Economy of Romania

Economy of Romania

File:Bucharest Chamber of Commerce.jpg The Bucharest Chamber of Commerce
Currency	Leu (RON)
Fiscal year	Calendar year
Trade organisations	European Union, WTO
Statistics
GDP	$218.9 billion (IMF 2007 est.) $197.3 billion (CIA Factbook, 2006 est.)
GDP growth	7.1% (IMF, 2006 est.) 6.4% (CIA Factbook, 2006 est.)
GDP per capita	$10,152 (IMF 2007 est.) $8,800 (CIA Factbook 2006 est.)
GDP by sector	agriculture (10.1%), industry (34.7%), services (55.2%) (2006 est.)
Inflation (CPI)	4.87% (2006)
Population below poverty line	12% (2003 est.)
Labour force	9.33 million (2006 est.)
Labour force by occupation	agriculture (31.6%), industry (30.7%), services (37.7%) (2004)
Unemployment	5.1% (November 2006)
Main industries	textiles and footwear, light machinery and auto assembly, mining, timber, construction materials, metallurgy, chemicals, food processing, petroleum refining
External
Exports	$33 billion f.o.b. (2006)
Export goods	-
Main export partners	Italy 15.5%, Germany 14.0%, Turkey 7.9%, France 7.4%, UK 5.5%, Hungary 4.2%, U.S. 4.1%, Austria 3.1%, Netherlands 2.1%, Bulgaria 2.7%, Spain 2.4%, Greece 2.1% (2005)
Imports	$46.48 billion f.o.b. (2006)
Import goods	-
Main import partners	Italy 19.8%, Germany 14.0%,Russia 8.3%, France 6.7%, Turkey 4.9%, China 4.1%, Austria 3.7%, Hungary 3.3 %, Kazakhstan 3.3%, Poland 2.9%, UK 2.9%, U.S. 2.8% (2005)
Public finances
Government debt	$29.47 billion (2005 est.)
Revenues	$29.97 billion (2006 est.)
Expenses	$31.37 billion (2006 est.)
Economic aid	NA
All values, unless otherwise stated, are in US dollars.

Romania is a large, upper-middle-income economy of central-eastern Europe, the 19th largest in Europe by total nominal GDP and the 15th largest based on purchasing power parity. Romania is a member of the European Union, its most important trading partner. Its capital, Bucharest, is one of the largest financial centres in the region. Romania stands to benefit from the size of its market (about 21-22 million people).

Historical overview

After the collapse of the Soviet Bloc in 1989-91, Romania was left with an obsolete industrial base and a pattern of industrial capacity wholly unsuited to its needs. In February 1997, Romania embarked on a comprehensive macroeconomic stabilization and structural reform program, but reform subsequently was a frustrating stop-and-go process. Restructuring programs included the liquidation of large energy-intensive industries and major agricultural and financial sector reforms. In 1999 Romania's economy contracted for a third straight year, by an estimated 4.8%. Romania reached an agreement with the International Monetary Fund in August for a $547 million loan, but release of the second tranche was postponed in October because of unresolved private sector lending requirements and differences over budgetary spending. Bucharest avoided defaulting on mid-year lump-sum debt payments, but had to significantly draw down reserves to do so; reserves rebounded to an estimated $1.5 billion by year end 1999. The government's priorities included: obtaining renewed IMF lending, tightening fiscal policy, accelerating privatization, and restructuring unprofitable firms. Romania was invited by the European Union in December 1999 to begin accession negotiations.

Romania is a country of considerable potential: rich agricultural lands; diverse energy sources (coal, oil, natural gas, hydro, and nuclear); a substantial, if aging, industrial base encompassing almost the full range of manufacturing activities; an intelligent, well-trained work force; and opportunities for expanded development in tourism on the Black Sea and in the mountains.

In 1993, the economy reached the end of a decline in output that had begun well before the 1989 revolution. The Romanian Government had borrowed heavily from the West in the 1970s to build a massive state-owned industrial base. Following the 1979 oil price shock and a debt rescheduling in 1981, Nicolae Ceauşescu decreed that Romania would no longer be subject to foreign creditors. By the end of 1989, Romania had paid off a foreign debt of about $10.5 billion through an unprecedented effort that wreaked havoc on the economy. Vital imports were slashed, and food and fuel strictly rationed, while the government exported everything it could to earn hard currency. With investment slashed, Romania's technological infrastructure rapidly fell behind that of even its Balkan neighbors.

Since the fall of the Ceauşescu regime in 1989, successive governments sought to build a Western-style market economy. The pace of restructuring had been slow, but by 1994 the legal basis for a market economy was largely in place. After the 1996 elections, the coalition government made an attempt to move rapidly and eliminate consumer subsidies, float prices, liberalize exchange rates, and put in place a tight monetary policy. The Parliament enacted laws permitting foreign entities incorporated in Romania to purchase land and a large number of state owned enterprises were to undergo rapid privatization or restructuring. Foreign capital investment in Romania had been decreasing and was significantly less than in some other Central European countries.

Privatization of industry was pursued with the transfer in 1992 of 30% of the shares of some 6,000 state-owned enterprises to five private ownership funds, in which each adult citizen received certificates of ownership. The remaining 70% ownership of the enterprises was transferred to a state ownership fund, with a mandate to sell off its shares at the rate of at least 10% per year. The privatization law also called for direct sale of some 30 specially selected enterprises and the sale of "assets" (i.e., commercially viable component units) of larger enterprises.

But subsidies to loss-making state-owned enterprises continued to be a serious drain on the state budget. Despite delays in privatizing certain large companies, the State Ownership Fund did make some progress. Altogether, the private sector reached an estimated 55% of the gross domestic product and employed approximately 52% of the work force.

One New Leu bank-note

The return of collectivized farmland to its cultivators, one of the first initiatives of the post-December 1989 revolution government, resulted in a short-term decrease in agricultural production. Some four million small parcels representing 80% of the arable surface were returned to original owners or their heirs. Many of the recipients were elderly or city dwellers, and the slow progress of granting formal land titles was an obstacle to leasing or selling land to active farmers.

An acute shortage of foreign exchange and a poorly developed financial sector were also obstacles to rapid economic transition. Outside factors such as the collapse of trade with Soviet bloc trading partners, economic slowdown in the industrialized West, increases in imported energy costs, and large losses from United Nations sanctions against Iraq and the former Socialist Federal Republic of Yugoslavia, contributed to a precipitous drop in industrial output after 1989. The fact that the Danube River remained blocked from the Kosovo conflict denied Romania an important transportation route for its goods and further hampered economic recovery.

In 1993, Romania embarked upon an adjustment program that showed some results. GDP, which had fallen for three consecutive years, stabilized in 1993 and registered 3.4% growth in 1994, 6.9% in 1995, and 4% in 1996. Since 1997, there was again a decline in GDP of -6.6% in 1997, -7.3% in 1998, and (est.) -4.5% in 1999. Monthly retail price inflation, which averaged 12.1% in 1993 (the equivalent of 256% annually), declined to 28% in 1995. However, inflation picked up again in 1996 and 1997 due to excessive government spending in late 1996, and price and exchange rate liberalization in early 1997. Inflation in 1999 hovered around 50%. The government committed itself to reduce the inflation rate by half in 2000. Nowadays, the inflation rate is around 8% annually, although estimated by the BNR at coming within 6% for the year 2006 (the year-on-year CPI, published in January 2007, is 4,87%). Also, since 2001, the economy has grown steadily at around 4-5%. Therefore, the PPP GDP of Romania is $9446.

Subsidies on most basic consumer goods were lifted in May 1993, but support for under productive and loss-making state-owned industries continued to be a serious drain on the budget. The government nonetheless managed to cut the deficit, which totaled almost 4% of GDP in 1992, to only 1.7% in 1993. By 1995, however, the budget deficit had again risen to about 4% of GDP. The consolidated deficit, including internal arrears, climbed to more than 10% of GDP in 1996.

Financial and technical assistance continued to flow in from the U.S., European Union, other industrial nations, and international financial institutions facilitating Romania's reintegration into the world economy. The International Monetary Fund (IMF), World Bank (IBRD), the European Bank for Reconstruction and Development (EBRD), and the U.S. Agency for International Development (USAID) all had programs and resident representatives in Romania. Romania also attracted foreign direct investment, which in 1997 rose to $2.5 billion.

Romania was the largest U.S. trading partner in Eastern Europe until Ceauşescu's 1988 renunciation of Most Favored Nation (non-discriminatory) trading status resulted in high U.S. tariffs on Romanian products. Congress approved restoration of MFN status effective 8 November 1993, as part of a new bilateral trade agreement. Tariffs on most Romanian products dropped to zero in February 1994 with the inclusion of Romania in the Generalized System of Preferences (GSP). Major Romanian exports to the U.S. included shoes and clothing, steel, and chemicals. Romania signed an Association Agreement with the EU in 1992 and a free trade agreement with the European Free Trade Association (EFTA) in 1993, codifying Romania's access to European markets and creating the basic framework for further economic integration. At its Helsinki Summit in December 1999, the European Union invited Romania to formally begin accession negotiations. In 2002, the target date of 2007 was set for Romania, along with Bulgaria, for its accession efforts. This was confirmed in 2003 at the Thessaloniki Summit and then in early 2005 Romania and Bulgaria signed the adherence treaty to EU. They formally joined the EU on January 1, 2007.

During the latter part of the Ceauşescu period, Romania earned significant credits from several Arab countries, notably Iraq, for work related to the oil industry. In August 2005, Romania agreed to forgive 43% of the US$1.7 billion debt owed by an Iraq still largely occupied by the military forces of the U.S.-led "Coalition of the Willing", making Romania the first country outside of the Paris Club of wealthy creditor nations to forgive Iraqi debts.[1]

Romania's economic strength

Romania's main industries are clothing and shoe manufacturing, metal, extracting and processing of primary goods (timber, marble, rock), food processing, oil refining and chemical derivates, and to a lesser extent pharmaceuticals, heavy machinery, household electronics, etc. In recent years vehicle manufacturing (see Dacia Logan) has become an important industry. The information-technology-related industry is also growing.

Romania's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. Its major industries are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, and fashion and clothing.

Romania has a number of fashion houses, such as Agnes Toma, Steil, Steilmann.

Dacia Logan, ARO and Daewoo Romania are some car models manufactured in Romania. The Dacia Logan led sales in Central/Eastern Europe in the first six months, ahead of the Skoda Fabia, Skoda Octavia (up 20% on a new model introduction), Opel Astra and Renault Mégane. Logan was also the top selling car in the region in Q2 2005, ahead of Skoda Fabia and Octavia (up 14.4%), Renault Mégane and Suzuki Ignis (up 5.1%).

Several positive growth factors for Romania:

• GDP: USD 218.9 billion (IMF 2007 est.) and increasing
• 75% of economic output from private sector
• Second largest consumer market in Central and Eastern Europe
• 90% of companies expect sales and profits to grow over next 3 years
• 70% of companies experienced profit growth in last 3 years
• Profit margins in Romania are higher than in Poland and Hungary
• GDP growth has been fastest in the CEE region in 2003-2004, and is expected to grow over next 2 years
• Growth factors include: private consumption, consumer credit, corporate investment and exports

Member States	GDP (PPP) millions of int. dollars	GDP (PPP) per capita int. dollars	GDP (nominal) per capita int. dollars
European Union	12.95bn	28,477	29,763
Acceding Countries	GDP (PPP) millions of int. dollars	GDP (PPP) per capita int. dollars	GDP (nominal) per capita int. dollars
Romania	204.4	9,446	5,254
Bulgaria	76.70	10,128	3,686

Sectors of the economy

Primary sectors

Agriculture

Romania is one of the European major agricultural producers, accounting for about one-fifth of all agricultural land compared to the EU. The Bărăgan is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region. Beef production is located in central Romania, while the production of fruits, vegetables, and wine ranges from central to southern Romania. Romania is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the reforms and the Uruguay Round of the GATT Agreement have resulted in reforms in the agricultural sector of the economy.

Romania is the world's eleventh-largest agricultural producer and the sixth-largest agricultural exporter. However, the destination of 75% of its exports are other EU member states. Wheat, beef, pork, poultry, and dairy products are the principal exports. U.S. agricultural exports to Romania, totalling some $200 million annually, consist primarily of soybeans and products, feeds and fodders, seafood, and consumer oriented products, especially snack foods and nuts. Romania exports to the United States are mainly cheese, processed products and wine. They amount to more than $150 million annually.

The Romanian agricultural sector is heavily dependent upon subsidies from the European Union, which account for $1bn. Specific government policies, such as the infamous reclassification of French wine as a 'health food' to avoid VAT, also goes a long way to create a thriving domestic sector.

Energy

Romania has significant oil and gas reserves, substantial coal deposits and it has substantial hydroelectric power installed. However, Romania imports oil and gas from Russia and other countries. To ease this dependency Romania seeks to use nuclear power as an alternative to electricity generation. So far, the country's only nuclear reactor, located at Cernavodă, accounts for about 9-10% of the country's electricity production, while a second one is scheduled to go online in 2007 and two more to start construction the same year. Nuclear waste is stored on site at reprocessing facilities. Possessing substantial oil refining capacities, Romania is particularly interested in the Central Asia-Europe pipelines and seeks to strengthen its relations with some Persian Gulf states.

In the decade between 1989 and 1999, Romania saw decrease of its greenhouse gas emissions by 55%. This can be accounted for by a 45% decrease in energy use due to languishing economy, and a 15% decrease in its carbon intensity of energy use. In this period of time the carbon intensity of Romania's economy decreased by 40%, while Romania's GDP declined 15%. Romania's GDP has recovered significantly since then. [2]

Electricity (Gwh)

Plant		2008	2009	2010	2011	2012
1.	Lignite and hard coal	23,734	25,514	27,377	29,293	31,285
2.	Gas and fuel oil	11,456	11,571	11,687	11,804	11,922
3.	Hydroelectric	17,534	17,534	17,534	17,534	17,534
4.	Nuclear	10,710	10,710	10,710	10,710	10,710
5.	Total	63,435	65,330	67,400	70,010	71,790

Industry

Romania has been very successful in developing dynamic telecommunications, industrial robots, aerospace, and weapons sectors.

Services

Tourism

Tourism is a significant contributor to the Romania Economy. In the 1990s the government heavily promoted the development of skiing in the Romanian Carpathians.

Financial

Stocks

Stock exchanges

• Bucharest Stock Exchange
• Rasdaq
• Sibiu Stock Exchange

Stock indices

• Bucharest Exchange Trading index (BET)

Regional variation

The strength of the Romanian economy varies from region to region. GDP, and GDP per capita is highest in Bucharest. The following table shows the GDP (2005) per capita of the 4 counties and 2 areas, with data supplied by Eurostat.

Rank	Place	GDP per capita in dollars
1	Bucharest, Bucureşti	20,068
2	Timişoara, Romania	14,104
3	Cluj-Napoca	14,077
4	Braşov	12,325
5	Constanţa, Constanţa	12,052

Inner Bucharest has a $26,761 GDP per capita.

Statistical indicators

Main indicators of Romania's economy:

Romania's GDP over 2005-2007 is expected to go up by 10 billion dollars per year, and is expected to reach 2007 at 96.138 billion dollars.

#		2003	2004	2005	2006	2007	2008
1.	GDP	70 Bn	77Bn	86Bn	92.3Bn (est.)	96.138 (est.)	110 (est.)
2.	GDP ( %real change pa)	+5.3%	+8.3%	+4.1%	+6% (est.)	+6 (est.)	+6 (est.)
3.	GDP per capita	2350	2600	3400	4500 (est.)	NA	NA
4.	GDP per capita ( at PPP)	7700	8000	9300	11000 (est.)	NA	NA
5.	Inflation	14%	9.2%	8.5%	4.87%	3%	2.5%
6.	Minimum wage	285 RON=82	310 RON=89	330RON=95	370 RON=105	390 RON	NA
7.	Medium gross wage	765 RON=220	870 RON=250	995RON=285	1213RON=335	1400RON	1800RON
8.	Unemployment	6.4%	6.3%	5.6%	5.0%	NA	NA
9.	FDI	3.9bn	5.1bn	6bn	8bn (est.)	NA	NA
10.	Foreign-exchange reserves	14bn	16bn	20bn	30bn (est.)	NA	NA
11.	Mobile phone users	9,000,000	10,000,000	14,370,000	17,000,000 (est.)	NA	NA
12.	Cars production (units)	160,000	240,000	320,000	500,000(est.)	NA	NA
13.	Internet users	5,180,000	7,800,000	10,400,000	13,600,000(est.)	NA	NA

All figures are in US dollars

Main indicators of the EXPORTS and IMPORTS of the Romanian economy:

#		2004	2005	2006	2007	2008
1.	Exports	20 Bn	23 Bn	26 Bn (est.)	29 Bn (est.)	33 Bn (est.)
2.	Imports	28 Bn	31 Bn	36 Bn (est.)	39 Bn (est.)	44 Bn (est.)
3.	Average gross wage (RON)/$	950RON/ $275	1000RON/$285	1100RON/ $315	1200RON/ $355	1350 RON/ $385 (est.)

The national budget is $28.9 billion dollars, which represents 31.2% from GDP estimated by RON 322.5 billion $90.8 billion according to the Prime-Minister Tariceanu.

Investment (gross fixed): 23.3% of GDP (2004 est.)

Household income or consumption by percentage share:

• lowest 10%: 2.4%
• highest 10%: 27.6% (2003)

Distribution of family income - Gini index: 28.8 (2003)

Agriculture - products: wheat, corn, barley, sugar beets, sunflower seed, potatoes, grapes; eggs, sheep

Industrial production growth rate: 4% (2004 est.)

Electricity:

• production: 56.53 TWh (2003)
• consumption: 57.5 TWh (2003)
• exports: 3.046 TWh (2003)
• imports: 0.962 TWh (2003)

Electricity - production by source:

• fossil fuel: 62.5%
• hydro: 27.6%
• other: 0% (2001)
• nuclear: 9.9%

Oil:

• production: 128,000 barrel/day (2004 est.)
• consumption: 253,800 barrel/day (2003 est.)
• exports: NA
• imports: NA
• proved reserves: 1.055 billion barrel (1 January 2002)

Natural gas:

• production: 12.6 billion m³ (2003 est.)
• consumption: 18.5 billion m³ (2003 est.)
• exports: 0 m³ (2001 est.)
• imports: 5.4 billion m³ (2001 est.)
• proved reserves: 111.1 billion m³ (1 January 2002)

Current account balance: $-3.631 billion (2004 est.)

Exports - commodities: textiles and footwear, metals and metal products, machinery and equipment, minerals and fuels, chemicals, agricultural products

Imports - commodities: machinery and equipment, fuels and minerals, chemicals, textile and products, basic metals, agricultural products

Reserves of foreign exchange & gold: $27.5 billion (December 2006)

Exchange rates:

• old lei (ROL) per US dollar - 33,260 (2004), 33,200.1 (2003), 33,055.4 (2002), 29,060.8 (2001), 21,708.7 (2000)

• new lei (RON) per US dollar - 2.6420 (2007)

National budget

National budget, about $29 billion, represents about 31.2% of GDP of RON 322.5 billion ($90.8 billion), declared the Prime-Minister Tariceanu. National budget is increasing rapidly about 6 billion dollars each year for the interval of time 2005-2009. About 2 billion dollars/year are spent on national defense.

National budget of Romania:

#		2005	2006	2007	2008	2009
1.	National Budget	25 Bn$	34 Bn$	39 Bn$ (est.)	45 Bn$ (est.)	59 Bn$(est.)
2.	Percentage of GDP%	29%	31%	32%(est.)	33%(est.)	34%(est.)

See also

• List of Romanian companies

Europe

• Economy of Europe
• Romania

References

• http://www.mfinante.ro/venituri.htm
• http://www.bnr.ro