February
2008
ECONOMICS
 
Vol. 4 No.1  
 

Social spending dominates new budget

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Social spending on health and education has increased in the 2008 budget, ahead of an election year.
Parliament passed the minority Government’s proposals with 98 per cent of the vote.
Education spending won six per cent of GDP, the largest increase on the previous years, while health increased to 4.5 per cent of GDP.
The budget is based on incomes of around 47 billion Euro, spendings of around 50.5 billion Euro and a current account deficit of 2.7 per cent of GDP.
Transport and infrastructure gained four per cent of GDP and agriculture 2.7 per cent of GDP, an increase of 13 per cent on the previous year.
Some taxes will also fall. According to the draft state social securities’ law, health, pension and unemployment contributions will fall by 1.5 per cent for employees and 4.3 per cent for employers.
In 2008 the Government estimates an economic growth of 6.5 per cent, which will raise the GDP to around 120 billion Euro from 111 billion Euro in 2007, an inflation rate of 3.8 per cent and a current account deficit of 13.3 per cent.
Most analysts believe this inflation target is optimistic. In 2007 inflation rose to 5.7 per cent and this year the IMF believes it will be hard to bring the rate under five per cent.


Becali bank plans corporate and private services

Former presidential candidate, real estate magnate and financier of Steaua Football Club Gigi Becali is planning to open a bank offering private and corporate services from his current city residence in north Bucharest.
Officials from the potential bank were preparing documents as we went to press to gain approvals from the central bank (BNR), a process which will take up to four months, before more approvals will be needed to operate.
The bank will have its headquarters on 1 Aleea Alexandru, in the embassy zone of Bucharest.
It will target the wealthy, big business and sportspeople, especially football players. Becali has said this will be the ‘Roll’s Royce’ of banks.
Over ten banks in Romania are now offering private banking services to the emerging affluent of Romania.
The rush to offer private banking is ahead of what analysts believe will be the most competitive year for private banking. In the last six months MKB Romexterra, Credit Europe Bank, ABN Amro and OTP bank have launched private or preferred banking services.
This joins Eurobank EFG, through Bancpost, BRD Groupe Societe Generale, ING, BCR Erste and Unicredit Tiriac.
A growth in Romanian entrepreneurs exiting their businesses and cashing in on real estate investments has spurred the growth in private banking. This new class of individuals is looking for low and medium risk instruments to place some liquid assets, while guaranteeing decent returns.


Ministry of Finance u-turns on punitive car tax

Romania’s Government has drafted a new tax for car owners, following last year’s punitive tax regime for imported motors, which penalised drivers for the age of their car and the size of its engine.
The new pollution tax, which comes into force on 1 July 2008, will continue to charge for a larger engine capacity.
But, in a total reversal of last year’s tax, which charged drivers an incremental tax proportional to the increasing age of their cars, now the younger the car, the higher the tax.
The European Commission last year slammed Romania’s tax which landed a car importer of a 4,000 Euro decade-old Volkswagen Passat with an additional 5,000 Euro cost burden to register the car in Romania.
Owners of cars with a low pollution emissions, such as Euro 4 cars, will pay lower taxes.
The amounts collected from the tax will be used for the financing of environmental projects and programmes. The money will be managed by the Administration of the Environment Fund.
In reply, the European Commission has expressed its liking for the terms of the new regime.


Nokia risks German market for Romanian relocation

World-leading mobile phone brand Nokia is facing a scandal over the decision to relocate its operations from Bochum, Germany, to Jucu, Cluj county.
The move, due by the end of this year, has sparked heated reactions from German politicians in the European Parliament and from the German population.
The German MEPs have accused the Romanian Government of using European funds to develop the region where Nokia has announced it will make the greenfield investment.
Due to this incentive, they argued that Nokia has decided to transfer all operations from Germany to Romania.
The European Commission denied that Nokia had received any subsidies from the EU. The Romanian Ministry of Economy and Finance has also dismissed the allegations.
In Romania, Nokia intends to hire up to 3,500 people by the end of 2008. The factory in Cluj county will start functioning this month and, according to information as we went to press, nobody can stop the move.
In the meantime, the Nokia brand faces a boycott in Germany. Most German politicians have stated they will never use the Finnish brand of mobile phones ever again.
CEO of Nokia Olli-Pekka Kallasvuo told Stern that even though the relocation will affect German consumer behaviour, the company’s decision is final.
The investment in Jucu is worth 60 million Euro and the relocation was decided due to the low salaries, skills and the growing market in Romania.


Short News

Interest rate hike to eight per cent

Romania’s central bank (BNR) has raised the key interest rate to eight per cent from 7.5 per cent, in an attempt to reach the 3.8 per cent inflation target set for 2008. This is the second rise of 0.5 per cent in the last four months, aiming to cool the consumer spending boom fueling the nation’s massive current account and trade deficits.

Public deficit soars over forecast

Romania’s public deficit for 2007 was almost double the forecast of the Ministry of Economy and Finance. The Ministry’s estimates of 1.4 per cent deficit of GDP were eclipsed by a figure of 2.4 per cent at the end of the year. The Government blamed this on large expenditures by local administration offices and last summer’s drought. Using EU accounting standards, the public deficit reached levels of 2.6 to 2.7 per cent of the GDP.

Worry, but don’t panic

Concern over Romania’s economic health has been expressed by Cristian Ionescu, managing director of country risk rating firm Coface Romania. But he did not predict a collapse. The agency has slashed the country risk rating for Romania for 2008 from A4 last year to A4 minus. This decision is due to a deteriorating political environment, a widening trade deficit and the national bank’s decision to increase interest rates.

Boom in airport passage,
but numbers still low

Romania has witnessed a boom in airport passenger transport, but the numbers fall short of Bulgaria. In 2006 the nation with the sharpest rise in air transport in the EU was Romania, according to Eurostat, with a 35 per cent rise on the previous year. But Romania’s 4.7 million air passengers  are fewer than Bulgaria’s 5.6 million, with the Slavic country’s numbers boosted by tourism. Henri Coanda airport was the 73rd busiest airport in the EU with 3.5 million annual passengers, fewer than half that of Budapest Ferihegy and Warsaw Okecie.

Saudi Oger takes over all of Zapp

Telemobil, the operator of the fourth largest mobile phone network in Romania, Zapp, has been bought out by Saudi Arabia-based mixed interest group Saudi Oger. In 2000 Inquam Romania, then 50 per cent owned by Saudi Oger, bought Telemobil from US-based Qualcomm Inc. Saudi Oger is owned by the Lebanese Hariri family. Zapp has around 500,000 customers in Romania. Details of the transaction were not made public.

Commercial vehicles in sales boost

Buses, vans and new cars were among the winners as automobile sales saw an increase of 23 per cent in sale numbers in 2007 compared to the previous year. Around 367,000 vehicles were sold in 2007, according to the trade association the Automotive Manufacturers and Importers Association. Sales of new cars rose by 23 per cent, buses up by 29 per cent and commercial vehicles registered a 25 per cent increase.

Local sanitary equipment group buys Serbian distributor

Local sanitary and electrical equipment provider Romstal has made its first acquisition outside its own country with the purchase of Serbian equipment distributor Doming for ten million Euro. Doming has a 20 to 25 per cent market share in Serbia. In 2006 Romstal’s turnover rose by 40 per cent to 310 million Euro. The group aims for a turnover of 600 million Euro by 2012.

Banca Transilvania sets sights on Republic of Moldova

Banca Transilvania, the largest Romanian-owned bank, plans to expand to the Republic of Moldova this year. A firm decision on the move will be made in the general shareholder’s meeting in April, general manager of Banca Transilvania Robert Rekkers told Business Standard. The bank will need approval from the National Bank of Moldova. Banca Transilvania also plans 70 more units for Romania this year, taking its total to 500.

Local tourist chain snaps up
seaside hotels

Romanian hotel chain Unita Turism Holding, which has 25 two- to four- star hotels, has bought the Olimp Estival 2002 hotel chain for 21.3 million Euro from the Privatisation Authority. Sulina Estival 2002 and the Phoenicia Hotels chain were the other two bidders selected. Olimp Estival 2002 includes two-star hotels in the Olimp sea resort, Amfiteatru, Belvedere and Panoramic.

Carrefour to central east capital

French-based retail chain Carrefour will open in the second half of this year its sixth hypermarket in Bucharest, in the Vitan neighbourhood, close to Bucuresti Mall. The five-million Euro investment will be developed on a 4,000 sqm area. In related news, Carrefour has recently partnered with Austrian Omniasig Vienna Insurance Group for the launch of five types of insurances RCA, CASCO, home, goods and travel insurance, which will be available in-store.

Corporate property loophole closed

Real estate transactions by corporations will now carry a VAT of 19 per cent, ending a loophole in the law allowing companies to buy property at a cheaper rate. Since January all real estate transactions are carrying the 19 per cent tax burden.

Local building store takes on capital 

Construction retailer Dedeman Bacau Group will invest 35 million Euro this year in four new stores in the country and Bucharest, according to Ziarul Financiar. Dedeman has ten stores in Suceava, Iasi, Piatra Neamt, Vaslui, Roman, Bacau, Onesti, Focsani, Braila and Targoviste and a logistics centre in Bacau.

Credits to fund energy efficiency

European Bank for Reconstruction and Development (EBRD) has begun a credit facility for industrial firms which make efficient use of energy resources. Loans are available through BCR - Erste, savings bank CEC and Banca Transilvania.

Hard Rock breaks into market

US restaurant network with rock-n-roll memorabilia and classic American cuisine Hard Rock Cafe has opened its first restaurant in Romania in Herastrau Park. Built over 2,000 sqm, the new Hard Rock Cafe Bucharest has inside seating for 450 guests plus an outside terrace with a view over the lake and additional seating for 250.

Viennese trams for Oradea

Oradea City Hall has signed a contract with Siemens to buy ten new trams, to be rolled-out by 2009. Each tram costs about 2.7 million Euro and is the same model as those operational in Vienna.

Copenhagen to fly to Bucharest

SAS Scandinavian Airlines will begin flights between Copenhagen and Bucharest Henri Coanda Airport starting from 1 April this year. This will be the first line set up by the joint Danish, Swedish and Norwegian carrier.


 
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