On The Prowl In Romania
I have just come back from an extensive trip around emerging Europe, taking in Latvia, Ukraine, Moldova, Romania and Bulgaria. Over the next few days I will write up some of my thoughts on these countries.
Today, I will be starting with Romania. I last visited Bucharest in 2003 for a conference, and have somehow not managed to return until late last month. On my return there, I was struck by the considerable progress that has been made in Bucharest. The amount of investment that has been attracted into the city centre is striking – especially into new hotels – while visible poverty was markedly lower. Also, absent this time around were the dozens of stalls hawking pirated music and computer CDs. To some extent, I would expect little else given that I forecast GDP per capita to be over three times the 2003 level.
I came away, though, with four main concerns over the economic future of Romania:
· The construction boom could leave a bitter aftertaste. The sector has been growing at upwards of 25% y-o-y since the start of 2006. Not only will this prove increasingly difficult to sustain in terms of base effects, but the financing of this, amid the prolonged difficulties in the credit markets, will become trickier.
· Leu strength could cause some problems. Especially for the UK-based Riskwatchdog, Romania seemed a little more on the expensive side than I would otherwise have imagined. Certainly, the weakness of sterling has not helped, but further RON strength, mixed with rising nominal wages, could harm the country’s booming outsourcing industry.
· Transport infrastructure is still poor. The railway system is still slow on mainlines, and some branch lines can only be described as dire. Riskwatchdog believed that the hour and a half on a timetable quoted to travel 25km had to be a typo, and boarded the train regardless. And a big mistake it turned out to be too! Despite multiple lines in each direction, a single track system seemed to be in operation, and the journey ended up taking two and a half hours. Taking the ‘maxi-taxi’ (in essence a mini-bus) would have taken less than half an hour, and would have been a lot more pleasant. Cross-border routes to Bulgaria, Ukraine, and Moldova remain very limited as well, and will need to improve if regional trade is to be given a major boost.
· Tourist arrivals are not rising quickly. Despite Romania undertaking a massive advertising campaign recently as part of its industrial diversification efforts, progress in boosting the tourist sector has been, and will be, slow. Arrivals were up just 1% y-o-y in June 2008, and the country’s tourist infrastructure (in addition to transport problems) still leaves a lot to be desired. Bulgaria remains a much more attractive, and well known, destination for Western tourists.
September 9th, 2008 at 3:37 pm
I generally agree with your remarks. There is one point I would like to make; perhaps it is not totally correct from a scientific perspective, but this is my subjective perception.
There are certain areas of the economy – such as tourism and agriculture – that did not develop sufficiently in recent years in Romania and certain areas – such as construction and real estate – that developed perhaps more than enough. The country experiences strong economic growth, even above potential output according to many analysts, who believe there is a danger of a hard landing of the economy.
My point is that the underdeveloped sectors of the economy will – hopefully – sustain the economic growth when the currently overdeveloped sectors will not be able to do so anymore. When construction, for example, will stop developing at such a fast rate and will stop pulling the economic growth, other sectors will be able to take the lead.