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  REPORT - ROMANIA Part two
 

ROMANIA'S E.U. ACCESSION EARLIER THIS YEAR HAS OPENED THE COUNTRY'S MARKETS AND IS ACCELERATING INTERNAL DEVELOPMENT. NOW, IT IS FAST BECOMING A TOP INVESTMENT DESTINATION
Traveling without moving

MUGUR ISARESCU
SERGIU OPRESCU
MUGUR ISARESCU
Governor of the National Bank
SERGIU OPRESCU
Executive president of Alpha Bank

In the wake of its accession to the European Union on January 1, 2007, Romania has become one of the most attractive markets for foreign investors in the SEE and CEE regions. Joining the union has underscored the country’s economic stability and engineered increased development across several sectors. Romania has been cited as a top investment destination owing to its favorable corporate tax rates, low labor costs and heightened productivity.

Romania’s economy registered a 6.6 percent increase in 2006, with a similar figure anticipated in 2007. Meanwhile, more money is expected to flow into key areas such as agriculture, infrastructure and the environment, owing to the country’s access to European structural funds.

Central Bank Governor Mugur Isarescu, one of the key players behind Romania’s economic success, notes that: “One of the challenges will be to maintain high growth rates without creating too large an imbalance, such as the current account deficit or inflation.”

Addressing the issue of the deficit, Minister of Economy and Commerce Varujan Vosganian explains: “The deficit can be managed if we continue to attract foreign direct investment, and if that FDI can cover around 60-80 percent of it. FDI in 2006 was €8 billion ($10.8 billion). If we can keep the level of FDI at €6-8 billion the current account deficit should be sustainable in the long run.”

Regarding inflation, Mr. Isarescu points out, “By the end of 2007, not only inflation, but also inflation expectations, will have decreased. Year-on-year inflation has almost halved to less than 4 percent at present from 8.6 percent in 2005.”

One of the main engines of economic growth has been the Romanian banking system. The first foreign bank to open in Romania after the 1989 revolution was Alpha Bank of Greece. The bank has been at the forefront of the local market’s development since then, being one of the first to offer mortgages as well as other innovative products. The bank is now focusing on further expansion throughout the country. “We have set ourselves the goal of becoming one of the top five banks in Romania with a market share of 10 percent by 2010,” explains Executive President of Alpha Bank, Sergiu Oprescu.

Alpha Bank’s current share is about 4.5 percent. Under its expansion plan, the bank is angling to increase its branch presence from 83 at present to 300 by the end of 2010, Mr. Oprescu asserts.
Headquartered in Athens, Alpha Bank had initially set up its Romanian subsidiary as a corporate bank, tracking the big businesses that entered the market in the 1990s. In 2001, it stepped into the retail market and now its portfolio is relatively balanced at 40 percent retail and 60 percent corporate.

“In the future, owing to the development of the banking market, we want to focus on the retail front, rather than corporate. Corporate has its limitations, while retail has quite a long way to go,” Mr. Oprescu says.

Alpha Bank is also focused on niche segments, such as credit lines for small and medium-sized enterprises and municipalities seeking to finance badly needed infrastructure works.

Mr. Oprescu believes that owing to Romania’s E.U. accession, many multinationals are looking to set up their regional headquarters here, citing Romania’s potential role as a major hub for the international IT&C market, notably in software development.

For companies expanding in the region, he asserts that there are really only two choices for a regional headquarters: Bucharest and Sofia, Bulgaria. “Being that Romania is a much larger country and has a much larger potential consumer market, multinationals are left with only one option: Romania,” Mr. Oprescu says.