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. Last Updated: 07/27/2016

Romania Struggles To Woo Investment

BUCHAREST, Romania -- Six years after rising up against one of the crueler dictatorships of the Cold War years, Romania is struggling to position itself as Eastern Europe's best new investment opportunity.


Prodded for months by the World Bank and International Monetary Fund to meet economic benchmarks, Romania has begun to push badly needed privatization programs and talk about attracting the sort of foreign investment dollars that have poured into its onetime Eastern Bloc comrades since 1990.


Interest in shoring up this far corner of Eastern Europe signals that while the crisis days for the new democracies of Poland, Hungary, the Czech Republic and Slovakia may be over, critical challenges remain here in a country that is only now recovering from Nicolae Ceausescu's repressive rule and tightly controlled Soviet-style economy.


The country's slow approach to reform after Ceausescu was overthrown in 1989 began to speed up only last year with pressure from international financial institutions, leading nearly 200 Western firms to express interest in Romanian state-owned companies, according to a report by Daiwa Institute of Research.


Paul Pittman, head of the Eastern Europe division of Wasserstein, Perella & Co., said Ceausescu's successor, Ion Iliescu, has been "a realist."


"People here weren't ready for the kind of shock therapy that worked in Poland," Pittman said. "Their ability to withstand that kind of hardship -- after the years of Ceausescu -- wasn't there."


Parliamentary and presidential elections this fall will be significant indicators in determining whether Romania, the second-most-populous country in the region after Poland, is ready to follow the painful corrective paths of its neighbors.


Romania has experienced some economic successes in the past year, halving its inflation rate to about 28 percent and producing a growth rate of nearly 7 percent. Private businesses will account for about half the economic growth this year, but even after staggering through a three-year privatization effort, the state still owns 5,500 companies.


But only the biggest investors, such as McDonald's, Coca-Cola and Procter & Gamble -- the ones with money to weather problems over the long haul -- have ventured into this capital of 2 million people. Since 1990, Romania has attracted less than a quarter of the foreign investment that has gone to Hungary, a country half its size.


Many of the problems lie in the nature of Romania's economy, which has retained more of the Soviet model than its neighbors. Unwieldy heavy industry accounted for nearly 60 percent of its industrial production, and nearly two-thirds of Romania's workers depend on the survival of state-run oil, petrochemical and steel companies.


Equally to blame is Romania's rigid, often unfathomable bureaucracy and corruption that confounds even experienced Western corporations.





and "remains very, very deep," one investment banker based in Eastern Europe said.





Perhaps no single deal so focuses investor concerns as the experience of Marriott International, which last year lost out to Romanian businessmen in a bid for the run-down Intercontinental Hotel, where guests pay $250 a night for a room with a private bath -- and the hot water runs brown from the tap.


According to press reports, Marriott bid as much as $50 million for the hotel but a group of Romanian investors tendered a far lower offer. The winning group was led by Gheorghe Paunescu, who had been a senior trade official in the Communist era and who has maintained close ties to the ruling party. Marriott was later mollified with another hotel deal in a choice location.





A walk down the main boulevards of Bucharest, where ragged beggars and urchins cluster on street corners, shows that while there has been some high-profile foreign investment, it has been neither broad nor deep. The bright yellow arches of McDonald's and red banners of Coca-Cola abound. Procter & Gamble soaps are in the shop windows.