Can you tell us what the role of the EBRD has been for the actual development of Romania's economy and how it has changed through the years since you were first established here?
The EBRD has been present in Romania since 1992, almost as long as the EBRD has existed, and in that time we have made a significant contribution to the Romanian economy. Through its large and well-diversified portfolio built up over the last eight years, the EBRD has encouraged the growth of a vibrant and competitive private sector in Romania. We have seen in our portfolio a clear shift from public sector operations to private sector operations.
The EBRD began by financing infrastructure projects with financial guarantees, but over the years we have been able to structure more pure private sector projects and operations.
What are the main objectives achieved by the EBRD until now? And what are your objectives for the year 2000?
Our objective remains the same: To promote the private sector in Romania.
We are the single largest foreign private investor in Romania with a total portfolio of EUR 1.5 billion. We have invested in 55 projects, not just in Bucharest but all across Romania.
But it is not just our money. The EBRD is a strong driving force and a significant catalyst for investment. Whilst we committed EUR 1.5 billion since 1992, in total the EBRD has mobilised about EUR 5 billion of investment in Romania. Our presence and our experience mitigate the political risk. This is significant and represents a valuable feature of the EBRD to current and potential investment partners.
We will continue to dedicate a great deal of our efforts to support privatization. It is of great importance that Romania continues to de-centralise the economy away from state control. I also believe that as the largest foreign investor, we can offer our experience to local and national government. We will therefore, concentrate even more on policy dialogue - effectively bridging the communication divide between investors and government.
But the transition process is a two way street. Reforms must be undertaken to strengthen the investment climate - fair and consistent tax laws for example. This will encourage not just foreign investment but will also encourage the emergence and growth of a healthy network of small and medium sized enterprises (SMEs). SMEs really are the life blood of any given market economy. So swift and effective reform will enable this country to develop faster.
We are, of course, just one player. There are a number of international financial institutions, such as the World Bank, European Union (EU) and International finance Corporation (IFC). It is of great importance that we coordinate with these other institutions. We each offer a unique role, which compliments one another.
What the main activity and what sort of projects has the EBRD been involved in?
I can proudly say that we have had many success stories in this country: In the telecommunications sector, we provided finance to support the privatization of ROMTELECOM, which has now been successfully completed. We also financed CONNEX Mobifon, a GSM operator that is widely recognized for its great success in building Romania's mobile phone industry. We also have a very large presence in the financial sector, which we view as a key area to developing the economy. We are committed to building and strengthening Romania's financial sector and we have supported the first two banking sector privatisations: Romanian Development Bank and Bank Post. We have provided equity to local banks, and participated to the establishment of Banc Tiriac and Banca Buchuresti. We have provided hard currency credit lines with the aim to make available financing for local enterprises. We contributed to the establishment of private equity funds such as Romanian Post Privatisation Fund (RPPF) and Danube Fund and we. believe that we have played a very successful role in this area. There are corporations in almost every industry where we have some successful stories to tell. We are even partners with companies that successfully compete internationally, such as Lafarge-Romcim, Artic, Danone, Parmalat. This demonstrates that Romania is a country that offers opportunities, provided that the projects are structured in the right way.
How do you select a project? Do you identify a potentially interesting project for the bank, or do you wait until the companies say "we have a project, could you finance us"? How does it actually work?
In fact it is a mixture of the two. Like every bank we have to sell ourselves to the market and to hunt out project opportunities. I spend 20 weeks a year on the road in Romania, scouting out new opportunities. I think it is important that we promote ourselves locally and not just as an international institution. After all, we operate in 26 very different economies, each with its own unique blend of culture and business style. So whilst the end is always the same - namely a functioning market economy - the means may vary.
But we are lucky to be highly regarded here in Romania. We are in the privileged position of having customers often come to us to propose a partnership or opportunity to co-invest in their project. This is recognition of the reputation of the EBRD and the partnership we offer.
Some of our customers or partners prefer to invest in the region as a whole and not remain restricted to one single country. They will typically extend a partnership with us on the basis of a framework agreement to co-invest in a number of countries where we operate.
We also work very close with governments, who give us an indication of what their plans are, and with privatization agencies. We are also very proud to be proposing the restructuring of entire sectors in cooperation with other international financial institutions which will lead to a generation of new project opportunities. Finally, municipalities -- a sector where we have a large presence in Romania, mostly for infrastructure -- offer another big source for possible operations.
You have mentioned that you propose the restructuring entire sectors. Can you give us a few examples of sectors that you have actually proposed to be restructured?
Well one sector where we have already played a fundamental role is the municipal sector. The EBRD has invested US$ 128 million to upgrade water and infrastructure systems, and US$ 27 million for district-heating systems, across Romania. We want to intensify and expand this effort, and we are already looking at investing a further US$ 15 to 20 million for solid waste and transportation system upgrades in Brasov. Unlike the previous municipal projects, the prospective investment in Brasov would not include a sovereign guarantee. It would be a loan made directly to the city of Brasov. This ability to make such a non-sovereign loan to a municipality is unique to the EBRD among international financial institutions. The idea is to help the municipalities to become more self-supporting.
Elsewhere I cannot be too specific at this stage, butwe are in, for example, ongoing discussions to carry through the reorganization and restructuring of the energy sector. We envisage that the production side of the energy sector will be separated from the distribution and transportation side.
In general, the EBRD would like to position itself alongside other IFIs, in projects where together we can contribute to the restructuring process. If you look at the restructuring of the rail sector, you will see what I mean. Here the sector has been broken down into a number of different companies, each dealing with a specific area such as trains, passengers and freight. This separates assets from activities, which generates opportunities for private investment - which is where we come in.
You mentioned previously that Romania is the second largest receiver of funding by the EBRD after Russia. Could you tell us why is that so and what amount of funding are we talking about, in the past and in the future?
The commitment that we have at the moment with Romania
exceeds $1.5 billion. In this position, Romania
is probably the second largest recipient, certainly
among the top three, after Russia and maybe Poland.
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There are a number of reasons. We have done some large infrastructure deals, in terms of amount, in utilities, roads and energy projects for example. These amounts add up, and there remain plenty more opportunities to support the development of Romania's infrastructure. I think also, that if you were to compare our role here to our role in the more advanced economies of central Europe, such as Poland and Hungary, we are more widely needed in Romania. It is our role to be additional in a market, by that I mean we encourage other investors - preferably through partnership with us -- rather than try to crowd them out. There are, of course, still important sectors in these advanced countries where the EBRD continues to play a fundamental role serving as a catalyst for investment, but in Romania the opportunities are more numerous.
Of course, there is a downside to this. In Romania we find ourselves in the situation of being a monopoly. For someone in the private sector, this sounds quite attractive because you can practically control the market, but that's not the case for an institution like the EBRD. We measure our success by not just our ability to push forward the transition, but also by our ability to attract other lenders and new investors. Unfortunately, because of the risk-rating of the country and the slow pace of reform, foreign investors are reluctant to invest here. As a result, local businesses have had limited alternatives in financing their business. In short, we have a stronger role in a country like Romania that has large needs and where financing alternatives are limited.
There has been a substantial decrease of foreign investors in Romania. Some people point out that this is because the laws have not been implemented and then they have to be changed that the economy is not sufficiently stable to attract foreign investors. What do you think?
A slow pace of reform combined with the inconsistent and often confused handling of investors has indeed, I think, negatively hit levels of foreign investment. But I think this has been greatly compounded by a number of external factors. There was, for example, the financial crisis in Russia and its region wide fall out. The Russia crisis did not hurt Romania directly since the two economies shared few trade links, but it did make investors much more cautious and sensitive to the emerging economies. They began to steer wide berths around those countries that did not seem committed to reform and taking steps to improve their legal climate for investors. Then, more recently, there was the crisis in Kosovo - which has reawakened concerns of Balkan instability.
Investors are sensitive to the negative rating of Romania, the three years of recession, and the fact that macroeconomic stabilization has still not been achieved yet.
I think that there has been too much attention given to incentives. Incentives are always welcome, but this is not the deciding factor which will influence the decision of large investors. Instead, investors want to be assured that there is a stable framework to rely on and that this framework will not change from one day to the next. During his trip to Romania last year, this was the message the EBRD's President heard from business people in Romania. Investors told him that they weren't looking for special incentives, but an administration and civil service that serves the needs of the common good, and laws which are consistently interpreted and enforced.
So when we refer to a strong investment climate, we refer to it as strong package of laws and rules that ensure a level playing field and long-term stability.
What do you think the Romanian government could do to make this country more attractive to the investors?
To speed up the pace of reform and strengthen the investment climate. As I said before, rather than go one by one, focusing on one incentive here or a tax advantage there, I think the government should focus on creating a package of conditions for investors.
Let me stress, however, that the real credibility of such a package is not so much what is on offer but how effectively it will be maintained. Romania must take a long-term perspective and avoid any further uncertainty and inconsistencies in its handling of the investment climate. That's the key.
I also think that Romania can encourage greater economic cooperation between neighbouring countries in south eastern Europe. I cannot help but wonder at the low level of intra-regional trade - the fact, for instance, that less than 1 per cent of Romania's recorded exports go to neighbouring Bulgaria. This is really not natural. The region will be much more attractive to foreign investors if it can present itself as an integrated market place.
Do you think that there is any chance now during the Summit of Helsinki to be admitted for the discussions? How do you see it?
I believe that Romania is in Europe and I consider this is a European country. Now with all these discussions in Helsinki, I believe the issue is the integration of the entire region, not only Romania. With no doubt I believe that the Romanians have chosen at large to be integrated into the European Community. Of course this is a process that will take time and requires an important restructuring of the national economy. The overall steps which are needed to achieve full integration, and the timetable needed to achieve these steps, is difficult to predict. I think it will take some years. I think we should view the summit in Helsinki with optimism, but this is just a beginning and there is a long way still to go.
Do you think that Romania has a negative international image? How can it be improved?
I think one should picture Romania ten years ago and then you can see just what a dramatic advance the economy has made. This country has had to deal with a legacy of despotism and fear - something you cannot simply forget over night.
But Romania has allowed itself to come off the boil which it could not afford to do in the wake of the Russia crisis - which hurt investors and has made many, far more cautious to the region.
In a number of economies the Russia crisis sparked a renewed commitment to reform. But I think Romania backtracked instead - the pace of reform slowed and the level of privatisation all but dried up.
So I don't think you can blame investors for being cautious.
Romania can catch up with the more advanced economies; it is just a case of having the necessary will and conviction. But it could just as easily back track even further if urgent steps are not taken.
The fate of Romania is in Romania's own hands right now.
But whilst one cannot blame investors for caution, I think we should all avoid being negative. I believe this country has an enormous amount to offer and it has the potential to grow faster than any other economy - a fact that I think is recognised internationally. The government has begun to take the right steps towards a credible package of reforms. The Stability Pact is also a further boost to region.
If you take a short term, speculative view, then I doubt Romania looks a great buy. But for a long-term investor this market of 22 million people, the largest in south eastern Europe, offers a number of attractive opportunities in varied sectors.
What is your message to our readers?
Romania is in a tough economic predicament but has the resources and people to rebound if it takes the right steps to help business. My message is do your due diligence, it is of great importance when contemplating an investment. But in the case of Romania, I think you need to look with even greater depth at the long-term opportunity. I would like to invite investors down here to speak with those on the ground. We are seeing some significant break through being made in Romania, and I think it will not be long before Romania bounces back right to the fore. |
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