The last time Chinese merchants arrived in Europe along the great Silk Road trade routes, the Black Sea port of Constanta largely missed out on the action. It existed already, an ancient city known as Tomis where the poet Ovid spent the last nine years of his life after being banished from Rome in 8 AD. Shocked to find nobody in Tomis with whom he could converse in his native Latin, Ovid complained that he was stuck “in a war-stricken cultural wasteland on the remotest margins of the empire”.

Constanta is now a bustling and cosmopolitan city on the coast of Romania, at the very edge of another sprawling empire, the European Union. You still won't find many Latin-speakers but you will find Turks and Tartars, Armenians, Roma and Greeks. And, of course, an Irish pub that serves some of the best food in town.

Under Xi Jinping, the Chinese are busy planning another Silk Road network, a great Eurasian trading belt stretching through Central Asia and into Europe to carry all manner of goods and raw materials. Xi’s One Belt One Road project, designed to build up Chinese prosperity for generations ahead, will involve trillions of dollars in investment. And Constanta is well placed to benefit from that investment, but the government in Bucharest needs to be ready to play its part.

Losing disputes

As regular fDi readers will know, there has been a sharp decline in both the number and value of FDI projects into Romania over the past five years. Greenfield investment monitor fDi Markets has recorded year-on-year declines, from 181 recorded projects in 2011 to just 112 in 2015. The total capital expenditure has fallen by more than two thirds, from a peak of $10.93bn in 2011 to $3.62bn last year.

Those figures come as no real surprise to those who follow the situation in Romania and have seen in 2016 the all-too-often ill-considered treatment of foreign investors. The Romanian government has lost three major legal disputes over the past year at the Paris-based International Court for Arbitration, involving foreign energy companies such as E.ON and ENEL.

It has also been in dispute with KazMunayGas (KMG), the Kazakh state oil and gas company, which has been a major investor in Romania since taking a controlling stake in the privatised Rompetrol in 2007. Rompetrol, or KMGI as it is now known, controls two oil refineries, including the vast Petromidia plant near Constanta, and a network of 1,000 petrol stations that spread all the way to Spain and Portugal. KMG has spent billions building up the business, renewing the Petromidia refinery, and announced in April that it was entering into a joint venture with the Shanghai conglomerate CEFC to take things to the next level and create a vibrant Black Sea energy hub. Two weeks later – the timing rang alarm bells – local prosecutors reopened an historic corruption probe and froze assets valued by KMGI at $2.1bn.

Frozen assets

The investigation, which has seen the indictment of four former government ministers, targets Rompetrol’s original privatisation in 2003 and the decision to convert $570m in Rompetrol debt into convertible bonds issued by the finance ministry, which effectively allowed businessman Dinu Patriciu to use government money to buy government assets. Patriciu died in 2014 without ever being convicted over that deal and the assumption was that the matter was buried with him, especially after the change in Rompetrol’s ownership.

With KMGI’s assets frozen, the CEFC deal looked like it might be under threat, but the companies pressed ahead. On December 16, appropriately enough the 25th anniversary of Kazakhstan’s independence from the Soviet Union, a joint venture deal was confirmed under which CEFC would take 51 per cent of KMGI while KMG retained 49 per cent. The first thing the deal should do is to unblock a $1bn regional investment fund agreed between the Kazakhs and the Romanian government in 2013. The pending investment on offer from the Chinese partner far exceeds that, and could eventually run to $3bn or more. Projects already confirmed include the construction of a co-generation power plant at Petromidia and the opening of 200 new filling stations on the Rompetrol network. KMGI is planning to double its refining capacity to 10 million tonnes a year.

Announcing the deal, KMG said that it would bring together the Kazakhs’ “expertise, innovative approach and vast energy resources” with CEFC's “great interests in European markets and significant financial resources”. As the EU tries to reduce its dependence on Russian crude oil and gas, the deal is clearly important for Europe’s energy security. More significant still is CEFC’s financial partnership in the joint venture, demonstrating China’s readiness to put its tremendous capital reserves to work.

A new broom

The ball is now back in the new Romanian government’s court for quick public endorsement. The state continues to hold a 45% stake in the Petromidia refinery, making the KMGI CEFC venture a true public private partnership with the government. They now have a real chance to prove they are open to the opportunities offered by the KMGI deal and similar ventures down the line. Having won 45% of the vote in last month’s election, the Romanian Socialist Party has joined forces with the Alliance of Liberals and Democrats to secure a solid majority in parliament. The new premier, Sorin Grindeanu, a mathematician and former communications minister, will take charge of a more activist administration. 2016 was a year of largely directionless technocratic government. Prime Minister Grindeanu has the opportunity to press the reset button on Romania’s relations with foreign investors (especially if the party is to live up to its election promises to raise wages and pensions, and secure billions for a new investment fund). Romania has enjoyed the fastest growth of all EU member states in recent years but that growth has begun to stall as investment falls off.

The EU-Romania Business Society campaigns for the transparent and equal treatment of foreign investors and for the kind of market-opening investment that will allow Romania, with its abundant natural resources, well-educated labour force and strategic location, to reach its true potential. Those who work in the FDI community know that foreign investment is the strongest driver for greater economic prosperity. They are well aware, too, that trade – especially development of an east-west energy gateway – can bring new development and growth. KMGI, for example, has paid more than $13bn to the state budget over the past nine years.

Romania is clearly an attractive marketplace for foreign investors, but its leaders have too often allowed unnecessary obstacles to be put in their way. The danger is that capital, by its very nature, is mobile, and can pick up and go when assets are not safe or protected. An investment spurned is an investment lost. And if China’s Silk Road, version 2.0, bypasses Constanta once again, it would be a lost opportunity for all Romanians. Let’s hope the new government knows a really good thing when it sees it, and is ready in 2017 to act in the national interest, with dedicated partners.

James Wilson is the founding director of the EU-Romania Business Society.