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March - 2005

Economic News

Negative trade gap widens

Romania hit a trade deficit record as the negative difference between imports and exports rose by almost a third to 7.34 billion, according to the National Statistics Institute (INS). In 2004, Romania's imports were worth 26.3 billion Euro, a 24 per cent rise on 2003, while its exports increased by 21.3 per cent to 18.9 billion Euro. The majority of imports were mechanical and electrical machinery and equipment, audio-visual products, minerals, clothing and steel products. The value of imports from the European Union countries grew by almost one fifth to about 65 per cent, with Italy and Germany remaining leading exporters. As for Romanian exports, textiles remained strong at 22 per cent of the total.

Controversial border security deal faces renegotiation

The border security contract between the Government and EADS will be re-examined and renegotiated, said the Minister of Administration and Administrative Affairs Vasile Blaga. The trans-European firm signed a deal last year for one billion Euro to provide border surveillance, an IT infrastructure, training and 184 administrative centres and security for 3,147 km of Romania’s border.

IMF demand budget moves closer to zero

IMF has called on Romania to lower its budget deficit to 0.4 per cent of GDP. This would mean at least a further half percentage cut in the 2004 level of one to 1.2 per cent. To contribute the IMF and Romania have not agreed to a rise in VAT of one per cent, but into increasing excise duties on mineral oils, tobacco and alcohol three months before the planned July 2005 introduction. The IMF estimates budgetary incomes will decrease by at least 30,000 billion ROL (around 0.8 billion Euro) following the introduction of the 16 per cent flat tax. A 5.5 per cent growth level and seven per cent inflation target for 2005 are also suggested.

Daewoo Craiova in rumours of salvage package

Troubled factory Daewoo Craiova could be establishing a rental contract with Dacia-Renault, if rumours on the market are to be believed. The Oltenia-based car plant faces closure this year unless a buyer can be found. Asked by The Diplomat whether these rumours have any grounding in truth, Dacia-Renault declined to comment.

European finance giants close in on state bank with largest network

National Savings Bank CEC is attracting a bevy of European banking suitors with official interest arriving from Austrian Raiffeisen, Bank Austria Creditanstalt (part of the German HVB group) and Erste Bank, Hungary’s largest bank OTP and Italians Unicredito and Banca Intesa. US investment bank JP Morgan was hired to complete the privatisation strategy. CEC has 41.5 million Euro in equities, 9,000 employers, 1,408 branches and last year posted a 589 billion ROL profit (16.3 million Euro), up 32 per cent on 2003.

BCR attracts less enthusiastic suitors

The privatisation of the Romanian Commercial Bank (BCR), due to be complete by the end of 2006, has not drawn as much enthusiasm from international banks as National Savings Bank CEC. Bank Austia Creditanstalt (part of the HVB group) and Erste Bank stated they would be interested in BCR if they received a negative response from CEC. Deutsche Bank and Unicredito expressed their official interest in purchasing BCR.

Central Bank slashes interest rates again

Central Bank (BNR) has cut its key interest rate by three quarters of a percentage point to 15.75 per cent for domestic currency deposits, following a drop in inflation to a 15 year low. The bank said excess currency in the market favoured the appreciation of the ROL and relieved inflationary pressures. Following protest from exporters for BNR to intervene on the market to re-establish foreign currencies, the Central Bank had bought 600 million Euro as we went to press.

Hydropower station wins big loan

Electric producer Hidroelectrica has won a 66 million Euro loan from the World Bank to rehabilitate the Lotru-Ciunget hydropower station, Valcea county, in order to ensure it can release a constant power supply of 510 megawatts over 20 years. The tender to select the general contractor will be held before April and consultants are expected to submit expressions of interest by 25 March to Hidroelectrica. The bank is also supplying loans of 475 million USD to Romania, supporting transport restructuring (225 million USD), modernising agricultural knowledge and information systems (50 million USD), mine closure and environmental and socio-economic regeneration (120 million USD) and health sector reform (80 million USD).

Romania could hit CO2 jackpot in Kyoto lottery

Romania's carbon dioxide (CO2) emissions have decreased by up to 150 million tonnes, potentially qualifying the Balkan country as a benficiary of the Kyoto protocol to combat climate change and reduce emissions globally. Up until now, Romania had given up the right to exchange CO2 with a few European countries such as Denmark, Austria and Holland in exchange for more then ten million USD in investment. The developing country could recieve up to two billion Euro for every 100 million tonnes of CO2 saved.

Zapp signs large expansion package

Third largest mobile phone operator in Romania Zapp has recently signed a 94 million USD loan to accelerate its network development, increase coverage and improve services in a landmark loan for a CDMA450 operator. The financing package consists of a 40 million USD loan arranged by Bank Austria Creditanstalt/HVB Romania and Raiffeisen Bank Romania as Mandated Lead Arrangers, and 54 million USD subordinated loan from the US Exim Bank (with funding via Citibank) and the Black Sea Trade Development Bank. On whether the loan will be used to purchase a 3G license from the Government, should the opportunity arise, Mihaela Lupu, Head of Corporate Affairs Zapp said the firm "is capable of 3G technology so the money spent on it wouldn't be justified".

Mobile network to match last year's investment

One of the leading mobile phone firms Connex will invest a further 100 million USD this year, as it gears up for the introduction of third generation technology. The firm is also considering a bid for mobile network Cosmorom, which is owned by OTE group, who run fixed network Romtelecom. In total Connex has now invested one billion USD, which is the same as rival Orange.

Cernavoda wins big credit to complete new nuclear unit

State-owned Nuclear energy firm Nuclearelectrica has received 100 million Euro from the European Atomic Energy Commission (Euratom), the first part of a 223.5 million Euro credit. The amount will help complete works at the Second Unit of Cernavoda nuclear plant, which should start functioning this year and producing energy in 2006. The Euratom credit is a contract from the European Commission for a 20 year period, with guarantees from the Romanian state. Meanwhile Vladimir Putin has told President Basescu that Russia is ready to build the third and fourth reactors of the Cernavoda nuclear facility.

Wood industry under fire from strong Leu

Financial crises in the wood industry could see 185,000 employees lose their jobs and union leaders are expecting half of the businesses to close down in three months due to rising export prices. “The situation is very ugly,” says Free Union Federation from the Wood Industry (FSLIL) leader Vasile Badica. “There are no signs that we will find some reasonable solutions. The main reason for the financial crisis is the strength of the ROL against the USD. We have recommended the stagnation of the Euro-ROL flow. The sudden decrease of the Euro means a rise in prices [for exporters buying wood from Romania] that leads to bankruptcy.”

Romanian furniture too expensive to export

Due to the ever stronger leu, the furniture exports are also no longer making profits and could lead to bankruptcy for some producers, argues the Romanian Association of Furniture Producers. At present over 70 per cent of the production goes abroad.

Franchising still the favoured course

More then 170 national and international networks have chosen franchises to develop their business in Romania and boasted a total turnover for last year of 730 million Euro. In 2004, 40 new names, such as Spanish clothes brand Zara, entered on the Romanian market as franchises. Major multinational and international brands tend to outsource to franchises to reduce their own costs in expanding into developing markets, while still building their brand presence globally. 43 of these franchises are Romanian, while fresh-baked snack firm Fornetti has the largest network.

Foreign shares rises by half

Foreigners invested 2.25 billion Euro in shares of Romanian companies last year, according to the National Office of the Trade Registry (ONRC). This is a rise of 46 per cent on the 2003 figure.

Russia accounts for a quarter of current account deficit

Two billion dollars is the value of Romania's trade deficit to Russia. Oil, natural gas and coal are the main imports from Russia, while half of the Romanian exports are made by Alor Oradea, owned by Ruski Aluminium, and Artic Gaiesti.

ROL a roaring a success abroad

Due to its accelerated growth compared to the Euro, the Leu is the third most attractive currency for investors after the Polish zloty and the Brazilian real, according to Bloomberg. However dealers still cannot estimate what will happen in April and June, after the next step in current capital account liberalisation.

Telecom opperators to go private

2006 is the deadline set by the new minister of IT&C Zsolt Nagy to privatise RomTelecom, Radiocomunicatii, Posta Romana and POSTelecom. Through these privatisations and others such as Teletrans, Telecomunicatii CFR and CosmoRom, the state expects to cash in between 500 million and one billion USD. Analysts consider 2008 to be a more realistic year to finish the process.

4.5 billion Euro in debts to the state

Debts of large companies to the state budget amount to 2.6 billion Euro as announced by the Minister of Finance in February. Small and medium sized companies are equally slow in paying their taxes as they owe almost 1.9 billion Euro.

EU gives out cards for good behaviour

A new system of evaluating Romania’s progress in complying with the EU demands is based on green, yellow and red cards. Romania can receive a green card if progress is made in certain areas, yellow if the accession date is delayed and a red one if the problems are serious and cannot be corrected in time. Candidates for yellow and red cards are the chapters in justice and home affairs, environment, competition and agriculture.

Joint Credisson BT cards launch

Banca Transilvania and consumer credit firm Credisson International launched their co-branded cards, Credisson BT, under the brands of Visa and MasterCard. The target for these cards are Credisson clients with incomes exceeding 100 Euro per month.