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Romania is preparing to reopen after lockdown, but says its economy will never be the same again.
Having suffered more than anywhere else in eastern Europe from Covid-19, the country plans to boost local production to ensure the security of food supplies, natural gas and medical equipment should similar dislocations arise in the future. Meanwhile, stimulus efforts — that could yet include a package for the biggest companies — will play to the nation’s strengths.
It’s clear we need to rethink our industrial production, Economy Minister Virgil Popescu said Thursday in an interview. We’ll focus on the sectors that were showing promising signs even before the crisis: energy, petrochemicals and defense.
The pandemic is forcing governments and companies from eastern Europe to southeast Asia to rethink their immediate access to essentials such as food and medicines. The urgent need for bigger stockpiles and more resilient supply chains is fueling a debate among economists and policy makers about the drawbacks of globalization and whether production ought to reside closer to home.
This crisis has showed us how dependent we all are on China, so I think we need to make sure we have basic production inside the European Union, according to Popescu, who said Romania is vying to attract investors looking to relocate. It’s not normal for us European countries to be fighting over who manages to buy face masks made in China as happened at the start of the crisis.
While Romania is only predicting a recession of almost 2% in 2020, analysts disagree. The region’s slump will be the worst since communism collapsed three decades and ago and Romania will be among the worst-hit, particularly as its budget deficit was already the EU’s widest, Capital Economics said this week in a note.
The limited room for a policy response is likely to mean that the economic recovery is one of the weakest in the region, it said, forecasting a contraction of 7.5%.
Romania has so far announced 15 billion lei ($3.4 billion) for small and medium-sized companies. Businesses including Renault have resumed operations before wider lockdown measures are gradually eased from mid-May.
About a third of our economy was hit when the auto and hospitality industries stopped work, Popescu said. Now some are restarting and the economic contraction has been diminished.
While the plunge in oil prices could cushion some of the blow to consumers, it’s curbing sales at Romania’s largest company, OMV Petrom. Popescu doesn’t see OMV halting the multi-billion dollar Neptun Deep gas project in the Black Sea. State-owned Romgaz SA is still vying for a share of that development, as long as Exxon Mobil sells its 50% stake, he said.
We can’t say that if this project isn’t started this year or next it won’t be done at all,Popescu said. This project will be completed.
Continent-wide declines in asset prices are stoking fears that key companies could be targeted for takeover. For that reason, Romania is wary of fulfilling plans to sell a minority stake in Hidroelectrica in September. Popescu says market conditions will steer any decision.
Romania’s state of emergency has already suspended M&A in the energy sector, with Czech utility CEZ AS looking to offload its local assets.
I don’t think it’s wise for any party to consider deals because prices are distorted,” Popescu said. I’m sure CEZ will be able to resume the process. We wanted to make sure we won’t be taken by surprise.
