Gabor Hunya

Restructuring through FDI in Romanian manufacturing

Romania has experienced a drawn-out transformation process and received relatively low amounts of foreign direct investment (FDI). But it has become competitive in labour-intensive manufacturing industries through the integration into European company networks by processing trade. The country has also achieved economic growth supported by a massive export expansion for the third year running in 2002, after long and deep setbacks. The FDI inflows of the last five years have decisively contributed to the resumption of economic growth and the recovery of exports. But flowing at the current speed and in the current structure, FDI will not be able to restructure the Romanian economy in a way for it to stay on a rapid economic growth path. Despite the low amount of FDI in Romania as compared with the more advanced transition countries, foreign penetration in the manufacturing industry is high. With a database relying on company balance sheets, the performance of foreign affiliates in manufacturing industries was analysed. An important finding is that significant foreign presence in an industry coincides with increasing export performance. Foreign affiliates have so far had a conserving rather than restructuring effect on Romanias foreign trade structure. FDI reinforced Romanias traditional specialization in clothing, footwear and metals. They are also the driving force behind the emergence of exports in the electrical machinery and electronics sector. We can foresee a similar development in the car industry in the future. More success in new export industries was hindered by unfavourable conditions for green-field investments.

Transport and Telecommunications Infrastructure in Transition

Poor infrastructure is one of the major obstacles to economic modernisation, to the functioning of a market economy, to increasing international trade flows and to foreign investment in East-Central Europe. Six out of ten surveys of foreign investors named weak infrastructures among the major obstacles they faced in Eastern countries. Backwardness, however, means also that potential investors in transport and telecommunications can reckon with increasing demand and safe returns. Both activities are among the most promising targets of investment for governments, domestic and foreign firms and international financial institutions alike. This article outlines problems related to infrastructure encountered by Central and East European (CEE) countries, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia. The term infrastructure is used in a limited sense referring to transport (mainly road and rail) and telecommunications. The article first evaluates the pre-transformation development level of infrastructures, then the impact of transformation to a market economy on the demand and supply of infrastructure services. This is followed by some thoughts regarding the development of international networks and the financing of infrastructure development projects. In the final section the options for national transport and telecom policies are described and compared.

Economic Growth in Bulgaria and Romania

The two south-east European countries share the last places among the EU accession countries concerning economic development, structural change and institutional reform. At the same time they are more advanced in these respects than many other south-east European or CIS countries. At the first glance, the two country have a similar track of economic development: first a deep transitional recession in 1990-1992/93, then a modest recovery which proved unsustainable and called for a second stabilisation effort which incurred recession. Both of them inherited highly distorted economic structures from the communist regime and introduced only half-hearted transformation measures in the first half of the 1990s. But economic policies since 1997 have made the two countries radically different from each other. The Bulgarian shock therapy compares with the Romanian muddling through policy. Bulgaria gets better notes from international organisation for its transformation policy than Romania which has a notorious credibility problem. Currently both countries are on a recovery path from earlier setbacks, but the structure of output changes only very slowly, foreign financial constraints are severe and the investment rate is low. These features question the sustainability of the current medium-high GDP growth rates in both countries.

International Competitiveness: Impacts of Foreign Direct Investment in Hungary and Other Central and East European Countries

A comparison of the per capita GDP levels in 1999 and 1990 reveals that three of the first-group EU accession countries - Poland, Hungary and Slovenia - surpassed their 1990 GDP levels, thus overcoming the shock of transformation. Other countries are still below the 1990 level. The Czech Republic, for example, experienced a setback in economic growth in 1997-1999, following higher growth rates in the mid-1990s. Estonia suffered from a strong transformational recession in the early 1990s due to the separation from the Soviet economic system and, more lately, from the Russian crisis in 1998–1999.