Investors move east to Romania Bulgaria

Investors move east to Romania Bulgaria

A euro1.2 billion (US$1.47 billion) real estate development in former plum orchards north of Bucharest illustrates the fruits being picked in Romania and Bulgaria, future EU members seeing an economic boom while much of old Europe stagnates.

The Baneasa development, one of the largest of its kind in the region, will include more than 3,000 houses, a business park and a large commercial district, developers say. It is expected to create 10,000 temporary jobs and space for 25,000 permanent jobs.

While the office space will be open to all clients, it is expected to draw software, communications and other high-tech companies, said Bogdan Todea, a spokesman for the developer.

Bucharest mayor Adriean Videanu announced plans last week to annex dozens of surrounding villages to spur similar developments. The project would give the crowded city space to grow, while modernizing the undeveloped surrounding area, Videanu said.

Following the 1989 overthrow of communism, Romania and its southern neighbor Bulgaria lagged behind Hungary and other central European states in attracting foreign investment, as they struggled to privatize state industries and retool centralized economies.

But analysts say the countries are catching up, and their economies have been expanding rapidly since 2000. Economic growth is expected to hover at around 6 percent for the next three years in both countries, with Bulgaria seeing lower inflation.

"Romania and Bulgaria are perceived as the new forces," said Radu Craciun, an analyst at ABN Amro. "They have low labor costs, and due to their geographical positions have better access to the Middle East, Russia and the Balkans."

Both are scheduled to join the European Union in 2007, but could face one-year delays if they fail to reform their inefficient justice systems and crack down on corruption.

While both countries already have easy access to EU markets, a postponement would delay EU funds for infrastructure improvements and rural development. But it wouldn’t have a major impact on large investors, Craciun said, as they take a long-term view.

"Foreign direct investment potential is and has been very favorable and all the years I have been here have not heard of anyone losing money," said Gil Woods, a U.S. lawyer who heads the Foreign Investors Council in Romania.

He said the country was hampered in the past by bad public relations and non-responsive governments.

This year, however, direct foreign investment reached euro951 million (US$1.16 billion) from January to May, a 12 percent rise compared to the same period last year, according to official figures.

"Romania has a great future in development," said Andreas Wiennen, general manager of the German-based auto parts maker Eckerle Group, which opened a new factory in 2003 in the Transylvanian city of Cluj.

He said the group had also considered expanding in Bulgaria or Ukraine before choosing northwest Romania, which he said was more developed. "The company is doing great here," he said.

Bulgaria, while smaller, also has emerged as an attractive destination for foreign investors, mainly due to its economic stability. Direct foreign investment reached euro2.14 billion (US$2.49 billion) in 2004, and up 14.2 percent from 2003, one of the highest per capita investments in the region.

The increasing investment and the expectation of EU membership has also led to a boom in real estate in Bulgaria and Romania, with prices doubling in the last few years before appearing to level off recently.

"At the moment we register a slight decline in for example Britons’ interest in Bulgarian property," said Krasimira Georgieva, manager of the Yavlena real estate agency in Sofia. "The reasons could be fear from the globally increased terror threat, and talk that Bulgaria’s EU entry would be delayed."

Despite relatively low monthly wages by EU standards of about US$300 (euro240) in Romania and US$255 (euro207) in Bulgaria, the domestic markets are also becoming attractive due to a high consumer appetite for electronics, appliances, cellular phones and new cars.

In Bucharest, a city of 2.3 million, two new malls opened last year and a dozen of hypermarkets and supermarkets have sprung up in the last few years.

French chain Carrefour SA reported last month that sales in its four Romanian stores nearly doubled to about euro190 million (US$233 million) in the first half of 2005. The supermarket company plans to add four more stores by next year, the Ziarul Financiar daily reported.

The Romanian car market has boomed as well, with sales up 60 percent in the first five months of 2005. Renault, which also owns Romania’s top carmaker Dacia, has sold more than 100,000 of its popular new model, the Logan, since it began production last year.

The French automaker recently announced plans to build a euro219 million (US$270 million) new gear box plant in Romania.

Fearing an overheating of its economy and a rise in inflation, Romania enacted stricter credit rules last week and is considering raising the VAT to slow the pace of consumption.

The economic boom is not evenly distributed, however, with a strong concentration of investment in urban areas and around Bulgaria and Romania’s Black Sea coasts, while few foreigners venture in rural, poorer regions of eastern Romania.

Meanwhile, the Timisoara region in western Romania is home to some 1,900 Italian businesses.

"Romania is a Latin country that will soon be in the European Union," said Mauri Giancarlo, whose company, Perugia-based Mauri System, sells pastry and breadmaking equipment and has expanded its business in Romania. "It is a market that I am slowly discovering and I am convinced that I will work well here."

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Associated Press writers Veselin Toshkov and Nevyana Hadjiyska in Sofia and Alison Mutler in Bucharest contributed to this report.

www.businessweek.com

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Investors move east to Romania Bulgaria