Economy of Romania

Economy of Romania

File:Bucharest Chamber of Commerce.jpg The Bucharest Chamber of Commerce
Currency	Leu (Leu or RON)
Fiscal year	Calendar year
Trade organisations	European Union, WTO
Statistics
GDP	$229.89 billion (IMF 2007 est.)
GDP growth	7.7% (National Institute of Statistics, 2006 est.)
GDP per capita	$10,661 (IMF 2007 est.)
GDP by sector	agriculture (10.1%), industry (34.7%), services (55.2%) (2006 est.)
Inflation (CPI)	3.66% (March 2007)
Population below poverty line	12.6% (2006 est.)
Labour force	9.33 million (2006 est.)
Labour force by occupation	agriculture (31.6%), industry (30.7%), services (37.7%) (2004)
Unemployment	3.6% (August 2007)
Main industries	iron, steel, nonferrous metals, chemicals, food processing, machinery and transportation equipment, textiles and clothing, electronics, construction, furniture and other wood products, shipbuilding and refurbishment, windmills, pharmaceuticals, medical equipment, textiles and footwear, light machinery and auto assembly, mining, timber, construction materials, metallurgy, petroleum refining, computers
External
Exports	$52 billion f.o.b. (2007)
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	$74 billion f.o.b. (2007)
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	$42.76 billion (2005 est.)
Revenues	$36.89 billion (2006 est.)
Expenses	$39.1 billion (2006 est.)
Economic aid	NA
All values, unless otherwise stated, are in US dollars.

Romania is the largest, upper-middle-income economy of central-eastern Europe, the 12th largest in European Union by total nominal GDP and the 8th largest based on purchasing power parity. Romania is a member of the European Union (7th largest country), its most important trading partner. Its capital, Bucharest (with 2.5 million people - metropolitan area), is the largest financial centres in the region. Romania stands to benefit from the size of its market (about 22 million people). According to a recent World Bank Study, Bucharest is set to double its population in the next ten years exceeding 4 million inhabitants.

Romanian GDP will double by 2011. Romania is one of the most stable and prosperous states of Central, Eastern and South Europe. As of 2007 the economy is growing at a steady pace of above 7% a year. Future prospects are tied to the country's increasingly important integration with the European Union member states. The country is expected to join the Eurozone between 2010 and 2012.

Romania also has a strategic port which makes it more competitive than many of its neighbours to carry out such entrepot activities. The Port of Constanta is the busiest on the Black Sea, surpassing others. In addition, Constanta's port infrastructure and skilled workforce, which is due to the success of Romania's education policy in producing skilled workers, is also fundamental in this aspect as they provide easier access to markets for both importing and exporting, and also provide the skill(s) needed to refine imports into exports.

History

Main article: History of economy of Romania

Before World War II

Main article: History of economy of Romania before World War II

Before WW2 Romania was supposed to have had the third-largest economy on the continent, after Germany and France; a prosperous peasant society, exporting huge amounts of wheat and oil.

Communist economy

1944 - 1989

Main article: Communist economy of Romania

On the negative side, the legacy of the Ceausescu's period was a bloated heavy industry using archaic production methods, consuming lots of resources, and producing low-value goods (the refining capacity is over ten times what was needed, the steel production capabilities two-and-a-half times, the aluminium production facilities five times). Most of what was produced could not be sold anywhere, and ended up sitting and deteriorating outside the factories where it was made, while light industries were ridiculously undersized (Romanians had to wait 3 years for a washing machine, 2–3 years for a color TV, 5–10 years for a car), and technologically obsolete (Romania, in 1989, produced 1960s cars and 1970s TVs and washing machines). The communication network was, with the exception of the modernisation of the trunk railway lines, left at the 1950s' level. Romania had, in 1989, only a 100 km (68 mile) stretch, of motorway, and even that in a very poor state.

Transition towards a market economy

(1990-2006)

Economy of Romania
National economic indicators
Unemployment	3.6% August 2007
GDP growth	7.7% 2005–2006
CPI inflation	3.4%
National debt	$42 billion
Poverty	12.6% 2005
Monetary value
Exchange rate (per €)	3.3848 September 14, 2007
Exchange rate (per £)	4.8967 September 14, 2007
Exchange rate (per ¥)	2.0087 September 14, 2007

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.

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 March 2007, is 3,66%). Also, since 2001, the economy has grown steadily at around 6-8%. Therefore, the PPP GDP of Romania is $10.661 .

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.[7]

Fundamental problems of the Romanian economy by early 2007 are, according to Financial Times, its trade deficit, the "loss of competitiveness against its main trading partners" and also, as a part of the latter, an inflation rate which is traditionally higher than the one of its European partners, lately affected by house price increases of 550% from 1998 and a growing family indebtedness (515%) mostly based on this same real estate boom. Nevertheless, it is expected that the Romanian economy will continue growing based on a bigger strength of the industry, the growth of the global economy and the biggest trade with Russia, Latin America and Asia.

(2000-2007)

Growth in 2000-07 was supported by exports to the EU, primarily to Italy and Germany, and a strong recovery of foreign and domestic investment. Domestic demand is playing an ever more important role in underpinning growth as interest rates drop and the availability of credit cards and mortgages increases. Current account deficits of around 2% of GDP are beginning to decline as demand for Romanian products in the European Union increases. Inflation is under control. Recent accession to the EU gives further impetus and direction to structural reform. In early 2004 the government passed increases in the Value Added Tax (VAT) and tightened eligibility for social benefits with the intention to bring the public finance gap down to 4% of GDP by 2006, but more difficult pension and healthcare reforms will have to wait until after the next elections. Privatization of the state-owned bank BCR took place in 2005. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth.

Market economy withing the EU

(after January 1, 2007)

  Eurozone countries

  EU states aiming to join Eurozone on 1 January 2008

  EU states aiming to join Eurozone on 1 January 2009

  EU states bound by the Maastricht Treaty to ultimately join the Eurozone

  EU states with a derogation on Eurozone participation

States/territories outside the EU using the euro are shown with blue hatching.

On 1 January 2007 Romania entered the European Union. This led to some immediate international trade liberalization, but there was no shock to the economy. The government is running annual surpluses of above 2%. This fact, together with annual GDP growth of above 7%, has brought the government indebtedness to 22.8% of GDP in 2006 ..

This is to be contrasted with enormous current account deficits. Low interest rates guarantee availability of funds for investment and consumption. For example, a boom in the real estate market started around 2000 and has not subsided yet. At the same time annual inflation in the economy is variable and during the last five years (2003-2007) has seen a low of 2.3% and high of 6.3%.

Most importantly, this poses a threat to the country's accession to the Eurozone. The Romanian government plans for the Euro to replace the Leu in 2010. However, experts predict that this might happen as late as in 2012. From a political point of view, there is a trade-off between Romania's economic growth and the stability required for early accession to the monetary union. Romania's per-capita PPP GDP is still only about a 50% of the EU25 average , while the country's nominal GDP per capita is about 33% of the EU25 average.

In the winter of 2004 the political leadership of the current government introduced a flat tax of 16% that was introduced on January 1st 2005. This is done in hope for higher GDP growth and greater tax collection rates. The reform, which some called a "revolution" in taxation, was met with mild discussions and some protests by affected working classes.

The accession of Romania into the European Union has brought about new geographical dimensions as the EU has opened up to the Black Sea.

Macroeconomic trend and transition to a modern economy

Main article: Romania and transition to a modern economy

This is a chart of trend of gross domestic product of Romania at market prices by the International Monetary Fund with figures in millions of USD.

Macroeconomic indicators
Romanian coins
GDP (PPP)	249 billion USD (2007)
GDP (Nominal)	210 billion USD (2007)
GNP	249.7 billion USD (2007)
GDP growth	7.7% (2006)
GDP per capita	11,800 USD (2007)
GNI per capita	10,460 USD (2007)
Inflation (CPI)	3.1% (2006)
Gini index	52.2
Unemployment	3.6% (2007)
HDI	0.805
Labour force	10.86 million

Year	Gross domestic product	US dollar exchange	Inflation index (2005=100)
2005	110,383	2.63	100
2006	113,576	2.45	104.5
2007	129,334	2.34	107.5

For purchasing power parity comparisons, the US Dollar is exchanged at 1.24.

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; well-trained work force; and opportunities for expanded development in tourism on the Black Sea and in the mountains.

Romania's economic strength

Major industries in Romania are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods (especially home appliances), food, fashion and clothing.

File:National Bank of Romania.jpg

The National Bank of Romania (BNR)

Romania's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. The country has been less successful in terms of developing world class multinational corporations. In addition, the small and medium-sized firms typically manufacture products that are technologically moderately advanced and therefore increasingly face crushing international competition.

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 has a number of fashion houses, such as Agnes Toma, Steil, Steilmann. Dacia Logan (by Renault), Ford, ARO and Daewoo Romania are some car models manufactured in Romania. The Dacia Logan led sales in Romania 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: $229.89 billion (IMF 2007 est.) and increasing
• 75% of economic output from private sector
• 70% of companies experienced profit growth in last 3 years
• Profit margins in Romania are higher than in Poland, Bulgaria and Hungary
• Growth factors include: private consumption, consumer credit, corporate investment and exports
• Second largest consumer market in Central and Eastern Europe
• 90% of companies expect sales and profits to grow over next 3 years
• GDP growth has been fastest in the CEE region in 2003-2007, and is expected to grow over next 3 years
• Growth factors include: private consumption, consumer credit, corporate investment and exports

Romania is in such a momentum that it will certainly surpass Hungary in respect of the standard of living - GDP per capita - the rate of economic growth and the size of capital influx already in this decade, Demján said. ,

National budget

Main article: National budget in Romania

The national budget is $58.5 billion dollars, which represents 35.2% from GDP estimated by $248.8 billion according to the Prime-Minister Tariceanu. National budget is increasing rapidly about 8 billion dollars each year for the interval of time 2005-2009. About 5 billion dollars per year are spent on national defense.

National budget of Romania:

#		2006	2007	2008
1.	National Budget	34 Bn$	51 Bn$	68 Bn$
2.	Percentage of GDP%	31%	34%	40%

Economic growth

Main article: Economic growth of Romania

GDP growth reached 8.3% in 2006 according to the statistical office of the Romania (the year-to-year growth amounted to unexpected 9.8% in the 3th quarter of 2006 and stayed high at 9.5% year-to-year change in the 4th quarter of 2006), and 8.0% in 2007. In 2007, Romania reached the highest economic growth among the members of OECD and the second highest in the EU (just behind Estonia). Romania's GDP over 2008-2013 is expected to go up by 36 billion dollars per year.

Table showing selected PPP GDPs and growth - 2007 to 2008 est.:

Year	GDP in billions of USD PPP	% GDP Growth
2007	229.89	+8
2008	247.411	+8

Average annual GDP growth by year			2006	8.4%
2007	7.9%
2008	7.7%
Source:

Romania's Gross Domestic Product at purchasing power parity (PPP) is predicted to stand at USD 13,970 in 2011, up 44 percent from the current figures, according to a recent study of the Economist Intelligence Unit (EIU) and the Columbia Program on International Investment.

Diversification

Recently, Romania has started to look for other sources of revenue. High-class tourism and international finance are the new sectors starting to be developed. In line with this initiative, the Bucharest International Financial Centre was announced, offering 100% foreign ownership, no withholding tax, freehold land and office space and a tailor-made financial regulatory system with laws taken from best practice in other leading financial centres like New York, London, Zürich and Singapore. A new stock market for regional companies and other initiatives were announced in BIFC. Bucharest has also developed Internet and Media free zones, offering 100% foreign ownership, no tax office space for the worlds leading ICT and media companies, with the latest communications infrastructure to service them. Many of the world's leading companies have now set up shop there. Recent liberalisation in the property market allowing non citizens to buy freehold land has resulted in a major boom in the construction and real estate sectors, with several signature developments, and a number of other developments, offering villas and high rise apartments and office space.

Currency system

Main article: Romanian currency system

Romanian Leu

Main articles: Romanian leu and Euro

The leu (/leŭ/, plural: lei /lej/; ISO 4217 code RON; numeric code 946) is the currency of Romania.It is subdivided into 100 bani (singular: ban). On 1 July 2005, Romania underwent a currency reform, switching from the previous leu (ROL) to a new leu (RON). 1 RON is equal to 10,000 ROL. Romania joined the European Union on the 1st of January 2007 and it is expected to adopt the euro in 2014

One New Leu bank-note

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

Echange rates

Exchange rates:

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

Natural resources

Main article: Mining industry in Romania

Romania ranks tenth in the world in terms of the diversity of minerals produced in the country. Around 60 different minerals are currently produced in Romania. The richest mineral deposits in the country are boron salts and Romania’s reserves amount to 63% of the world’s total.

Romania is an oil producer, but the level of production isn't enough to make the country self sufficient. As a result, it is a net oil and gas importer.

The pipeline network in Romania included 1,738 km for crude oil, 2,321 km for petroleum products, and 708 km for natural gas in 1999. Several major new pipelines are planned, especially the Nabbuco pipeline for Caspian oilfields, the longest one in the world, which recently opened in 2007.

According to the CIA World Factbook, other natural resources include coal, iron ore, copper, chromium, uranium, antimony, mercury, gold, barite, borate, celestine (strontium), emery, feldspar, limestone, magnesite, marble, perlite, pumice, pyrites (sulfur), clay, arable land, hydropower.

The ore borax, from which boron is extracted is very abundant in Romania. Romania along with the United States, is one of the world's largest producers of boron.

Romania's mineral production is adequate to supply its manufacturing output. Energy needs are also met by importing bituminous and anthracite coal and crude petroleum. In 2007 approximately 13.4 million tons of anthracite coal, approximately 4,000 tons of tungsten, 565,000 tons of iron ore, and 47,000 tons of zinc ore were mined. Lesser amounts of copper, lead, molybdenum, gold, silver, kaolin, and fluorite also were mined.

Energy

Main article: Energy industry in Romania

To cover the increasing energy needs of its population and ensure the continued raising of its living standard, Romania plans several nuclear power plants. Nuclear power proposals were presented as early as in the 1990s, but plans were repeatedly canceled even after bids were made by interested manufacturers because of high costs and safety concerns. Romania has always chosen Candu nuclear reactors because they use natural unenriched uranium which is cheap and available locally and because they can be refueled online. This has caused uneasy feelings to Romania's neighbors because they are ideal for producing weapons grade plutonium.

From CIA Factbook:

Electricity:

• production: 63.91 TWh (2006)
• consumption: 57.21 TWh (2006)
• exports: 5.224 TWh (2005)
• imports: 2.321 TWh (2005)

Oil:

• production: 119,000 barrel/day (2005 est.)
• consumption: 212,800 barrel/day (2004 est.)
• exports: NA
• imports: 181,100 barrel/day (2004 est.)
• proved reserves: 955.6 million barrel (1 January 2005)

Natural gas:

• production: 11.22 billion m³ (2005 est.)
• consumption: 17.46 billion m³ (2005 est.)
• exports: 0 m³ (2005 est.)
• imports: 6.2 billion m³ (2005 est.)
• proved reserves: 96.4 billion m³ (1 January 2006)

Energy producers were dominated by government enterprises, although privately operated coal mines and oil refineries also existed. Accordingly, Romania placed an increasingly heavy emphasis on developing nuclear power generation.

Electric power in Romania was provided by the Romanian Electric Power Corporation (CONEL). Energy used in electric power generation consisted primarily of nuclear, coal, oil, and liquefied natural gas (LNG). Of the 54,885 million kwhr of electricity generated in 2005, 22 percent came from nuclear plants then in operation, 54 percent from thermal plants (oil and coal), and 14 percent from hydroelectric sites. It was predicted in 2007 that the generation structure by the year 2010 would be 10.2 percent hydroelectric, 12.2 percent oil, 22.9 percent coal, 10.2 percent LNG, and 44.5 percent nuclear.

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. [8]

Electricity - production by source:

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

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.	Hydro	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

Romania placed a heavy emphasis on nuclear power generation. The country's first nuclear power plant, the Cernavoda Number One located near Cernavoda, opened in 1993. Two reactors were operational in 2007 when atomic power generation was an estimated 21,158 million kilowatts, or 23.1 percent of total electric power.

"Bucureşti" (Boeing 737-300) at Bucharest Henri Coandă Airport

Physical infrastructure

Main article: Transport in Romania

This article is about transport in Romania, a member of the European Union. The volume of traffic in Romania, especially goods transportation, is at a very high level due to its central location in Europe. In the past few decades, much of the freight traffic shifted from rail to road. Individual traffic increased resulting in a traffic density very high by international comparison. A further strong increase of traffic is expected in the future.

• Blue Air Romanian low cost company
• TAROM (the national airline)
• Carpatair (regional airline)
• CFR railway transport

File:CFR desiro5.jpg

Romanian high speed trains, class 96 (Desiro) DMU

Bucharest is the only city in Romania wich as of 2007 has an underground railway system, comprising both the Bucharest Metro and the light rail system Regia Autonomă de Transport Bucureşti. Although construction was planned to begin in 1941, due to geo-political factors, the Bucharest Metro was only opened in 1979. Now is one of the most accessed systems of the Bucharest public transport network with an average ridership of 600,000 [9] passengers during the workweek. In total, the network is 63 km long and has 45 stations.

A2 freeway

Primary sectors of the economy

Agriculture

Main article: Agriculture in Romania

Romania is one of the European major agricultural producers. 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.

Romania is also one of the world's largest suppliers of agricultural products, particularly of wheat and other grains. Romania is a major exporter of agricultural products, to the United States but also to Europe and East Asia. As with all other developed nations the proportion of the population and GDP devoted to agriculture fell dramatically over the 20th century.

Unlike the agricultural industries of many developed nations, Romanian farmers have to compete internationally without large subsidies. The Romanian Government does subsidize farmers with aid in times of disaster, but does not usually give farmers "base" support. Dairy and poultry farmers are distributed across the country, but most of the production in the agricultural industry are found in central Romania. Farmers earn their living from market sales only, and they focus mainly on the Romanian market; because they lack government subsidies, farmers rely on tariffs to limit the amount of agricultural imports.

The northern part of Romania produces primarily grains, rice, corn, sugarbeets, soybeans, meat, fruits and dairy products, while the south specializes in producing fruits, vegetables, olive oil and durum wheat. Romania is the second producer of wine in the Europe and one of the leading in fruits (apples, pears, apricots, peaches, cherries), flowers and horticulture vegetables.

Industry

Main article: Industry in Romania

Industrial production
Dacia Logan
Main industries	Automobile industry, petrochemicals, cement and construction, aircraft, textiles, food and beverages, mining, consumer durables, tourism
Industrial growth rate	10.1% (2007)
Labor force	15% of total labor force
GDP of sector	39.6% of total GDP

Romania has been very successful in developing dynamic telecommunications, industrial robots, aerospace, and weapons sectors. Industry and construction accounted for 32% of gross domestic product (GDP) in 2003, a comparatively large share even without taking into account related services. The sector employed 26.4% of the workforce. Romania excels in the production of automobiles, machine tools, and chemicals. With the manufacture of 0.5 million vehicles in 2003, Romania was the Europe’s third largest producer of automobiles. In 2004 Romania enjoyed one of the largest world market share in machine tools (5.3%). Romanian-based multinationals such as Dacia Logan, Igero bus, Petrom, Rompetrol, Bitdefender are brand names throughout the world. What is less well known is the vital role of small- to medium-sized manufacturing firms, which specialize in niche products and often are owned by management. These firms employ two-thirds of the Romanian workforce.

Romania's industrial output is expected to advance 9% in 2007, while agriculture output is projected to grow 12%. Final consumption is also expected to increase by 11% overall - individual consumption by 14.4% and collective consumption by 10.4%. Domestic demand is expected to go up 12.7%.

The growth of the industrial sector was the principal stimulus to economic development. In 2007 manufacturing industries accounted for approximately 35 percent of the gross domestic product and 29 percent of the work force. Benefiting from strong domestic encouragement and foreign aid, Bucharest's industrialists introduced modern technologies into outmoded or newly built facilities at a rapid pace, increased the production of commodities--especially those for sale in foreign markets--and plowed the proceeds back into further industrial expansion. As a result, industry altered the country's landscape, drawing millions of laborers to urban manufacturing centers.

Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. It was estimated that over two-thirds of Romania's manufacturers spent over half of the funds available for facility investments on automation.

In 2007 Romanian manufacturers planned a significant shift in future production plans toward high-technology industries. In June 2005, panels of government officials, scholars, and business leaders held planning sessions on the production of such goods as new materials, mechatronics-- including industrial robotics-- bioengineering, microelectronics, fine chemistry, and aerospace. This shift in emphasis, however, did not mean an immediate decline in heavy industries such as automobile and ship production, which had dominated the economy in the 1990s.

Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries generally were located in the south of the country. Factories in Bucharest contributed over 25 percent of all manufacturing value-added in 1998; taken together with factories in surrounding Ilfov, factories in the Bucharest area produced 26 percent of all manufacturing that year. Factories in Bucharest employed 12 percent of the nation's 2.1 million factory workers.

Construction

Main article: Construction industry in Romania

Construction activity (about 10% of GDP) has increased due to recent tax incentives. Romania is becoming an increasingly popular choice for British property investors, according to recent research from Currencies Direct. The latest Global Emerging Markets Index from the foreign exchange company shows that Romania has made the top ten for the first time, reaching number nine. The monthly index is based on the number of foreign exchange transfers undertaken by the firm to emerging market regions for property purchases. According to Currencies Direct, Romania has seen significant increases in house prices in recent years and its interest rate has dropped from a level of 154 per cent in 1997 to 8.9 per cent in 2005.

File:Bucharest highrises.jpg

New towers rising in Bucharest

The construction industry in Romania contributed an estimated 5.95% in 2006 to the country's gross domestic product (GDP). Business Monitor International released Romania Infrastructure Report Q2 2007 in which they forecast an average industry growth rate of 6.84% over the 2007-2011 period.

The construction industry has been receiving funds from foreign institutions including European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB). Furthermore, the Romanian Ministry of Environment and Water Management is making efforts to align the Romanian environment standards with the European standards. One of the ongoing projects in the country is the construction work on the various sections of the Bucharest-Brasov motorway. An increasing number of foreign companies are showing interest in electrical production capacities in the country. Companies include Germany's Siemens, U.S-based AES Corporation and Geneva-based Societe Bancaire Private.

However, the construction industry is subject to a number of risks, which can affect its growth. The rising budgetary deficit, for example, has had an increasingly adverse impact on the availability of funds for the infrastructure sector.

Despite the drawbacks, BMI ranked Romania 12th out of the 13 states included from the Emerging Europe for the infrastructure business environment. The construction industry is forecast to reach a value of RON36.2bn (US$13.41bn) by 2011, from an estimated RON20.88bn (US$7.43bn) in 2006.

Manufacturing

Main article: Manufacture in Romania

The general pattern of development for wealthy nations was a transition from a primary industry based economy to a manufacturing based one, and then to a service based economy. Romania did not follow this pattern, manufacturing has always been secondary, though certainly not unimportant. In part because of this, Romania did not suffer as greatly from the pains of deindustrialization in the 1970s and 1980s. Manufacturers have been attracted to Romania due to the highly educated population with lower labour costs than the EU. Romania's government-run healthcare system is also an important attraction, as it exempts companies from the high health insurance costs they must pay in the EU.

Car manufacturing

Main article: Car manufacturing in Romania

Much of the Romanian manufacturing industry consists of branch plants of EU firms, though there are some important domestic manufacturers, such as Dacia Logan, Daewoo, Roman Braşov, Igero bus . This has raised several concerns for Romanians. Branch plants provide mainly blue collar jobs, with research and executive positions confined to the EU. About half a million cars are produced each year in Romania.

Dacia Logan MCV

Ford bought Daewoo Romania company for $ 57 millions to produce Ford automobiles to a car production estimated to be over 300,000 by 2010. Ford will invest €675 million (US$923 million) in the former Daewoo car factory. Ford also said it would buy supplies from the Romanian market worth €1 billion (US$1.39 billion).

The Dacia Logan was the top-selling new car in Central and Eastern Europe in the first half of 2007 with 52,750 units sold, ahead of Skoda Fabia (41,227 units), Skoda Octavia (33,483 units),Opel Astra (16,442 units) and Ford Focus (14,909 units), shows a market survey of JATO Dynamics, the leading supplier of automotive market intelligence. Romania lead the regional auto market growth in the first half of 2007, both up 25 percent as against the similar period last year, said the local weekly Capital in its latest issue Wednesday.

High technology

Main article: High technology in Romania

Romania planners realized that the country needed to advance quickly in such areas as high technology if the economy were to grow while matching foreign competition. In 1997 the Romania Development Institute issued a report, Romania Year 2000, that profiled Romania economic development in 2000. The Romania Development Institute noted that the industrial structure would be highly developed and would resemble that of advanced countries inasmuch as high value-added industries, high-technology industries, and soft industries grew relatively rapidly. Further, changes in industrial structure were expected rapidly to reduce the demand for unskilled workers while simultaneously increasing the demand for professional and technical manpower, resulting in further change of the employment structure.

The Romania Development Institute also noted that the Ministry of Science and Technology had prepared a long-range plan of science and technology for the twenty-first century that took into account limited available resources. Accordingly, Romania selected its comparative advantage areas, including informatics-- particularly information storage and retrieval and electronic data processing, fine chemicals, and precision machinery in the short term; biotechnology and new materials in the mid-term; public benefit areas, such as the environment, health, and welfare, as another group; and oceanography and aeronautics for the medium and long term.

In 2000 Romania announced an ambitious plan to promote science and technology so that high-technology activities would dominate the economy by the year 2007. The Ministry of Science and Technology intended to coordinate technology-related projects between government and industry in a variety of fields including semiconductors, computers, chemistry, and new materials.

Arms industry

Main article: Arms industry in Romania

Romania is the 11th largest arms supplier in the world. The Romanian arms industry's main customer, for whom they mainly build warships, guns, nuclear weapons and equipment, is the Romanian Government. Furthermore, record high defense expenditure (currently at 5 billion €), which was considerably increased under the government of Prime Minister Calin Popescu Tariceanu, have contributed to the success of the Romanian arms industries. In addition, external demand plays a big part in the growth of this sector: for example, Romanian exports great quantities of weaponry to the Middle East.

In recent years, the Romanian Government has called, unsuccessfully, for the lifting of the EU weapons trade embargo on China.

Services

Main article: Services in Romania

In 2003 service sector constituted 55% of gross domestic product (GDP), and the sector employed 51.3% of the workforce. The subcomponents of services are financial, renting, and business activities (20.5%); trade, hotels and restaurants, and transport (18%); and other service activities (21.7%).

The service sector in Romania is vast and multifaceted, employing some three quarters of Romanians and accounting for two thirds of GDP. The largest employer is the retail sector, employing almost 12% of Romanians. The retail industry is mainly concentrated in a relatively small number of chain stores clustered together in shopping malls. In recent years the rise of big-box stores, such as Cora (hypermarket) (of the France) and Carrefour (a subsidiary of the french), have led to fewer workers in this sector and a migration of retail jobs to the suburbs.

The second largest portion of the service sector is the business services, employing only a slightly smaller percentage of the population. This includes the financial services, real estate, and communications industries. This portion of the economy has been rapidly growing in recent years. It is largely concentrated in the major urban centres, especially Bucharest (see Banking in Romania).

The education and health sectors are two of Romania's largest, but both are largely under the purview of the government. The health care industry has been rapidly growing, and is the third largest in Romania. Its rapid growth has led to problems for governments who must find money to fund it.

Romania has an important high tech industry, and also an entertainment industry creating content both for local and international consumption. Tourism is of ever increasing importance, with the vast majority of international visitors coming from the EU, though the recent strength of the Romanian leu has damaged this sector.

Tourism

Main article: Tourism in Romania

File:CEC Palace Bucharest.jpg

CEC Palace in Bucharest, the oldest Romanian bank

Sibiu, the 2007 European Capital of Culture

Tourism is a significant contributor to the Romania Economy. In the 1990s the government heavily promoted the development of skiing in the Romanian Carpathians. Domestic and international tourism generates about 4% of gross domestic product (GDP) and 0.8 million jobs. Following commerce, tourism is the second largest component of the services sector. In 2006 Romania registered 20 million overnight stays by international tourists, 4% higher than in the previous year and an all-time record. Two-thirds of all major trade fairs from Central Europe are held in Romania, and each year they attract 2 to 3 million business travelers, about 20% of whom are foreigners. The four most important trade fairs take place in Bucharest, Cluj-Napoca, Iaşi, Timişoara.

Tourism is one of the most dynamic and fastest developing sectors in Romania. According to travel agencies TUI AG and Thomas Cook, 17 of the 100 best hotels of the world are located in Romania.

In the year 2006, 14,122,798 tourists vacationed in Romania. The total revenue was $4.2 billion and with an average expenditure of $679 per tourist. Over the years, Romania has emerged as a popular tourist destination for many Europeans, often competing with Greece, Italy and Spain. Romania destinations such as Constanta and Mamaia (sometimes called the Romanian Riviera) have become very popular among European tourists.

Romania has a highly developed tourism infrastructure, making it a good market for tourism-related equipment and services.

In 2006 it is reported that the hotel and restaurant industry added gross value of $8,074 million to the Romanian economy in 2005.

Banking and finance

Main articles: Banks in Romania and Bucharest Stock Exchange

File:Bucharest Stock Exchange.jpg

The Bucharest Stock Exchange building

Stocks

In the first four years of the twenty-first century, Romania's BET Index was the best-performing stock market index in the world as declared by the international magazine “Business Week”.

The stock market capitalisation of listed companies in Romania was valued at $285,937 million in 2006 by the World Bank. As a result, the corporate sector of Romania has grown dramatically in significance in recent times.

Investment

The stock market capitalisation of listed companies in Romania was valued at $225,568 million in 2007 by the World Bank.

Stock exchanges

• Bucharest Stock Exchange
• Rasdaq
• Sibiu Stock Exchange

Stock indices Bucharest Stock Exchange has four indices:

• BET(Bucharest Exchange Trading index (BET)) which was created first, reflects the evolution of the most liquid 10 stocks (except Investment Funds); it is the most followed index of the exchange
• BET-C (BET Composite) reflects the evolution of all listed stocks (except Investment Funds)
• BET-FI reflects the evolution of the five large Investment Funds created in the Mass Privatisation Program
• ROTX (Romanian Traded Index) reflects the evolution of the most liquid blue chips

Socio-economic characteristics

Labour force

Main article: Labour force in Romania

The distribution of Romania’s workforce by sector is very similar to the relative output of each sector. In 2006 the workforce was distributed as follows: agriculture, 5.2%; industry, 32.4%; and services, 56.3%. Participants in the workforce totaled almost 10 million.

Wages

Main article: Wages in Romania

Romania's gross average wage for July 2007 was 428.74 Euro ($583.08). The income from salaries in Romania had the highest growth rate in the region during the last year 2006. The level of the minimum wage depends on the country and the standard of living within that state. In Romania its above €200. A higher minimum wage can reduce poverty by increasing the income of people on the minimum wage in poor households by more than the average rate. The majority of people on the minimum wage, however, live in medium or higher-income households. Most poor people are not affected by any increase in the minimum wage since they are unemployed.

Monthly agerage earnings according to BBC News in 2006 were: child servant 240 euros, teacher 270 euros, labourer/unskilled worker 180 euros.

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	25,457
2	Cluj	24,215
3	Timiş	23,671
4	Braşov	22,984
5	Constanţa	22,523

Inner Bucharest has a GDP per capita about $31,400.

Economy of Bucharest

Main article: Economy of Bucharest

File:Bucharest Charles de Gaulle2.jpg

Charles de Gaulle Plaza, Bucharest

File:Piata Victoriei BRD.JPG

BRD Tower in Victoriei square

Bucharest is the most economically-developed and industrialised city in Romania, producing around 21% of the country's GDP and about one-quarter of its industrial production, while only accounting for 9% of the country's population. Almost one third of national taxes is paid by Bucharest's citizens and companies. Based on local purchasing power, Bucharest has a per-capita GDP of 64.5% that of the European Union average (2004), and more than twice the Romanian average. Based on the fact that Bucharest produces around 21% of Romanian GDP for a population of around 2 million, the GDP (PPP) per capita of the city would be US$30,057. The city's strong economic growth has revitalised infrastructure and led to the development of many shopping malls and modern residential towers and high-rise office buildings. In September 2005, Bucharest had an unemployment rate of 2.6%, significantly lower than the national unemployment rate of 3.6%.

Bucharest's economy is mainly centred on industry and services, with services particularly growing in importance in the last ten years. The city serves as the headquarters of 186,000 firms, including nearly all large Romanian companies. An important source for growth since 2000 has been the city's property and construction boom, which has resulted in a significant growth in the construction sector. Bucharest is also Romania's largest centre for information technology and communications and is home to several software companies, including Softwin, which operates internationally. Bucharest contains Romania's largest stock exchange, the Bucharest Stock Exchange, which was merged in December 2005 with the Bucharest-based electronic stock exchange, Rasdaq.

The city has a number of international supermarket chains such as Carrefour, Cora and METRO. At the moment, the city is undergoing a retail boom, with a large number of supermarkets, and hypermarkets, constructed every year. For more information, see supermarkets in Romania. The biggest modern shopping centres in Bucharest are Bucharest Mall, Plaza Romania, City Mall, Jolie Ville Galleria and Unirea Shopping Center. However, there are also a large number of traditional markets; the one at Obor covers about a dozen city blocks, and numerous large stores that are not officially part of the market effectively add up to a market district almost twice that size.

Growing middle class

Measured by purchasing power, Romania has a 17.5 million strong middle class. It is estimated that Romania possesses a "a middle class of 17.6 million people that Standard Chartered estimates now earn an average of about $22-25,000 a year. In addition, Romania has a growing upper class with relatively high per capita incomes.

World Bank estimated that in 2002 99% of the urban and 94% of the rural population had access to electricity. In 2004, 91% of the urban and only 16% of the rural population had access to improved water supply and 94% of the urban population had access to improved sanitation.

In 2007 there were about 19.5 million mobile phone users in Romania. , and about 14.8 internet users.

Information Technology

Romania is one of the fastest-growing information technology (IT) markets in Central and Eastern Europe. The country has made significant progress in all of the information and communications technology (ICT) subsectors, including basic telephony, mobile telephony, the Internet and IT. The country’s telecoms sector has been deregulated, expanded and modernised over the past 15 years.

Romania is the leader in Europe, and sixth in the world, in terms of the number of certified IT specialists, with density rates per 1,000 inhabitants greater than in the US or Russia. There are about 64,000 specialists in the IT sector. Approximately 5,000 of the 30,000 engineers graduating every year in Romania are trained in ICT.

External trade and investment

Global trade relations

Italy is Romania's largest trading partner; two-way trade totalled some $22.6 billion in 2007. The principal Italy exports to Romania include computers, integrated circuits, aircraft parts and other defense equipment, wheat, and automobiles. Romania's chief exports to the Itlay include cut diamonds, jewelry, integrated circuits, printing machinery, and telecommunications equipment.

2.8% of the country's GDP is derived from Agricultural activity. While Romania imports substantial quantities of grain, it is largely self-sufficient in other agricultural products and food stuffs, due to the fact that food must be regulated for sell in the Romania retail market, and hence imports almost no food products from other countries. Romania imported in 2006 food products of 2.4 billion euros, up almost 20% versus 2005, when the imports were worth slightly more than 2 billion euros. The EU is Romania’s main partner in the trade with agri-food products. The exports to this destination represent 64, and the imports from the EU countries represent 54%. Other important partners are the CEFTA countries, Turkey, Republic of Moldova and the USA.

Romania is one of the world's major exporters of military equipment, accounting for 3-4% of the world total in 2007. EU members are represented by a single official at the WTO.

Balance of payments

Current account balance: $-14.000 billion (2007 est.)

Foreign direct investment

Main article: Foreign direct investment in Romania

File:Bucharest modern building 1.jpg

Bucharest Financial Plaza

(FDI) in Romania has increased dramatically. In 2006 net foreign direct investment was inbound US$12 billion (EUR 9.1 billion). Cheap and skilled labor force, low taxes, a 16% flat tax for corporations and individuals, no dividend taxes, liberal labor code and a favorable geographical location are Romania’s main advantages for foreign investors. FDI has grown by 600% since 2000 to around $13.6 billion or $2,540 per capita by the end of 2004. In October 2005 new investment stimuli introduced – more favorable conditions to IT and research centers, especially to be located in the east part of the country (where is more unemployment), to bring more added value and not to be logistically demanding.

Origin of direct foreign investment 1996-2005 – the Netherlands 24.3%; Germany 19.4%, Austria 14.1%; Italy 7.5%, United States (8th largest investor) 4.0%. Top investors from countries, by companies: Erste Bank (Austria), OMV (Austria), Gaz de France (France), Orange (France), Vodafone (U.K.), Ford (U.S.A.), MOL (Hungary), ENEL (Italy), E.ON (Germany), Nokia (Finland) ... General Motors considers Romania for plant . General Motors could shortly begin investments in order to develop a production centre in Romania, with Cluj-Napoca as a potential location for the future plant, close to the Nokia Village. Nokia invested $100 mn in a plant near Cluj-Napoca. SABMiller is set to invest EUR50m (US$69m) in expanding production at one of its breweries in Romania (Ursus (beer)). Czech-based investor and developer CTP Invest plans to allocate EUR 60 mln next year in industrial property development in Romania. Snowmobile and motorcycle maker Polaris Industries Inc. will invest 50 million euros ($69.41 million) in a snowmobile plant in Romania.

Sectors of direct foreign investment - industry 38.4%; banking and insurance 22.2%; wholesale and retail trade 13.1%; production of electricity, gas and water 10.5%; transportation and telecommunications 9.2%.

Romanian investments abroad

Romanian furniture chain opens hypermarket in Bulgaria's capital. Romanian furniture company Mobexpert opened its first hypermarket in Bulgaria in Sofia's residential district of Lyulin. Ten million euro was invested, of which 80 per cent were provided as a bank credit from Alpha Bank. Annual profit of Mobexpert's hypermarkets was 200 million euro. The company has 4500 employees. The Romanian electronics producer Altex, which is considered the largest one in the country, plans to enter the Bulgarian market in 2008. Altex has 90 stores in Romania's largest cities. In Bucharest alone there are ten stores. The company previously announced its plans to enter the Serbian market as well.

Taxation and borrowing

Main article: Taxation in Romania

Taxation in the Romania may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). Local government is financed by grants from central government funds, business rates, council tax and increasingly from fees and charges such as those from on-street parking. Central government revenues are mainly income tax, national insurance contributions, value added tax, corporation tax and fuel duty.

These data show the tax burden (personal and corporate) and national debt as a percentage of GDP. Samples are taken at 10 year intervals (snapshots, but the rolling averages are very close).

Environmental concerns

As with most of the fast developing countries, there is an environmental issue and a concern that Romania's model of economic growth (based on the construction industry, manufacturing sectors, and mass tourism). Although Romania's population decrease by less than 5% between 1990 and 2000, urban areas expanded by no less than 25% over the same period. Meanwhile, Romania's energy consumption has doubled over the last 15 years and is currently rising by 6% per annum. This is particularly worrying for a country whose dependence on imported oil (meeting roughly 40% of Romania's energy needs) is one of the greatest in the EU. Large-scale housing and tourism development are placing strain on local land and water resources.

Post-industrial economic developments

Several issues have dominated the debate on Romania's economy since the 1970s:

• Cost of living - Romania is among the most expensive countries in the Europe, as reflected in the Big Mac Index and other indexes. Historically, transportation costs and barriers to free trade had caused the disparity, but in recent years, Romanian policy with respect to labor relations, taxation, etc., have contributed significantly.
• Competitiveness of "mainland" industries - the high cost of labor and other structural features of the Romanian environment have caused concern about Romania's ability to maintain its cost of living in a post-petroleum era. There is a clear trend toward ending the practice of "protecting" certain industries and making more of them "exposed to competition". In addition to interest in information technology, a number of small- to medium-sized companies have been formed to develop and market highly specialized technology solutions.
• The role of the public sector - the ideological divide between socialist and non-socialist views on public ownership has decreased over time. The Romanian government has sought to reduce its ownership over companies that require access to private capital markets, and there is an increasing emphasis on government facilitating entrepreneurship rather than controlling (or restricting) capital formation. A residual distrust of the "profit motive" persists, and Romanian companies are heavily regulated, especially with respect to labor relations.
• The future of the welfare state - since World War II, successive Romanian governments have sought to broaden and extend public benefits to its citizens, in the form of sickness and disability benefits, minimum guaranteed pensions, heavily subsidized or free universal health care, unemployment insurance, etc. Public policy still favors the provision of such benefits, but there is increasing debate on making them more equitable and needs-based.
• Urbanization - for several decades, agricultural policy in Romanian was based on the premise of minimal self-sufficiency. In later years, this has given way to a greater emphasis on maintaining population patterns outside of major urban areas. The term "district policy" has come to mean the demand that old and largely rural population centers should be allowed to persist, ideally by providing them with a sustainable economic basis.
• Taxation - the primary purpose of the Romanian tax system has been to raise revenue for public expenditures; but it is also viewed as a means to achieve social objectives, such as redistribution of income, reduction in alcohol and tobacco consumption, and as a disincentive against certain behaviors. Three elements of the tax system seem to attract the most debate:
  • Value-added tax. The largest source of government revenue. The current standard rate is 19%, food and drink is 19%, and movie theater tickets and public transportation 19%.
  • Special surcharges and taxes. The government has established a number of taxes related to specific purchases, including cars, alcohol, tobacco, and various kinds of benefits.
• Environmental concerns. A number of political issues have had their origins in economic concerns.

See also

• List of Romanian companies
• Trade unions in Romania
• Taxation in Romania
• Common Agricultural Policy
• Economy of Europe
• European Union
• Romania
• http://www.mfinante.ro/venituri.htm
• http://www.bnr.ro
• http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf

Wikitravel

• Romania at Wikitravel - guide to traveling to, from, and in Romania