 80 agreements for the avoidance of double taxation and the prevention of tax evasion on income and capital (see in the Appendix). Romania is also a member of the International Monetary Fund, the World Bank (i.e. the International Bank for Reconstruction and Development and the International Finance Corporation), and the European Bank for Reconstruction and Development.

As a EU member state, Romania adheres to the bloc’s Common Commercial Policy and accepts the European Commission as a collective negotiating body for important international traderelated matters, particularly negotiations within the WTO. It also conforms to the anti-dumping and anti-subsidy measures adopted by the Community, and does not adopt any trade defence measures or instruments against other EU member states.

Major Trading Partners and Leading Imports and Exports

Imports and Exports

The following table contains comparative figures of the import/export flows of Romania for 2004, 2005 and 2006.

In 2006, the main export countries were Italy (17.9%), Germany (15.7%), Turkey (7.7%), France (7.5%) and Hungary (4.9%), while the imports were from Germany (15.2%), Italy (14.6%), the Russian Federation (7.9%), France (6.5%) and Turkey (5%).

 



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