Adrian Nastase Prime Minister

It would be difficult to enter into a conversation in Romania concerning the state of the nation’s economy without uttering the buzzword of the day: privatization. The topic is on the lips of government officials,opposition leaders and those citizens employed in every sector of the economy.
Since the country launched its privatization program in 1992, some 5,600 companies representing 35% of state capital have been liberated from the restraints of public management. And while not all have blossomed, the scope of the program has touched the lives of all Romanians. Although the process has been painstakingly difficult, the government of Prime Minister Adrian Nastase has pledged to press on with the privatization of the country’s 64 largest companies in a process backed by a World Bank restructuring loan of US$300 million.

Dr. Nastase points out that all this is necessary in order for Romania to become a member of the European Union, probably just five or six years from now. “We have to prepare our economy to be powerful and strong enough to counterbalance some of the pressures on the EU market,” he says. “That’s why we are not in a hurry to get in. We have to prepare ourselves. We want to use the transition period in order to prepare the economy, to modernize it, to solve some of our problems, to introduce EU legislation in Romania.”
The Prime Minister sees an important role in the privatization process for foreign investment, and not only from
Romania’s nearest western neighbors. After signing some half a billion dollars in contracts in Germany , Dr. Nastase feels “it is very important now to concentrate on Britain and the United States. We want to encourage important U.S. companies to invest in Romania,” he says.

Ovidiu Musetescu Minister of Privatization

In wooing foreign enterprises, Romania can now point to the recent economic turn-around, and a series of steps taken by the government to improve the investment climate. Not only was the economic contraction of recent years reversed in the first half of 2001, when a healthy annual growth rate of over 4% was registered, the Prime Minister notes, “we have twice received a credit rating upgrade from Standard and Poor’s, we have succeeded in putting together over US$1 billion in Euro-bonds, we have adopted a very modern law on direct investments, and have undertaken significant privatizations, like Banca Agricola or (the steel company) Sidex.”
Although the government has been moving quickly with privatizations, many more lie ahead. Over the past four years Romania has been selling off state holdings at a rate of 1,000 per year. Ironically, GNP over that same period decreased by about 20%, a paradox that Privatization Minister Ovidiu Musetescu blamed on the caliber of the companies on offer. “We may conclude that the privatization process has had a certain rhythm, but lacked quality. The current challenge for the government, and its new philosophy, is to maintain the rhythm and focus on quality,” Mr. Musetescu points out.

He also acknowledged that the government would be taking a closer look at the management of the companies preliminary to privatization, “so there’s something left to privatize” and review the program’s methods and implement new ones where needed, “such as capital injection to increase investor interest.”
The need for “capital injection” explains why the Minister of Agriculture, Ilie Sarbu, hopes to “have as many foreign companies as possible” move into the food and agricultural sector. An additional plus, Mr. Sarbu believes, is that foreign companies that take advantage of the privatizations to extend their operations to Romania, presumably, “already have a market” and can provide “another kind of management.” There is no lack of opportunities for investors in this sector. Mr. Sarbu’s goal is the complete privatization of Romanian agriculture by the end of 2002.
One huge industrial enterprise in the final stages of privatization is Romania’s state-owned steel mill Sidex, the largest producer of steel plate in Eastern Europe, that exports more than 40% of its production worldwide. Output from the mill accounts for about 4.2% of Romania’s industrial production and the company employs 28,000 people at the eastern port city of Galati.

Dan Nicolae Soiman CEO of Sidex Galati Romania

At the time of going to press, the sale of the company to LNM Holdings Ispat had just been finalized, pending approval from the Romanian parliament. As Sidex general director Dan Nicolae Soiman says, “the fundamental issue in the entire privatization process was to increase the capital of the company, which will ensure that Sidex becomes a major global player in the iron and steel industry.”
Sidex plays an important role in Romania’s drive to meet the criteria for membership in the EU, which sets high environmental standards for candidate nations. “The environmental issue was definitely one of the hardest parts of our negotiations,” Mr. Soiman acknowledges. “All of our investment and development programs put special emphasis on the environmental issue and 32% of those investment funds focus on environmental protection.”

Besides Sidex’s production capacity of over 5 million tons of steel per year and the variety of its products, the company’s geographic location has been a major selling point, Mr. Soiman notes. “Our location gives us access to river and sea transportation. We are right beside a huge coal source, namely Russia. The area also has a highly-qualified workforce and the tradition of the iron and steel industry there goes back a long way. And to ensure a better future for the company, we have built professional schools and universities and we also provide training.” Dr. Nastase comments that the privatization of Sidex has clearly demonstrated the government’s commitment to liberalizing the economy. The deal with LNM Holdings Ispat–which has committed to invest US$351 million in the company over the next ten years–will help finance the modernization of Romanian plants.

In the congratulatory letter to the Prime Minister of Romania, Tony Blair stated that the event was a major step forward in the efforts of the Romanian government targeting to restructure and to modernize the Romanian economy. "I hope this event will stimulate the renewed interest of the British investors in Romanian. Moreover, I believe this event will place Romania more firmly on the road towards European Integration" added the British Prime, highlighting that the UK is a strong supporter of this objective.