Bucharest: New Frontier

Oct 1, 2004
2004 / October 2004

Just who do the romanians think they are? deconstruct their name to uncover the answer. While the rest of Eastern Europe is largely populated by volatile Slavs and Magyars, the Romanians regard themselves as the supremely civilized heirs of ancient Rome.

In keeping with these high ideals, when they chose to radically redevelop their capital, Bucharest, at the turn of the 20th century, it was not to Rome they looked, but to the city that had inherited the mantle of the most civilized on earth: Paris.

French architects were drafted to transform Bucharest’s unfashionable maze of narrow streets into a sophisticated vision of tree-lined boulevards, landscaped parks and neoclassical mansions. They even added a version of the Arc de Triomphe, albeit one made of wood (a stone replacement was constructed in 1935).

In the first half of the 20th century, Bucharest lived up to its reputation as the “Paris of the Balkans.” Dotted around the city and throughout the country were the lavish palaces of the Romanian royal family. The monarchy had been established with French complicity in 1861, though the original ruler, Alexandru, was soon overthrown by Carol I, a Prussian prince whose descendants ruled for the next 85 years.

Comparisons to Paris are seldom made today. Even the inhabitants would be hard-pressed to call their city beautiful. Modern Bucharest was irrevocably altered by World War ii and its aftermath, both physically — it was heavily bombed — and politically. Although Romania initially favored the Allies, the fall of France led the country to switch sides, joining Nazi Germany’s war on Russia. In 1944, Romania switched sides again, this time siding with the Russians. The move has had lasting repercussions.

In 1946, then King Michael was forced to abdicate, and a communist state was established. Eventually the notorious Nicolae Ceausescu gained dictatorial control, presiding over the country for 24 years. Romania’s communist experiment ostensibly ended with Ceausescu’s overthrow and execution in 1989, though his immediate successors practiced an unsuccessful form of neocommunism. It wasn’t until 1998 that Romania finally embraced free market economics.

So that’s the back story. What of Romania today? As in all of the former communist nations, the move away from a centrally planned economy has been extremely painful. To Romania’s disadvantage, it is lagging several years behind its communist bloc rivals. By 2000, it was estimated that 44 percent of the population was living below the poverty line. Unemployment was high, inflation was rampant, and the economy was contracting.

The first major step out of economic stagnation came in 2000, when the government approved a bill to enable 1.6 million Romanians to reclaim family real estate that had been appropriated by the communists. Further moves included the reduction of corporate taxes and the imposition of a sales tax on food and utilities.

By 2003, Romania’s economy had grown an impressive 7.3 percent, and it is forecast to rise by a further 6 percent this year. Inflation has been reduced from 50 percent to 12 percent. In the past two years, the average monthly salary has risen from $164 to $224. All of this is helping to pave the way for Romania’s anticipated admission into the European Union in 2007.

On the back of this economic resurgence, things are finally beginning to look up for Bucharest and its 2 million inhabitants. The retail and hospitality industries are thriving. The city is now well served by high-quality (if expensive) restaurants. International hotel chains such as Hilton and Marriott now offer luxurious alternatives to the old communist establishments.

Unfortunately, Ceausescu’s severe imprint was indelibly inflicted on the fabric of Bucharest. In 1971, he visited North Korea and was so impressed by the architecture that on his return he decreed the demolition of a quarter of downtown Bucharest. Parisian elegance was replaced with a gr andiose “Civic Center” inspired by the North Korean capital, Pyongyang.

To achieve the dictator’s dream, 70,000 people were made homeless. Twenty-six churches, two synagogues and three monasteries were leveled. The axis of this soulless development is a broad thoroughfare, Bulevardul Unirii, flanked by mammoth apartment blocks leading up to the grandest folly of all, the $3.3 billion Palace of Parliament, the second largest building in the world after the Pentagon. The palace — a monument to socialist kitsch — is now a tourist attraction: $2 gets you a 45-minute tour of 10 of its 3,100 furnished rooms.

As Romania continues to tailor its economy for entry into the e.u., enormous opportunities are emerging for foreign investors. Currently, u.s. businesses account for just 6.8 percent of direct inward investment. The country offers numerous financial opportunities, not least in the privatization of state industries. In July 2004, the sale of the state refinery Petrom to an Austrian company raised $2 billion.

Privatization is also making its way into the banking, mining and energy sectors. Additional investment opportunities exist in textiles, light machinery, auto assembly, chemicals, real estate, construction, agriculture and food processing.

Against this encouraging background, there are potential pitfalls. Corruption is widespread, and although there is a constant temptation to succumb to the culture of back-handers in order to secure a business advantage, u.s. citizens should be wary. Under the Foreign Corrupt Practices Act, those who indulge face up to five years’ imprisonment and fines of up to $2 million when they return home.

The Romanian government is tackling corruption with tougher laws and the appointment of expert prosecutors and judges to implement them. If bribes are demanded of you, seek advice from organizations such as the American Chamber of Commerce in Romania (www.am cham.ro) or from the u.s. Embassy (tel 40 21 210 4042, fax 40 21 211 3360, www.usembassy.ro).

The next three years should see increased economic transparency and a continuation of the crackdown on corruption as Romania seeks to prove to the e.u. that its economy is “fully functioning.” At times, Bucharest’s business environment can feel a little like the Wild West, but that is steadily changing. The city’s transition into a modern European capital is a monumental undertaking, and one that offers a wealth of possibilities.


Visas

U.S. nationals with a valid passport can enter Romania without a visa for visits of less than 90 days. If you intend to stay longer, a visa must be obtained in advance from the Embassy of Romania (1607 23rd St., N.W., Washington, D.C. 20008, tel 202 332 4846, fax 202 232 4748, www.roembus.org). There is a processing fee of $35 for single entry visas.

Additional Sources of Information

Invest Romania (www.investromania.ro) is the English-language Web site for one of the country’s premier business magazines.

Now Romania—The Romanian Business Center Online (www.now.ro) is a useful portal to all areas of the Romanian business world.

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