By Dr Ludwik Sobolewski
Chief Executive Officer of the Bucharest Stock Exchange
Dr hab. Paweł Śliwiński
Professor at the Poznań University of Economics
President of INC
Central and Eastern Europe isn’t perhaps one of the favorite investment areas for the global investors. That’s because the world is very big and there is a great choice of places to invest. The economies of the countries in the region are still in an initial stage of capitalist development, their sizes are not large and investment creates typical risk for emerging economies. This limits the flow of money coming to this part of the world. But at the same time, investors look towards the future and not towards the past. The forecasts for the CEE (Central and Eastern Europe) region are generally very positive. And let us be open about it: when it comes to investment in companies which are at different development stages, which are quoted or not yet quoted on the stock exchange, which aspire to the role of stars in the new economy, there are two countries in the region that awake the investors’ interest today: Poland and Romania.
An analyst from the London Capital Economics, quoted by Bloomberg, recently said that the data on our region’s GDP reminds us that emerging markets are not only characterized by sadness and depression. In turn, in its August report Nomura International encourages greater involvement in our region. PineBridgeInvestment goes even further with its opinions, calling Romania (and the whole region) a safe haven.
The countries in the region are the fastest growing economies in the European Union. This is confirmed by the latest data for the second quarter of 2015. The data shows that the GDP growth rate in our part of Europe remained at a high level (eg. The Czech Republic – 4.4% year on year, Poland – 3.3%, Romania – 3.3 %). The first quarter result of 4.1%, which was reached by Romania, was the highest in the EU.
These statistics should not be surprising. Already at the beginning of 2014, in the Escape ranking elaborated by experts from PricewaterhouseCoopers, Poland and Romania were defined as rising stars of the world economy. According to the World Bank forecast, Polish and Romanian economies will grow in the coming years with an annual average rate of over 3%, being supported by the absorption of the funds obtained from the European Union.
It would be good if the two countries got closer to each other for their mutual benefit, until the world pays attention to them for good.
Poland and Romania are the two biggest countries in the region, both in terms of area, population and GDP (measured by the purchasing power of the population). Together we are a considerable market inhabited by nearly 58 million people, only a few million less than in Italy (60.8 million – data from 01.01.2015), the UK (64.8 million) or France (66.4 million)). The presence in the EU increases our economic stability and both countries are major beneficiaries of EU funds. Membership in the EU can be seen particularly in the form of new roads and better infrastructure. It is worth adding that from the budget for 2014-2020, Poland was granted 101.5 billion euros and Romania 42.8 billion euros.
Poland and Romania are economically stable countries. With low inflation, relatively low public debt (public debt of Romania is only at 39% of the GDP), low interest rates and a relatively stable exchange rate, they give a great sense of security to foreign investors and contractors. It can also be added that both countries performed well during the recent global crisis. Poland did not fall into recession, while Romania, thanks to good policies, emerged with great success from a very severe recession.
We are connected not only by opportunities, but also by threats, the biggest of which being the population decline due to low natality rates and economic migration. According to the estimates of the CEED Institute, more than 2.4 million Romanians and 1.8 million Poles have migrated for economic reasons to the countries of the so-called old Union.
Romania is increasingly appreciated by Polish entrepreneurs. In 2014, Polish export of goods and services to this country amounted to approximately 12 billion PLN and it is systematically growing (eg. in 2010, it amounted to 7 billion PLN). This places Romania on 18th place among the countries to which we export. The balance in trade turnover is positive. We import from Romania goods and services amounting to about 6 billion PLN (2014).
However, Romania is not only a rapidly growing large market for Polish export, a market which is close to us from the geographical and cultural point of view.
Romania is also a place for potential investments of Polish capital. In the near future, the process of privatization should speed up. It is expected that several companies will enter the Bucharest Stock Exchange (BVB) with initial public offerings (IPOs). Shares listed on BVB, characterized by an average indicator of P/E=11,4, as well as attractive, highest in the region dividends of approx. 4.5% (data for July 2015) may be of interest to Polish investors.
Especially since Romania is considered as a market with reasonably underpinned aspirations. Sooner or later, this will lead to the inclusion of Romanian selected companies to the MSCI index for emerging markets and to the so-called reclassification of Romania to the circle of emerging markets, and this, in turn, should attract new foreign capital. This would not be possible without the changes that are taking place on the capital market. Consistent restructuring of the BVB, including the establishment an AeRO market for small and medium-sized companies and the removal of bureaucratic barriers limiting the foreign investors’ access to the market, should attract Polish companies to the stock market, companies that are guided by the desire to consolidate their positions on the Romanian market at lower costs than those of going public than in Poland.
Romania also provides many investment opportunities for companies that would decide to expand abroad. Increasing foreign direct investments are attracted not only by the large market and the cheaper than in the old EU labor force, but also by the linear CIT and PIT rate of 16%, the 9% VAT on all food products and non-alcoholic drinks, as well as by the prospect of a 20% VAT on the rest of the products starting with January 1st, 2016. Romania’s advantage is also its English-speaking, well-educated staff in the field of new technologies. Here it is worth paying attention to one of the highest in the EU rates of qualified IT specialists reported to the country population, to the fact that internet in Romania, together with the one in Estonia, is one of the best in the EU in terms of quality of data transmission, to the bitcoin cash machines with which one can pay in some restaurants and cafes in Bucharest and other cities, as well as to the anecdote-sounding, yet real information that the second language spoken among Microsoft employees, after English, is Romanian.
In Romania, Poland is a visible supplier of food products, household chemicals, cosmetics and light industry products. With a 4.3% share, we rank sixth among Romania’s partner countries at import. We are also a country, which receives 2.4% of the Romanian exports (1.4 billion €). With the development of investments of the Polish companies in Romania and of the Romanian companies in Poland, we should become even more important partners for each other.
Polish capital is increasingly noticeable in Romania. In the financial sector, Idea Bank and Kruk are present among others, while Alior Bank has recently announced its business entry to Romania. Polish private equity funds are seeking for investment opportunities. The Polish fund VC / PE Carpathia Capital investing in companies from the SME sector is listed on the Bucharest Stock Exchange, while Authorized Advisor for the AeRO market is the Polish stock market company INC, which has already introduced two companies to the market (one Polish and one Romanian). In the non-financial sector, companies from the following industries are present: IT, construction, services, chemical. Maspex Group, which has production facilities in Romania (Tymbark Maspex Romania), has recently purchased a leading producer of water Rio Bucovina.
Romania is undergoing the transition in a very positive direction, though its pace may be still disappointing in some areas. In many domains, the Polish solutions are given as a model. We see this even on the capital market, where Polish experience is used in the construction of a market dedicated to small businesses (AeRO following the model of the Polish NewConnect), and generally in the creation of a basis for making Bucharest the financial center of South-Eastern Europe. It is worth underlining that the challenges standing before Romania attract experienced, market respected specialists from Poland.
Romania and Poland can and should be important economic partners. Both within the EU and within NATO, we are border countries (with the longest non-EU borders, that is with countries that are non-EU members) and strategic countries (as noted by political scientist George Friedman). There is virtually no dispute between our countries and there is a long tradition of cooperation. It is worth looking at Romania not through the stereotype of a non-modern, culturally different country and seeing it as it is becoming: an increasingly modern and prosperous country, offering opportunities for growth and development of business, above the average on a European scale, and, at the same time, a country which is close to us culturally and extremely friendly. There are not so many countries in the world where Poland is regarded as a model of social and economic success, whose elements can constitute reasonable inspiration or a model to copy. Polish entrepreneurs certainly appreciate and will continue to appreciate this form of intangible capital, which makes it easier to conduct a business.
*Translation from Polish by Crina Bârlădianu