On highway E68 from Sibiu to Arad, freight trucks carry Romanian-made goods such as budget Dacia cars, machine tools like pumps and compressors, or fine feteasca neagra wine, over the border with Hungary to lucrative western European markets. But the highway is throttled by congestion and the tarmac is littered with potholes. Routes are even vulnerable to one of the country’s many stray dogs finding themselves among the traffic and causing an accident. Romania is a fast-changing economy with much human and natural capital, but its potential has yet to be fully realised. Romanians must be hoping new president Klaus Iohannis can bring about a change in its fortunes.

Foreign investors have long understood the attraction of Romania and have been a key driver in the growth of the export market epitomised by the multitude of freight trucks. Ever since the Ceausescu regime was overthrown in 1989, the country has attracted interest from immediate neighbours and beyond, from Italians who have a natural linguistic connection (energy giant Enel recently bought into the Romanian electricity business), from the French (through companies such as Renault, Orange and Société Générale), from Germany and Austria (Siemens, OMV and Raiffeisen Bank), as well as Turkey, the Middle East and Asia. 

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Investment hopes

The global financial crisis and recession stopped investment in its tracks, however. According to the National Bank of Romania, FDI fell from €9.5bn to €3.49bn between 2008 and 2009 before hitting a low in 2011 of €1.82bn. But there is renewed optimism: FDI has grown for two years running (2012 and 2013) with positive predictions for 2014. Dr Lucian Anghel, CEO and president of the management board of the Commercial Bank of Romania’s pension fund division, says the numbers are improving. "Our exports are up as are our EU absorption rates,” he says.

And hopes are high that the new president will reinforce this growth. He has a proven track record in attracting investment, which he did when he was mayor of the medieval city of Sibiu, where he is credited with transforming the city into a major tourist destination and the surrounding area into a regional business hub.

What the president knows is that Romania’s resources are impressive: in energy, Romania is an oil and gas producer with natural reserves on land and, as yet unexploited, in its territory on the Black Sea. “As the EU seeks out internal energy supplies, there are opportunities here,” says Valeriu Binig, an energy market specialist at Ernst & Young.

Intense privatisation in Romania's energy sector has seen the arrival of foreign investors such as OMV, which bought state-owned oil company Petrom, and a number of players in electricity distribution. In renewables, Czech company CEZ runs the largest onshore wind farm in Europe in the south-east of Romania and, in 2013, Samsung invested a reported €100m in a solar photovoltaic business in Slobozia.

But there have been problems in the sector as a result of legislative uncertainty. Some of the renewable energy projects have turned sour following changes to the law on 'green certificates', the means by which renewable energy companies are paid for the electricity they produce, which have reduced companies’ profits. “These laws may lead to adjustments in this sector,” says Mr Binig, who acted as an advisor on a number of the energy privatisations.

Bearing fruit

In real estate, Romania did well in boom times but prices were unsustainable (as Mr Anghel puts it, “it was so bright you couldn’t see”) and collapsed with the global financial crisis. According to fDi Markets, greenfield projects in the real estate sector in 2008 in Romania numbered 74; by the following year this figure was down to 11.

Real estate has not bounced back (in 2013, there were only 13 real estate projects in Romania). Instead, it is the vast tracts of agricultural land (about 40% of the country) which are attracting the interest of investors. “In the past few years, [interest in] office and residential [projects] has dropped, but there is a continued interest in farmland,” says Ana-Maria Goga, a partner in real estate at Bucharest law firm Pachiu & Associates.

Farmland is not without its problems, however. Though new laws on Romanian land ownership mean that EU-based organisations or citizens can buy land directly (beforehand one had to partner with a Romanian), there are still problems with the lack of proper land registration, a throwback to the Communist era when there was no private land ownership and registration was abandoned. Potential investors could find it difficult to establish proper legal ownership or boundaries.

Despite this, agriculture is a strong sector for Romania. Wheat, maize, rapeseed, soya beans, sugar beet and tomato crops thrive across the country, alongside vineyards and orchards. The southern regions are part of a belt of cernozem, or “black earth” (running from Serbia to southern Russia) renowned for its fertility (there are only two such belts in the world). “Romania is the biggest farming country in Europe and there is still considerable unused land which could be farmed,” says Theo Häni of Agrarinvest, which invests in agricultural land in the country. Additionally, Romanian farmland is still inexpensive: on average, a hectare in Germany costs €35,000, but in Romania it can cost as little as €1500.

Since Romania joined the EU in 2007, farmers can also now benefit from EU subsidies (though, of course, subsidies come at the price of greater regulation). In the organic sector subsidies are higher. Karpaten Meat is a Swiss-owned organic beef company established in Romania with the largest Angus herd in Europe. Agrarinvest is one of its investors. “Romania has the potential to be a major organic farming country, with good quality land close to market,” says Mr Häni. Here he echoes Romania’s most famous organic farmer and foreign investor, the UK’s Prince Charles.

Tech talent

As is the case with many other eastern European countries, Romania’s educational strengths are in science and maths. The automotive sector, for one, has benefited from a skilled workforce at comparatively low cost. Dräxlmaier is a German-owned car parts manufacturer; Bernd Schmitt runs its Romanian operations, which were extended by about 1000 staff in 2014. “We first came here in the early 1990s because there were some good people, both workers and also specialist engineers, electricians as well as leaders in production,” he says.

By basing itself in Romania, Dräxlmaier could also be 'close to its customers': Renault arrived in Romania as far back as 1968 when the first Dacia was assembled under a Renault licence. Ford came much later when it bought up Daewoo’s bankrupt operations in the country in 2001. Expanding out of two main hubs, Pitesti and Craiova, Romania’s automotive sector now dominates the European budget car market with the Dacia Logan and the Duster (both owned by Renault).

Nicolas Maure, CEO of Dacia and general director of Renault Romania, cites Romania’s “competitive manufacturing location” and its “expertise in designing and manufacturing vehicles at competitive costs, efficient manual processes, labour costs and education system” as reasons for choosing Romania.

Endava is a London-headquartered IT services company, another strong sector for Romania. Endava has delivery centres in Romania as well as Moldova and Macedonia. The company's operations director, Robert Spittal, also speaks highly of Romania's indigenous talent. “In our business it’s not only about cost. It’s about the challenge culture, the high communication skills and their ability to understand the end client’s objectives as well as being highly qualified,” he says.

However, industry experts say that Romania's state education system does need improvement. As a result, some companies have backed private professional schools such as the German Professional School in Brasov to fill the gap – Dräxlmaier is one of the companies involved.

The macro view                                                                   

Human capital, energy and natural resources mean little without a strong macro-economic climate. As a member of the EU (though not in the eurozone), austerity measures have taken their toll on Romania. But Mr Anghel is confident that the country is now on track. “In 2010 we dramatically rebalanced our budget deficit. Since then, we have been growing faster than the eurozone by about 1%,” he says.

But growth needs channelling into something concrete, or to be more precise, tarmac. “The infrastructure needs work,” Mr Anghel concedes. “This is a problem for investors.” One thing that money cannot solve, however, is erratic lawmaking, something which is picked up by Mr Spittal. “Sometimes things happen retrospectively, or changes happen very quickly,” he says. “That level of uncertainty can be challenging.”

There have been more positive results when it comes to combating corruption. Romanians say that it is less prevalent, that members of the public are no longer stopped on a highway and asked to pay a speeding fine that does not exist, that there is no longer a need to bribe a doctor to treat someone, and so on. As the EU pushes for reform, there have been high-profile cases such as a former prime minister being prosecuted, and recently a mayor being investigated for corruption.

Most symbolic of all is that within days of his election victory, Mr Iohannis had already ensured the withdrawal of a controversial amnesty bill which would have allowed politicians to escape prosecution for corruption. A sign, hopefully for Romania, that he is getting straight down to business.