Romania - Investment profile

Romania has a skilled, well-educated labour force. Wages are still among the lowest in Europe. The combination of cheap labour and readily available raw materials puts Romanian producers in the construction, building materials, and base chemical and pharmaceutical industries in a low cost position in international markets.

Furthermore, Romania is a large domestic market with nearly 24 million consumers. Many of the sectors of the economy are underdeveloped and thus represent virgin markets. Formerly the largest wheat producer in Europe, the country has a strong agricultural sector and is rich in raw materials.

In the 1990-1999 period significant progress has been made in establishing a market economy. The business climate has been enriched by many means, such as:

• restructuring and modernising the banking system;
• introducing full current account convertibility of the currency;
• extensive privatisation and liberalization of the foreign trade sector;
• linking prices to actual costs;
• developing a more understandable system of direct and indirect taxation;
• privatising the "regies autonomes"

Substantial growth opportunities exist for foreign investors in a number of sectors, such as agriculture, mining, machine building, food industry, metallurgy, petrochemicals, light industry and wood processing, as well as the more promising sectors below:

chemicals and pharmaceuticals. Many Romanian companies in this sector have a strong position in the local market, are low cost producers with strong export potential, and are experienced in selling to developing countries.

construction and building materials. Currently, this is a high-growth area in the local market. In major cities current and announced building projects are insufficient to cover the demand for housing and office space. Imported building materials are expensive, while the raw materials required to produce them are available locally. Substantial greenfield opportunities exist in this area.

banking and insurance. Banking is one of the fastest growing sectors of the Romanian economy. More than forty banks currently operate in the country. The Romanian Development Bank was privatised in 1998.

The insurance sector is poised for rapid growth too. Romania has a low insurance penetration ratio in South East Europe, with the most quickly developing economy. Several state-owned insurers would be good to buy.

It is a stated goal that the Romanian authorities want to attract foreign investment. In order to achieve this goal the state's power over the economy has had to be decreased. Over the last nine years the Romanian legislative bodies have issued more than 190 regulations (laws, ordinances, decisions etc.) with a view of transferring ownership from the state entities to the private sector through the acquisition of shares or assets by private companies or individuals, Romanian or foreign.

The huge amount of regulations is due to the modifications suffered by such legislation as a result of the experience gained during all these years in the course of privatisation. During this process a number of executive bodies were created in order to manage, execute and fulfil the privatisation - The Romanian Development Agency, The Ministry of Privatisation, The State Ownership Fund. All of these are related to each other through their attributes and a certain hierarchy.

However, the "performer" of the privatisation was considered to be the State Ownership Fund, part of its role being to establish the annual privatisation program and to apply all the issued regulations. Acting as shareholder, on behalf of the state, the SOF is the public institution which is establishing the link between the public and private sectors, with a view to achieving its goal established by law - to decrease the state's domination over the Romanian economy.

Foreign investors can either acquire the state's shares in a fully or partially state-owned joint stock company from the State Ownership Fund or by acquisition of equity from private investors. Privatisation of over 4,500 companies has been approved and completed in Romania since 1992.

Privatisation methods include open and closed tenders, local stock auctions, direct sale, management and employees buy-outs (MEBO), as well as promoting Romanian companies on international capital markets, using foreign investment banks as intermediaries. With a view of achieving such foreign investment goals in Romania, the regulatory climate has established several rules meant to protect the investor, such as:

repatriation of earnings and capital - the earnings and profits of the investment can be repatriated after payment of state liabilities. Upon cessation of the investment/business, capital can be repatriated. Also, no restrictions are imposed on the amount of capital that can be invested in Romanian enterprises.

guarantees and rights - foreign investments are not subject to nationalisation, expropriation, requisition or any other measure of similar effect, except when this is in the public interest and even then only with "appropriate compensation". Romania has concluded a number of bilateral investment guarantees and is a member of "MIGA - the Multilateral Investment Guarantee Agency.