A moderate drop in foreign investments and the widening current account deficit are main causes for concern against a backdrop of poor Romanian communica- tion with investors.
A study carried out by the Institute of International Finance places Romania in 22nd place out of 32 states, topped by Bulgaria, Poland and Hungary. Romania's score is similar to that of Malaysia, namely 37 points out of 80. The belief that foreign investors would flood Romania once it acceded to the European Union (EU) seems to have been unfounded, as foreign direct investments (FDI) registered in the first four months of 2007 are 30 percent lower year-on-year.
"It is premature to discuss the effects of reduced investments in the economy. If investments in retail and real estate continue there will be a problem, because these sectors stimulate imports, further widening the trade balance deficit," says Liviu Voinea, Director of Research at the Group of Applied Economics (GEA). While official estimates were expecting €6.5-7 billion in investments this year, the results of the first four months of only €1.6 billion make this target untenable. The rate of coverage for the current account deficit, through investments, is only 36 percent, com-pared to 91 percent in 2006. Besides the danger of a drop in FDI volume, the 38% ratio of subsidiary loans raises a further question.
Other countries in the re- gion offer more attractive risk profiles and facilities for investors, outclassing Romania's competitiveness in terms of attracting foreign investment, with Bulgaria, Poland or Hungary being the top regional targets of investors. Monica Barbuletiu, Vice President of the Romanian Agency for Foreign Investment (ARIS), explained for Mediafax that several foreign companies have delayed plans for expansion in Romania until such time as the investment law is passed this fall.
