Business Review

The EBRD has launched its new strategy for Romania, an opportunity for me, having recently joined the bank, to review its activities in a country that has made tremendous economic progress over the past few years - progress reflected in a sharp rise in foreign investment as business conditions improved and the private sector and competition continue to expand. The new strategy takes a fresh look at the needs of the country in view of post-EU accession opportunities and challenges. Several key areas of focus were identified in consultations with the government, the Central Bank, municipalities, local businesspeople, foreign investors and other international institutions.
A key objective of the new strategy is to stimulate local production by supporting the private sector. Traditionally, our support for Romanian enterprises has been mostly in the form of debt, but we think the time is right to take more risks in Romania via equity investments in selected private companies in order to help these local companies expand throughout Romania and into neighboring countries. By investing in equity, the EBRD can also assist these companies in areas such as corporate governance (by taking a seat on the board) and can help them become more energy efficient and environmentally friendly. My colleagues and I have identified a number of firms in different regions of Romania keen to benefit from such assistance.
Another key area identified in the strategy is the development of Romania's infrastructure. You only have to visit once to see the traffic and understand what a drawback this is to the economy. The bank is keen to assist with the development of infrastructure at both national and local levels by working with the government, various municipalities, private sector and EU. But we can't do this alone; the government must play its part by giving high priority to this vital sector of the economy, since without properly functioning roads, public transport and airports it is hard for other parts of the economy to operate efficiently.
Energy is another important area in the new strategy. Where possible, we will invest along with partners so that electricity production and distribution facilities are upgraded (to meet EU environmental requirements), new electricity generation plants are built (including renewable energy facilities such as wind farms) and energy is used as efficiently as possible. Energy efficiency is becoming increasingly important for the EBRD. In Romania, the bank provides finance to firms (directly and indirectly via energy efficiency loans through the banking sector) to install more energy efficient saving technologies. This has the immediate benefit of saving energy and over the long run should have a positive impact on a company's cash flow.
Another priority area for the EBRD is agriculture and agribusiness. Given Romania's tradition in agriculture, at a time of increasing world food prices, it should realise its comparative advantage in the production of food and agricultural products in order to decrease the quantity of agricultural imports which reached EUR 3.25 billion last year. Romania has significant potential in this area and should capitalize on this through the production of value added agricultural products, which it can sell both domestically and abroad.
Finally, the EBRD can continue to help the financial sector grow even stronger. Romania has a very competitive efficiently functioning banking sector, but it is not immune from the global economic turmoil. The EBRD will continue to support the local banking sector where required. We have recently introduced two new products into the system: a credit facility to finance energy efficiency projects for private Romanian industrial companies and another facility for SMEs to stimulate their production and strengthen their competitiveness.
These are exciting times for Romania and for the EBRD. I am continually impressed by the dynamism of the economy and the exceptionally strong growth so far this year - 8.2 per cent in the first quarter. However, continued strong growth cannot be taken for granted. Romania has substantial investment needs, in the private sector, infrastructure and energy and financial services, without which the economy will soon run into bottlenecks. With inflation above target and the current account deficit running at around 14 per cent of GDP, the government and Central Bank face important macroeconomic challenges. The country still has some transition challenges ahead, and the EBRD is here to ensure that these challenges are met successfully.

By Claudia Pendred, director for Romania with the European Bank for Reconstruction and Development (EBRD)

The subprime crisis, the growing price of fuel and food and the subsequent hikes in inflation and the key interest rate all converged in recent weeks to cause a shake-up within lenders' portfolios. Banks reacted faster than ever before to the central bank's decision to once again increase the reference rate and upped interest rates on deposits by as much as a whopping 3.75 percent. Lenders are now becoming acquainted with something they never knew before: the quest for RON.

Citigroup's tribulations on the other side of the Atlantic remained virtually unfamiliar to its Romanian envoy. Citibank Romania made it through the subprime crisis unimpaired and its record growth rates this year have actually turned it into a positive contributor to the overall Citibank picture, said Shahmir Khaliq, Citi country officer for Romania.

While parent banks are struggling abroad to limit write-offs and maintain a healthy and vigorous appearance, Romanian banks are posting different-dimension results. Banks elsewhere are estimated to have lost almost USD 1 trillion by March on account of the subprime epidemic, but some local lenders have increased their profits by as much as 80 percent and have reported best-ever results.

Private pension funds were off to a bumpy start last week - not that they actually expected a joyride when tapping a market as big and private pension-illiterate as Romania. In numbers, "bumpy" translated into some EUR 50 million in cumulated losses and a load of voided contracts which some deemed "alarming" - almost one million, 25 percent of the total. "The percentage is very high and will affect administrators' financial plans," said Cristina Nitescu, CEO of Omniasig Pensii.

News about the constant losses on the capital market and the moderate success of initial public offerings so far this year have allegedly scared away any potential issuers, according to panicky media reports. Before concluding that the BVB is losing face and sex appeal one must do the math and compare last year's sole listing to this year's five and several more to come.

Some local banks have had it easy. They were taken over by big European players years ago, had the necessary facelifts and now enjoy their reign over less fortunate peers. Until recently, one of them was CEC (Casa de Economii si Consemnatiuni), renamed CEC Bank last week. The new-born is hoping to put the dark days of mischance behind it and reemerge as a powerful universal bank.

Banks' full-throttle expansion is both good news and bad news for credit brokers. Good, because banks' client appetite increases their interest in alternative sales channels and brokers implicitly, and because the diversity of their offer makes brokers' job easier. Bad, because fully-fledged branch networks diminish banks' need for extra helping hands.

Law firm bpv Grigorescu has moved to new headquarters after expanding its team from eight lawyers in 2006, when it was established, to 18 people now.

Several courageous foreign law firms entered the local market in the early 90s. Some went bust, others survived, but the local presence has so far managed to outdo the foreign one, unlike in most countries in the region. Both in number and in volume of businesses, locals have proved to be tough competition for foreign law firms, some of which are high up in the global rankings.