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May 18, 2021

The status of the national economy in 2012, dependent on the volume of the foreign investments

At the beginning of this year, the Romanian economy registered a spectacular drop in a very important parameter for the “macro” balances – foreign direct investments (FDI). In January, the FDI reached a level of EUR 23 million, 16 times less than in January 2011. These numbers are a confirmation of the trend noted last year, when the FDI value was EUR 1.917 billion, down by 13.6% compared to 2010. The evolutions seen on the market over the last weeks brought a change of perspective, in that the wave of privatizations initiated or announced could reverse the trends on FDI. On Monday, March 26th, the Canadian firm Roman Copper won the tender for Cupru Min Abrud, with an offer of EUR 200.8 million, i.e. 3.5 times more than the starting price. Over the last four years, the Ministry of Economy has missed several attempts to make the copper mining company viable or to privatize it. On Tuesday, March 27th, the Government announced that it managed to fully sell its 15% interest in Transelectrica, which was subject to a public bid. By this move, the state is to receive 164.7 million lei. The privatization carousel will continue over the following period, with the tender for Oltchim and other public bids for minority interests, in Romgaz, Hidroelectrica, Nuclearelectrica, Electrica or Tarom branches. These companies are the last in the state portfolio to be considered the “pearls of the crown”, a cliché made famous in the ’90s.

Solution – “greenfield” projects

In 2012, the FDI statistics could be saved by these opportunities, but the basic problem remains, as the state will have nothing else to privatize anymore in the next years. The economic policies of the Government should focus on encouraging “Greenfield” investments and public-private partnership projects. At present, Romania has difficulties in attracting foreign capital, for two reasons: lack of transport infrastructure, decrease of competitiveness, excessive taxation or administration corruption. The FDI statistics are highly relevant, in the context in which Romania relies on foreign capital inflows to solve the imbalances caused by the current account deficit. In 2011, the current account of Romania’s payment balance registered a deficit of EUR 5.682 billion, up by 3% compared to 2010. This deficit was financed, in a share of only 33.7% by the direct investments of the non-residents in Romania. Even though it feared to admit a risk of contagion for Romania in case of recession in the euro zone, the Central Bank admitted that the economic advance is, first of all, exterior-dependent, i.e. foreign financing and capitals. Financial consultant Bogdan Baltazar has recently highlighted this direct relationship between FDIs and economic growth, on the background of the state obligations to limit its expenses, in order to meet the deficit targets. “It is sad and revolting that Romania does not have ready-to-start “turnkey” projects and the foreign direct investments are in free fall. I know only one single project which can be quickly implemented; everybody knows it, the Rosia Montana mining project, a direct investment in the amount of two billion dollars. However, the response of the authorities, regardless of what it is, has been delayed for years. What signal does Romania give to the investors, by this lack of decision? A developing country needs industry, we cannot survive only with the automotive production”, Baltazar said.

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