Within last month, Romania’s national currency has steadily strengthened itself in relation to the EURO, descending from 4,65 lei for one EURO in August to its current exchange rate of 4,45. Although this is a favorable evolution for the financial sector and for those owing currency, the actual cost for this increase is not to be neglected and we are all going to pay for it in the following months.
The main reason for the appreciation of the Romanian LEU is the decreased ratio of the interbank market liquidity caused by RNB[i]’s intervention. Its effect can be recognized in the 1% increase of the interest rates on the interbank market which in turn has already affected the costs of state financing and will become even more apparent to all economic players in the months to come.
In a nutshell, sooner or later financing will get more expensive for everybody and interest rates will grow and grow. Since the Romanian State cannot indebt itself too much due to IMF restrictions, the only way to boost Romania’s economic growth is through stronger involvement of private initiative, preferable in large-scale projects.
This however, brings about another issue: the amount of foreign direct investment in Romania has greatly decreased by comparison to the previous year, and the main trend is still plunging.
I can tell you from personal experience that the amounts mentioned in Romania for various projects and business ventures are actually pocket change for large foreign investors and international funds. Romania’s main problem is not so much the lack of money, but the lack of confidence and information proven by large investors, who either don’t know what to do in our country, or who have already made up their minds about it, and, based on foreign press titles of political crisis, corruption, breach of democratic principles etc. it’s clearly not in our favor. All the hubbub and commotion are definitely not helping.
What is to be done? Turnkey projects may be great in terms and impacts and very cost-effective at the same time. This type of projects involve identifying the essential investments Romania needs, writing a business plan to match and then pitching those projects to big international investors together with an international consulting company as partner. Like a sort of blue board for all business available in Romania, if you will.
One such project could very well be the transformation of Transelectrica and the Romanian electrical grid. Lately there have been several articles in the press regarding investments funds that have been building windfarms in Dobrogea. Windmills provide cheap electricity, but for now there is another crucial issue: Transelectrica does not have the means to transport nor manage all the power produced in Dobrogea. This situation closely resembles the chaotic developments from the real-estate boom era: whole neighborhood having built without having the access routes to reach them.
Just like hundreds of millions were found for building these windfarms, money can still be found the same way in order to now connect them to the national power grid. This is just one of the many type of investment projects Romania greatly needs and for which international funding
[i] Romanian National Bank