Rapid Foreign Investment Rise January 2008

Rapid Foreign Investment Rise January 2008
Ziarul Financiar – March 14 , 2008

by Mihai Bobocea

Romania attracted foreign direct investments worth 695 million euros in the first month of the year, 76 percent more than in the same time in 2007, when they stood at 394 million euros, according the data published by NBR yesterday. Last year, foreign investment exceeded 7 billion euros, and estimates point to between 6 and 8 billion euros this year.

The all time annual high stands at 9.1 billion euros and was set in 2006. The latest estimates on this year’s volume of foreign investment come from the Italians at UniCredit, who forecast 6 billion euros. Most forecasts made by foreign banks on Romania fluctuate around investments equal to last year’s, i.e. 7 billion euros.

The most powerful names that could invest on the domestic market this year are the Austrians at Voest Alpine (whose plans include a steel plant in Romania or Bulgaria that entail a 7 billion-euro investment), the Germans at Daimler (over whose investment Romania is vying with Poland) and the Japanese at Mitsubishi (whose plans also include Romania).

An investment that will surely begin in 2008 is Ford’s. In addition, the energy sector could attract significant investments soon from players interested in alternative energy sources and in building Reactors 3 and 4 at Cernavoda.

Also in January, the current account deficit slowed down significantly, to 17 percent compared with January 2007, to 1.1 billion euros.

A year ago, the foreign deficit increased ten times faster (162 percent, the pace registered in January 2007). The current account deficit increased by 66 percent in 2007, to 16.9 billion euros (13.9 percent of GDP).

Therefore investments financed 61 percent of the current account deficit in the first month of this year, compared with coverage of 42 percent last year and 91 percent in 2006.

The slower pace of the foreign deficit in the first month of the year can be explained by the similar trend of the trade deficit (exports-imports), which increased by only 2.8 percent (compared with January 2007). January was the second month in a row when exports grew at a faster rate than imports, a trend not registered over the last few years.

After yesterday’s announcement on investments and foreign deficit, the RON gained some ground against the euro on the interbank market, although it lost 1 percent against the European currency as far as the reference rate is concerned.

Other than the significant slowdown of the foreign deficits (trade and current account) and the strong rise of the investments attracted, the first month of this year also came with other good news for the economy.

Industrial output, construction and retail increased beyond expectations, as did the average wage and budgetary revenues.

As a result, the economic indicator that is a problem for the economy is now inflation, which neared 8 percent in February and which analysts and central bank estimate at 8.5 percent for the end of March.