Washington Event Showcases Romaniaís Investment Potential by Larry Luxner Romania, which up until 15 years ago endured one of Eastern Europeís cruelest communist dictatorships, is today a solid U.S. ally eager for American investment in energy, manufacturing, construction and agribusiness. Thatís the message being spread by Sorin Ducaru, Romaniaís ambassador to the United States, who was one of a dozen speakers at a May 11 conference held at Washingtonís J.W. Marriott Hotel. The event, titled ìExpanding American Business in Southeastern Europe,î was co-sponsored by a number of organizations and Romanian government ministries. ìItís not by coincidence that we hold this conference a month and a half after Romania was welcomed as a member of NATO on the White House lawn,î Ducaru told his audience of 160 business executives. ìFor a whole generation of Romanians, this means a return to an identity, a return to a family of transatlantic nations to which the country belonged, and from which we were hijacked for half a century,î said Ducaru, who, at 39, is one of the youngest ambassadors in Washington. ìThis new strategi c profile has a strong impact on the business environment. We at the embassy can already feel it.î Romania, an impoverished Minnesota-size nation of 22 million inhabitants, was for most of its postwar history a socialist dictatorship ruled by Nicolae Ceausescu. In December 1989ófollowing the armyís massacre of hundreds of demonstrators in Timisoaraóthe government was overthrown in a popular revolt. Ceausescu was promptly captured, tried and executed on charges of genocide, and the country began the long, difficult task of repairing the damage of four decades of tyranny. ìWe had a very tough, painful transformation to a market economy,î Ducaru said, noting that today, more than 70 percent of the countryís businesses are in private hands, compared to less than 1 percent just 15 years ago. In 1993, Romania signed an association agreement with the European Union, and the country is scheduled to become an EU member in 2007. That would make it the seventh-largest EU member nation in population. Per-capita income currently stands at $2,800, and unemployment is around 8 percent. Even without EU membership, the Romanian economy has definitely made a comeback, said the ambassador. ìWeíve had four consecutive years of economic growth averaging 5 percent a year,î Ducaru told The Washington Diplomat. ìWeíve evolved from a period of three-digit inflation in 1989 to one-digit inflation this year. And in the first three months of 2004, foreign direct investment came to half a billion dollars. Romania is definitely the new frontier of business opportunities in Eastern Europe.î At present, the largest U.S. investors in Romania are telecom giant Qualcomm, consumer-products conglomerate Procter & Gamble and computer maker Solectron. In addition, Ohio-based Timken manufactures roller bearings there, while General Electric is building jet turbines at a Romanian factory for export throughout Europe. Thelma Askey, director of the U.S. Trade and Development Agency (TDA), said eventual EU accession can only help a country such as Romania. ìThe prospect of EU membership, however distant, is the single most important driver of economic and political reform in potential candidate countries. So the business climate in countries like Romania has improved far more than it would without the carrot of EU membership,î she said, adding, ìRomania does not exist in a vacuum. Like its neighbors, Romania has undertaken remarkable reforms and has led the way for other nations.î The TDA, which provides grant funding to overseas project sponsors, has funded numerous feasibility studies in Romania. This includes a project to reduce the risks and damages of floodingóa perennial problem in Central and Eastern Europeóand another project to help city officials in Bucharest establish a municipal communications system. Stephen Gallogly is director of the State Departmentís Office of International Energy and Commodity Policy. He said Romania could be a major element in plans to build pipelines from the Caspian Sea, where oil reserves are estimated at 34 billion barrelsómore than double what remains in the North Sea. ìThe Caspian region is pivotal to world oil supply, and Romania can also be a major element in the supply of this oil,î said Gallogly, noting that the Caspian also has natural gas reserves of 170 trillion cubic feet. One of the biggest players in Romaniaís energy sector is Rompetrol. With $1.2 billion in 2003 revenues, Rompetrol is the largest private company in Romania, accounting for 2.5 percent of the countryís gross domestic product. In October 2000, following two other unsuccessful privatization attempts, a group led by Philip Stephenson and other investors took over the state oil entity. Since then, the group has poured $120 million into new improvements, including an inline blending plant whose feasibility study was financed by TDA. ìWe took command of an old leaky boat, low on fuel, that we had to steer through a storm, with pirate ships visible on the horizon,î said Stephenson, who personally owns 15 percent of Rompetrol. ìBut with an excellent crew, we charted a course to a relatively safe harbor.î Indeed, the company under state management was unprofitable, highly indebted and overstaffed. Stephenson said he and the other new investors reduced Rompetrolís workforce from 3,500 to 1,500 employees ìwithout a single day of strikes.î More than 55 percent of Rompetrolís production is exported, and the company accounts for 28 percent of Romaniaís refined products market. It is also one of the countryís largest taxpayers, contributing $416 million to state coffers in 2003. Stephenson urged the Romanian government to speed through the privatization of SNP Petrom, which is 93 percent government-owned. Three companies are bidding for the oil giant: Austriaís OMV, Hungaryís MOL and Los Angeles-based Occidental Petroleum. Another company gung-ho on Romania is Washington Group International Inc. (WGI). Daniel J. Bracey, the companyís vice president of business development, said that in 1990, the $3.2 billion engineering and construction firm opened an office in Ploesti, which has 300 employees. It inaugurated a second office, in Bucharest, earlier this year. WGIís interests in Romania extend to mining, power plants and highway infrastructure. The company is already active in 30 countries. Yet another promising investment area is defense. During the communist era, Romania was a major exporter of weaponry to Africa, the Middle East and elsewhere. Following Ceausescuís overthrow, arms exporters declined markedly, although the Romanian defense industry appears to be making somewhat of a comeback. George Cristian Maior, state secretary for defense policy at Romaniaís Ministry of National Defense, wouldnít reveal how much Romania earns from weapons exports, although he did say the country is spending 2.38 percent of its gross domestic product on defense. ìOur defense industry is completely market-oriented. Itís an open market,î he said. ìIn the past, we exported weapons around the world, but now we apply strict measures.î One interesting development is that Romania is now in talks with the Pentagon on the possible establishment of a military base on Romanian soil. ìIt is well-known that the U.S. has decided to realign its global defense network, and that Romania is among the potential nations for a new base,î said the ambassador. ìThis comes as little surprise, since Romaniaís infrastructure has been extensively employed by the U.S. both for Afghan and Iraqi operations. We do believe we stood up to the test.î At the moment, said Maior, Romania has nearly 900 troops in Iraq, almost 600 in Afghanistan, and more than 300 in the Balkans, primarily Kosovo and Bosnia. Over the long term, NATO membership is widely expected to contribute indirectly to Romaniaís economic well-beingóboth because it offers investors some reassurance that the country will be protected in the event of war, and because it could translate into tangible military projects that spell jobs for unemployed Romanian workers. ìFrom a military point of view, being a NATO member means we can access the NATO Security Investment Fund, which can help us finance the modernization of our infrastructure,î said Maior, noting that his country already has joint ventures with large U.S. defense contractors such as Lockheed Martin, Raytheon, General Dynamics and Northrop Grumman. To keep foreign investment coming, however, Romania must adopt legislative and economic reforms , argues Varujan Vosganian, executive member of the opposition National Liberal Party. ìThe tax on profits has to drop from 25 percent to 20 percent or 18 percent, and interest rates have to fall,î he said. ìTheyíre more than double the inflation rate, and that causes economic tensions.î Another big issue is corruption. Ambassador Ducaru said his government has been very aggressive about fighting corruption, noting that recently, a chief county judge was sent to prison for accepting bribes, and that a former member of Parliament was just sentenced to five years in prison for embezzlement. ìWhatís interesting is that, once you acknowledge the existence of corruption and address it, thereís more talk about it,î he said. ìThe issue becomes more visible. Weíre just at the beginning of this very aggressive campaign against corruption.î But thatís not enough, insists Vosganian. ìIn my opinion and in the opinion of my party, defeating corruption means creating capitalism and a free-market economy,î said the opposition party leader. ìThatís why our strategy calls for free competition and the elimination of all obstacles to private investment and initiative in Romania.î Yet the battle against corruption has also raised concerns of its own among some foreign investors. In their zeal to unearth dishonest deals, said Rompetrolís Stephenson, unfair accusations have surfaced regarding his companyís privatization contract signed three years ago. ìThereís still a strong nexus between elements in industry and elements with political backing. We were very surprised to find a press release from the national anti-corruption prosecutors informing us that they were launching an investigation of the privatization contract we signed with the state,î Stephenson said. ìWe think itís politically motivated, and we welcome an investigation. We have been through 21 financial verifications in the past three years. It will be discouraging to other businesses if this process is not handled in an apolitical, expeditious and professional manner.î Larry Luxner is a contributing writer for The Washington Diplomat.