Dr. Mobius, Mr. Mihalache, Minister, Deputy Governor, Greg and my good friend, Ambassador Paul Brummel from the United Kingdom, distinguished guests, ladies and gentlemen. Thank you for this opportunity. Being new to Romania, I anticipate I will learn a great deal from you, the participants in this conference, as you know so much more about the investment climate in Romania likely than I do. And, I will also seek to absorb as much as I can from the distinguished panel who are with me this morning, a panel which I have the honor to join.
My understanding is that at prior Investors Days, my predecessors – and let me acknowledge my immediate predecessor as Ambassador from the United States, Mark Gitenstein – is that Mark and his predecessors, representatives of the Romanian government, and corporate leaders discussed Romania’s economic potential and its effort to improve its economic outlook and business climate. I will not depart from these precedents, and will seek to align my comments with the three priorities I have for my tenure in Romania: promoting security, democracy, and prosperity.
This is not to question Romania’s commitment to security, democracy, and prosperity. Indeed, Romania expressed its commitment to obtaining these objectives in the most profound way possible, through its membership in NATO and then the European Union, and by embracing the core ideals of these institutions.
Security, democracy and prosperity are intertwined and are imbedded in the lives of Romanian citizens and of the enterprises which make up Romania’s social and economic fabric. In its embrace of democratic values, Romania has shown progress in its fight against corruption, the development of its institutions of governance, and in the improvements it has made in its adherence to the rule of law. And its maturing free market economy has enabled Romania now to fully overcome the economic crisis of 2008-2009 and to enjoy the prosperity accompanied by vigorous economic growth, currently the fastest in the European Union.
These are major accomplishments and my following comment should be taken in this context. Romania has achieved much but the hard work of policy reform, of retaining and improving international competitiveness is difficult, hard and it never ends.
In the dimension of security, as is well known, I trust, Romania is an important contributor to international stability through its major investments in the defense of a Europe whole, free and at peace, and far beyond, including very generously in Afghanistan, Iraq and elsewhere. That said, security entails not only the military confidence that comes with NATO membership, but also energy security and sustainable economic development. Sustained prosperity will only come if Romania creates the framework to put to good use its human resources and its rich, diverse natural resources.
As Romania is in the process of drafting its energy strategy and implementing its competitiveness strategy, the words of Romanian sculptor Constantin Brȃncuşi come to mind: “Să vezi până departe este una, să mergi departe este alta,” that is, “to see far is one thing, to go far is another.” Romanians have a vision about their future and about improving their country’s energy security. However, we would encourage that that vision also include creating the right business and investment climate to optimize the Romanian energy sector’s potential by attracting the capital, the technology, and the knowledge that come with foreign investment. An investment friendly business climate will also result in renewed investment from Romanian and foreign companies already on the ground, and the sustainable growth in jobs that will follow.
In the past few years, Romania has improved its capital market regulation, had successful IPOs and SPOs of minority shares in state-controlled enterprises, and secondary listings of Fondul Proprietatea and of energy companies on the London Stock Exchange. The response to the IPOs and SPOs made clear that international investors see a good opportunity in Romania. Indeed, this country has a record of wanting to do the right thing to encourage investment in energy and other sectors, and now let’s build on those intentions and its achievements by, for example, improving its public procurement laws and regulations, implementing offshore safety legislation, and reforming its fiscal regime applicable to upstream oil and gas.
To improve Romania’s prospects for sustainable economic development, the country should no longer undermine its potential by permitting political interference and short term decision making to affect its policy toward, and administration of, state-controlled enterprises. Just as the President remarked, stakeholders, including Fondul Proprietatea, are watching the government closely as it considers changes to the Corporate Governance Code. With state-controlled enterprises directly accounting for 10 percent of Romanian employment and GDP, and given the role they play in key sectors of the Romanian economy such as transportation and energy, the success or failure of State-owned enterprises will weigh significantly on Romania’s future economic performance. Any move that undermines sound corporate governance in the SOEs will affect, negatively, Romania’s entire economy.
Therefore, I urge the Ministry of Finance, the government, and the parliament, to hold genuine consultations with stakeholders, including the private minority shareholders and professional SOE managers, to create a framework for sound corporate governance in all SOEs. This will bring sustainable budget revenues, benefits for the shareholders, and sustainable jobs to the ultimate benefit of all Romanians.
For Romania to move forward sustainably, it must break its habit of piecemeal decision making. Short term political decisions resulting in new taxes levied on the energy sector will not foster renewed nor new investment. Energy investors are already struggling with existing taxes, plummeting oil prices, and geological uncertainty related to their investment in Romania’s oil and gas sector. Regulatory risk and uncertainty should not add to the challenges that investors are facing.
Sound corporate governance goes hand in hand with good public sector governance. Every investor that I meet – every long term observer of Romania that I meet – points to the importance of having skilled administrative and technical capacity in both the central and local government authorities, and in the country’s regulatory entities. Independent regulators, with independent committee members, are essential for sound decision making in key sectors such as energy. Romania’s international partners, as well as current and future investors, and indeed the Romanian people, expect the country’s leadership to develop and invest in a skilled, apolitical, merit-based public service able to optimize Romania’s scarce fiscal and natural resources for the benefit of the country’s development, including the efficient use of EU structural funds.
Romania is at an inflection point. Next year is a double election year and the risks to its continued economic growth are significant. As in many countries, election years often see policy reversals to curry favor with the electorate. Such steps, whether unstainable increases to wages, or tax reductions that cut state revenue and potential public sector investment, perpetuate a stop-and-go economy and leave future governments with little fiscal space in which to maneuver.
Each of you in this room understands that capital follows risk-adjusted reward. Romania must continue the hard work to lessen its risks so that capital will flow in and enable the country to take advantage of its many opportunities.
To quote Brȃncuşi again, “Lucrurile nu sunt greu de făcut. Greu este să te pui în starea de a le face.” Work is not hard to do, getting oneself to do the work is hard.
The United States supports Romania in its endeavor to ensure sustainable growth and security. We do this because it is in Romania’s interest, but it is also in the interest of the United States, as a strong ally, partner and friend of Romania.
Thank you for your patience.