Romania through the eyes of an Austrian analyst: The perpetual promise is starting to deliver

Romania has seen great improvement as a country and as an economy in the last 17 years, but from the portfolio investors’ point of views it never got to deliver its full growth potential. However, that is starting to change as the Romanian government shows its commitment to continue the privatization program started last year, which might help the Romanian capital market find its way to the emerging markets’ league, Erste Group’s Henning Esskuchen, Head of CEE Equity Research, told Romania-Insider.com. In Bucharest for an annual investors meeting organized by Erste, the analyst took the time to talk to Romania-Insider.com about the development of the Romanian market and its perspectives. Esskuchen first came to Romania in 1997, when he was not yet working for Erste, and stayed here for some months. He has seen the country going through dramatic changes for the better since his first trip here. At each of his visits to Romania he noticed a leap forward for the country. “When I first came here I loved Romania because it was really an emerging market. At that time you had the stray dogs, but then things started to change at great speed. One indicator for me was the street going downtown from the airport. First time when I came, it was kind of like a lower road somewhere in the country side, nothing to the left and to the right. Every time I came back you had new businesses set up all of a sudden, you had an Ikea there,” Esskuchen recalls. Then the road construction started (the two passage ways in Baneasa and Otopeni – e.n.), “which was really a pain as long as it lasted. But for me that road was an indication of Romania's development and there was really a strong boost,” he adds. He remembers how he came here in 2003 and was amazed to pass by a Maserati showroom. “There is something going on,” he said to himself at the time. But one of the biggest changes he’s seen in Romania in these last 17 years was in Bucharest’s Old Town, which now puts the Romanian capital on the same level as other European capitals. The first time he came, there was no night life in Bucharest, and not many places to go to. “You had the Irish pub and then there was this bar between the national theatre and the Intercontinental,” he says. “And yesterday I went there to find a place which could be anywhere in a European capital. You have pedestrian areas, you have cafes, you have young people hanging out, you have these white collar guys hanging on their mobiles. It’s like any other European place. And comparing that with what I saw in the beginning, it’s a dramatic change. Of course this is Bucharest and not the entire country, but still it gives you a feeling that there is something going on,” he explains. The perpetual promise that was never delivered To some extent, this reflects the trajectory of the Romanian economy in the last 17 years, during which the country saw its GDP grow from some EUR 30 billion in 1997 to over EUR 140 billion in 2014. A growth which was largely based on credit, while the capital market remained small and underdeveloped, with a market capitalization of some EUR 20 billion, for local companies only, and average daily transactions of less than EUR 10 million. This is why international portfolio investors never got to benefit from this growth and why Romania is still behind other countries in the region, such as Poland, who always get the most money and attention from investors. And this is why for a foreign analyst such as Esskuchen, Romania is “the perpetual promise that never got to deliver”, which is not a great selling point for a market.