Romania’s attractiveness for investors should be boosted by fiscal improvements, FP’s Konieczny says

Romania has been one of the best performing economies in the European Union in 2015. Greg Konieczny, Executive Vice President, Templeton Emerging Markets Group and Fund Manager of Fondul Proprietatea (FP), expects a further acceleration of Romanian economy for the current year, backed by the expansion of domestic consumption, investments supported by improved absorption of EU funds and low level of interest rates.

“The high rate of the economic growth, along with the strong fundamentals and the positive perspectives should result in an improvement in foreign direct investments flow, which should also be helped by the trend of relocation of production capacities from Western Europe. Moreover, Romania’s attractiveness for investors should also be boosted by fiscal improvements, such as the reduction of VAT from 24 percent to 20 percent, which entered into force at the beginning of this year, and the further cut to 19 percent starting 2017, the reduction of dividend withholding tax from 16 percent to 5 percent and the elimination of the special constructions tax starting 2017,” FP’s Konieczny says.

He considers that the macroeconomic fundamentals are positive and that Romania is in a good shape after the programme with the International Monetary Fund. Sectors with growth potential are energy, transport, IT, banking, constructions, agriculture and healthcare, noting that the agriculture sector’s huge potential is still waiting to be unlocked, with the most important opportunity for large players in this sector remaining the absorption of EU funds.

According to him, this year will be marked by two electoral campaigns which usually generate volatility that may affect investors’ decisions in the short term.

“We hope they will not interfere with the reformist agenda undertaken by the new Government and which is determinant for continuing the strong FDI and portfolio investments flows in Romania. It is also important for the fight against corruption to continue, as it should lead to improvement of governance and increased efficiency of state institutions, which are the backbone to economic activity,” the official of Templeton Group said.

He also appreciates that the capital market has a strong potential to develop and this was visible last year, given the fact that it was among the only three frontier markets which recorded a positive performance in 2015.

According to Konieczny, IPOs represent the key driver in developing the capital market, which currently stands at 14 percent of the GDP, one of the lowest levels in the region (Poland 64 percent, Hungary 55 percent, Austria 26 percent and Czech Republic 22 percent).

An important point of attraction for investors is the fact that Romania’n market is undervalued. However, in light of strong economic growth and very positive perspectives, the gap between perceived valuations and fundamentals will start to close.

“Therefore we think that now is the right time for investors to consider buying Romanian equities,” FP’s official pointed out.