Why to Invest in Romania ?

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Why to Invest in Romania ?

• International Investment Forum
• Romanian Chamber of Commerce and Industry
• October 15, 2004
• Bucharest, Romania
• Anca Harasim
• Executive Director, AmCham Romania

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Romania Country Profile
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Romania Country profile

• Area 238,391 sq km (12th in Europe and 81st in
  the world)
• 21,680,974 inhabitants (March 2002)
• Urban population 55
• Population structure by nationality 89.4
  Romanians, 7.1 Hungarians, 0.5 Germans, 3
  Others
• Currency1 LEU (plural LEI)
• Capital city Bucharest
• Main cities Cluj, Iasi, Constanta, Timisoara,
  Galati, Craiova, Brasov, Ploiesti.

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Economic overview GDP Growth and Inflation Rate
(1998-2002)
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Economic overviewExchange rate ROL/USD
(1997-2002)

• Exchange rate policy in 2003 aimed using this
  parameter as a stabilizer of inflation
  expectations and preserving external
  competitiveness.

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Leading industries

• Romanias major industries include
• Textile and foot ware,
• Light machinery and auto assembly
• Mining
• Timber
• Construction materials
• Metallurgy
• Chemicals
• Food processing
• Petroleum refining

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Preferred sectors for recent foreign investment
in Romania

• Oil and gas exploration
• Car manufacturing
• Banking and finance
• Food processing
• Heavy engineering
• Telecommunications IT
• Commercial construction
• Consumer products

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Foreign Capital Investments by Activities
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Why to Invest in Romania ?

• One of the largest markets in CEE, 2nd after
  Poland
• Skilled labour force, with solid knowledge in
  technology, IT, engineering
• Rich natural resources, including fertile
  agricultural land, oil and gas
• An important potential for tourism
• Extensive maritime and river navigation
  facilities (Constanta is the largest port on the
  Black Sea)

• Attractive location
• Allows easy access to countries of the former
  USSR, Middle East, Northern Africa being located
  at the cross-roads of traditional commercial
  routes
• At the junction of 3 prospective European
  transportation corridors
• Corridor 4 for motor vehicles and railways
  (Berlin-Prague-Budapest-Arad-Bucharest-Constanta-I
  stanbul-Salonic)
• Corridor 7 river (Constanta-Danube-Main-Rhine)
• Corridor 9 for motor vehicles and railways
  (Helsinki-Moscow-/Kiev-Odesa-Bucharest-Constanta-A
  lexandroupolis)

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Why to Invest in Romania? cont.

• The presence of branch offices and
  representatives of various well-known
  international banks Citibank, ABN-AMRO, ING
  Bank, RZB, HVB, etc.
• Diplomatic relations with 176 countries
• Member of the UN and other international
  organizations
• Accession to NATO and European Union
• Functional Market Economy Status granted by the
  USA and the European Commission
• Increasing international country rating by
  Standard Poors and Fitch Ratings

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Foreign Capital Investments (1991-2003)
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Top 10 countries - foreign investors
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Top 10 companies - foreign investors
Company Country of origin Value of Capital (USD Million)
ISPAT SIDEX SA (metallurgy) Dutch Antiles 485.21
MOBIFON SA (mobile telecomm.) The Netherlands 330.5
ROMPETROL SA (oil and gas) The Netherlands 309
AUTOMOBILE DACIA SA (automotive) France 235.9
RAIFFEISEN BANK (banking) Austria 171.1
DAEWOO AUTOMOBILE SA (automotive) South Korea 156.1
COLGATE PALMOLIVE SRL (cosmetics) U.S.A. 128.7
ORANGE ROMANIA SA (mobile telecomm.) France 103.3
SHELL ROMANIA SRL (oil and gas) Great Britain 100.5
ROMTATAY SA (plastics) Spain 98.2
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• Romania an important country for the United
  States and the European Union
• Its geopolitical position, history and recent
  world events require the country advance to its
  rightful place among Western nations
• Romanians admission to NATO has encouraged the
  Government of Romania (GOR) to commit more to
  Western alliances and take important steps to
  reduce corruption, minimize bureaucracy and
  strengthen the market economy
• The Country Report released by the EC on October
  6, 2004, has awarded Romania the functioning
  market economy status.
• Romania an important market to US and EU
  companies
• Romania has the second largest population in CEE,
  with 22.5 million consumers with increasing
  purchasing power, but yet to develop a middle
  class comparable to Poland and Hungary
• AmCham Romania has over 190 members comprised of
  some of the largest US companies, the majority of
  whom report significant profits and growth, which
  compare very well to other regions of the world.

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Government of Romania a new sense of openness
and urgency

• Promoted consultation with the business
  environment and, in that respect, had issued
  Government Ordinance 396/2002 and Law 52/2003,
  which requires that draft legislation affecting
  business environment be submitted for comment to
  interested parties
• Applied, starting with January 2004, a new fiscal
  system, based on a single fiscal code and a
  fiscal procedure code, destined to ensure a
  stable and predictable business environment
• AmCham actively took part in the consultations
  led by the ministries regarding the draft of the
  Labor Code and of the Fiscal Code, although with
  mixed results.

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EU Enlargement

• 10 new countries joined the EU in May 2004
• The number of states raised by 66 Population
  raised by 20 to 447m
• But GDP rises only 4.5 Average GDP per head
  will FALL by 13
• It is a long-term process benefits already felt
  and over next 5 years

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EU Enlargement Overview

• Major impacts
• Level playing field
• Wealthier customers
• More Western competitors
• Removal of trade barriers facilitate Pan-European
  distribution strategies
• Local CEE companies face threats and
  opportunities
• Costs of conforming to EU regulations
• Competing on open market
• But good CEE companies will build niches and even
  expand westwards

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• EU Accession Process
• Driver to advance reforms and ensure fully
  functioning market economy
• Will improve rule of law
• Much work continues, notably to improve
• the legislative process
• regulatory oversight by governmental agencies,
  administration of the courts
• consistent and regular enforcement of laws.

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Business Impacts

• Companies adjust to new laws, new funding systems
• Level playing field, richer consumers, more
  competitors
• Best local CEE companies start to exploit EU
  market
• CEE corporate dinosaurs start to collapse as
  subsidies decline
• Western companies buy some up? Or cherry pick?
• Economies move away from industry and agriculture
  to services opportunities for services and IT
  companies

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Business Impacts cont.

• Business to business
• local CEE companies will look for Western
  partners to survive
• will want Western partners to break into Western
  markets

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Local CEE companies

• Those in heavy industry, food, energy and
  telecoms will face most pressure
• Opportunities for partnerships, MA or buyouts
• Shake out of inefficient CEE companies means
  greater specialization of local business
  integrating in supply chain of MNCs

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Benefits of EU Accession

• But FDI will CONTINUE and not fall off - in 2003
  CEE region was ONLY part of world that saw FDI
  increase
• EU accession gives benefits to CEE region
  compared with rest of the world
• reduces all types of risks
• reduces transaction costs
• Increases market to 450m and potential for
  production sites
• Source EIU, January 2003

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EU Accession Effects on Investments

• Type of investment will change as CEE moves away
  from low cost base
• New members wont be able to compete on cost
  with Romania, Ukraine and Far East
• But within the EU, the CEE markets will stay
  low-cost bases for another 15 years
• They retain advantage over Far East as location
  on basis of skills, infrastructure proximity,
  i.e. when cost alone is not the criterion

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EU Accession Effects on Trade

• 80 of CEE goods already enter EU tariff-free
  Freeing up of agriculture and services to come
• Removal of threats of anti-dumping will ease
  trade flows especially in fertilizers, chemicals,
  steel, clothing textiles
• This will block remnants of business with CEFTA
  but Balkans helped by EU association agreements
  (Stability Pact Bi-Laterals)
• EU insists that member states fulfill all
  Schengen requirements strictly
• Meeting Schengen does not trigger lifting of
  internal border controls (estimated 5 years,
  whereas Greece waited 8 years to join Schengen
  and Italy 7 years)

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Romanias Accession to EU

• Romanias goal EU membership by 2007.
• Romania must demonstrate
• political and administrative requirements related
  to democracy, rule of law and human rights.
• adoption of Acquis Communautaire.
• Three more chapters to be closed by the end of
  2004 Justice and Home Affairs, Competition and
  Environment

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Benefits of the Enlargement

• Benefits of enlargement outweigh the costs
• Strong incentives for economic reform
• High rates of economic growth
• Achievement of a functional market economy
• Better employment prospects
• Enlargement is a positive-sum game

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Consequences of Enlargement

• Better climate conducive to trade and investment
• Expansion of the EU Single Market competition
  rules, enterprise policy and regulatory reforms
• Subject to EUs WTO obligations
• Common External Tariff
• Future adoption of Euro

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Opportunities for U.S. Business

• Improved market access one standardization
  process one certification process
• EU Structural Funds environment, transport,
  alternative energy, IT development, industrial
  investment
• Regional development aid open to Public/Private
  Partnerships with U.S. companies

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Trade and Investment Leads

• Equipment for food packaging
• Sterilizing, dehydrating and jar packaging
  equipment
• Request for Aluminum extrusion line
• Demand for high productivity pipe soldering
  equipment
• Equipment and know-how for powder injection
  molding
• Demand for automotive expendables
• Equipment needed for urea formaldehyde resin
  factory
• Equipment for furniture factory
• Equipment for primary wood processing
• Equipment for internal television network

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Trade and Investment Leads

• PPP in telecommunications
• PPP for railway project
• Partnership in railway freight business
• Partnership in establishing a mortgage fund in
  Romania
• Demand for specialized medical equipment MRI, CT
• Partnership for a private maternity clinic.
• Demand for agricultural tractors
• Partnership for agribusiness on 30,000 hectares
• Packaging equipment for mineral water
• Equipment for stratified beams production

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AmCham Making connections for U.S. Business

• Established in 1993, is the largest business
  association in Romania with 190 members which
  created over 40,000 jobs and representing a total
  of 5.5 billion USD investment
• Assists its members develop their business in
  Romania
• Actively contributes to the improvement of the
  business environment and regulatory framework
• Supports U.S. Romanian business ties

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• AmCham services
• Lobby and advocacy
• Networking and Communication
• Linkages with United States and European Union
• Publications
• Special events
• Declaration of Business Principles
•  
• Respect relevant laws and regulations and
  adherence to the rule of law
• Respect the highest standards of business
  practices in dealing with government officials
• Engage in fair business practices
• Follow responsible environmental policies
• Engage in good corporate citizenship
• Establish the highest standards for labor conduct
• Ensure a safe and healthy workplace

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Achievements

• Increased membership 5 times in the last 4 years
• Negotiated and implemented the Free Trade
  Agreement with Yugoslavia
• Signed the Memorandum of Understanding with
  AmChams in SE Europe to better promote the region
  to foreign investment
• Abolished Ordinance 18 (hard currency
  repatriation)
• Increased the tax-deductible interest rate
• Developed a successfull Intellectual Property
  Rights and Corporate Social Responsibility
  Programs in 2003 and 2004

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AmCham Committees

• Tax Committee
• EU Committee
• Labor Task Force
• Judicial Reform Task Force
• Competition Task Force
• Environment
• Small and Medium Enterprises Committee
• Public Affairs Committee
• Membership Committee
• 6. ITC Committee
• CSR Committee

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Future Perspectives 2004-2005

• Improve dialogue on legal issues and continue
  AmChams involvement in the GOR consultative
  process
• Support the government in the EU accession
  process
• For SMEs develop periodic events on specific
  topics and training seminars
• Promote IPR and continue the Corporate Social
  Responsibility Program
• Initiate a Business Principles/ Corporate
  Governance Program

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Future Perspectives 2004-2005-cont.

• Further our efforts to remain the leading
  business association in Romania
• Present the Government with pertinent solutions
  for the improvement of the Romanian regional
  competitiveness 
• Promote transparency at all levels and
  authorities in order to ensure a level playing
  field for all taxpayers

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AmCham Board of Directors

• Honorary Chairman Jack D. Crouch II, U.S.
  Ambassador to Romania
• President Roberto Musneci, GlaxoSmithKline
• Vice Presidents Matthew Price, Procter Gamble
• Dan Ionescu, General Electric
• Treasurer Vasile Iuga, PricewaterhouseCoopers
• Members of Board Nikos Koumettis, Coca-Cola
  Romania
• Radu Enache, Hewlett Packard
• Obie Moore, Altheimer Gray
• Henk Mulder, ABN AMRO Bank
• Andy Dillon, Timken Romania
• Executive Director Anca Harasim
• Fax [phone]
• E-mail amcham_at_amcham.ro
• Web page www.amcham.ro
•  

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Thank You !!