28.3.2007

ROMANIA AND BULGARIA STEP UP THEIR GAMES

NEW YORK (MarketWatch) -- Razvan Purdila was having a hectic day.
The executive, head of strategy at Romania's state-controlled power-grid operator Transelectrica, was sitting in the lobby of New York's Waldorf-Astoria Hotel, taking a short break from meetings with American investors to promote the attractions of the European Union's latest entrant.

"The Bucharest Stock Exchange is very small, but in terms of returns you can make much higher margins than in developed markets," he said. As a result, "the visibility of Romania among international investors has increased."
Purdila's own company is a case in point. Transelectrica, which has a market capitalization of about 1 billion euros ($1.33 billion), floated 10% of its shares on the Bucharest Stock Exchange last August. Its stock price has since tripled.
Small wonder, then, that Purdila brushed aside questions about the country's failure to implement important reforms or the deepening political crisis caused by tussles between members of the government.

"In Romania, the market is less and less dependent on the political situation," Purdila said. "This is not to say that there aren't certain tensions, that we're not preoccupied. Electricity, however, is not political."

Dragos Simion, vice president of Romanian technology retailer Flamingo International, agreed: "The issue with politics is something that creates noise." But now that Romania is part of the E.U., domestic politics are no longer a dominant issue, he said.
"Romania is no worse than any other Central or Eastern European country. There may be problems with corruption or the judiciary, but they are not bigger than in other countries," he said.
Toughing it out
With a population of 22 million, Romania joined the E.U. on Jan. 1, together with neighboring Bulgaria, both countries having overcome misgivings in Brussels about their preparedness. The pair were allowed into the 27-member trading bloc on the condition that they step up efforts to fight corruption, reform judiciaries and improve administrative capacities.
The two countries are eligible for large amounts of E.U. structural funds, which could significantly improve development, especially in infrastructure.

That's not the only benefit.
"As new entrants into the E.U., both Romania and Bulgaria will most probably benefit from an increase in foreign direct investment," said Adrian Ciocoi, the Romania-based head of research for the emerging European markets at the Riedel Research Group.

That was certainly the case when Poland, the Czech Republic and Hungary joined the union in 2004. Foreign direct investment in Poland, for example, rose to 9.7 billion euros that year from 3.8 billion euros in 2003.
Fast-growing sectors like information technology, real estate, financial services and tourism offer abundant investment options in Romania and Bulgaria.

"There are many opportunities and not enough capital to fund them," said Valeri Petrov, the director in Bulgaria for Global Finance, which manages more than $850 million in private-equity investments in Greece, Bulgaria and Romania.
Bulgaria has received 7 billion euros of foreign direct investment in the last three years, Petrov said. Real estate is popular and generates huge returns in the region, growing at 30% to 40% annually, he said.
And Bulgaria as a whole, with about 8 million people, has been expanding fast: GDP rose 6% in 2006 and is expected to grow at a 5.4% pace in 2007.

Romanian economic growth is robust, as well. The economy expanded by 7.7% last year. The Economist Intelligence Unit is expecting GDP growth of 6.4% in 2007.
The level of convergence between Romania and Bulgaria and the E.U. is still lower than in other Central and Eastern European countries, said Vladimir Milev, financial analyst for the Metzler/Payden European Emerging Markets Fund.
• Romania
Population: 21.6 million
GDP: $115.3 billion
Foreign direct investment inflows
(as percentage of GDP): 5.7%
Stock market in 2007 (BET): +9.4%
Bucharest Stock Exchange has an aggregate market capitalization of about 25.3 billion euros
• Bulgaria
Population: 7.6 million
GDP: $31.2 billion
Foreign direct investment inflows
(as percentage of GDP): 8.9%
Stock market in 2007 (Sofix): +3.2%
Sofia Stock Exchange has an aggregate market capitalization of about 10 billion euro