Foreign investors to focus on poor Romanian east

BUCHAREST (Reuters) - Foreign investors will start targeting the poor eastern part of Romania, closer to large ex-soviet bloc markets, lured by cheap labour and low land prices, a government official said on Tuesday.

So far most of foreign direct investment (FDI) has gone to the capital Bucharest and the richer western part of the country, attracted by a better infrastructure which facilitates exports to other European Union member states.

Romania, which joined the EU in January, has attracted record FDI volumes in recent years, peaking at 9.1 billion euros (6.2 billion pounds) in 2006 after it cashed in 2.2 billion euros from selling its largest bank BCR to Austria's Erste Bank (ERST.VI: Quote, Profile , Research).

"Investors start to evaluate the eastern regions also, because they target exports to huge markets like Russia or Ukraine," Florin Vasilache, head of the Romanian Agency for Foreign Investments (ARIS.L: Quote, Profile , Research), told Reuters in an interview.

"The land is incomparably cheaper in the east and they will find much more workforce, also skilled and reliable."

Last year, only retailers like Germany's Kaufland and real estate developers like Spain's Fadesa (FAD.MC: Quote, Profile , Research) or Poland's Globe Trade Center (GTCE.WA: Quote, Profile , Research) wanted to take their cash to eastern Romania.

But Vasilache is confident that the region will soon attract investments which will create new jobs and raise its industrial output, mainly in the car industry, energy and construction.

ARIS has said it sees FDI volumes at 7 billion euros this year, as the privatisation process is coming to an end. But Vasilache said it is not a reason for concern, as greenfield investments are expected to rise in the coming years.

The agency is working to implement 62 projects in the coming period worth 2.9 billion euros and creating 33,000 jobs. Investors have submitted another 60 project proposals worth 2.5 billion euros, which need to be assessed.

"We expect greenfield investments at 80 percent of the volumes we will attract this year, and we expect their level to rise in the coming years, matching Poland's example," he said.

Foreign companies have started to invest larger volumes in Poland since its 2004 EU accession.

Vasilache also said recent political turmoil, triggered by a battle of personalities between the centrist government, the leftist opposition and the president, is not scaring away investors for the moment.

"For now, they are interested more in the economic stability rather than in the political scandals which might represent a short-term development," Vasilache said.

reuters.co.uk