Clare Nuttall in Bucharest -

In any discussion about the difficulties of investing in Romania, the state of the country’s transport infrastructure is likely to compete with the tax regime and corruption as the worst obstacle. Bucharest is now drawing up a new transport strategy for long-term development of the sector, but so far successive governments have been long on ideas and short on concrete progress.

At a conference in Bucharest in September, Romanian President Traian Basescu struck a chord with investors when he slammed the way his country's governments had failed to use EU structural funds to invest in infrastructure. During the 2007-2013 EU budgetary period, Romania absorbed only 37.2% of the €19bn available, spending around €7.1bn. “We must spend €12bn by the end of 2015 so as not to lose this money,” Basescu told the Forbes CEE Forum, but adding sourly that, “I can’t be optimistic that Romania will succeed.”

New strategy

A new transport strategy currently being drawn up by the government is due to be completed in October. However, the presidential elections the following month mean that decisions on the sector are not expected immediately, and unless new legislation setting out specific actions is adopted, ambitious plans could yet again fall by the wayside.

This is partly due to a government focus on short-term over long-term goals. Bogdan Belciu, partner at PwC Romania, points out that despite a relatively generous allocation of budget funds for infrastructure investment, “recently the government has kept the budgetary deficit under tight control mostly by limiting capital projects spending. While this helps keeping the macroeconomic stability of the country, it fails to address Romania’s long-term development needs.”

The long-running saga of delays and poor decisions on Romania’s A3 motorway highlights the lack of progress. First proposed back in the early 1970s, the A3 was dreamed up as a way to connect Bucharest to the road network in neighbouring Hungary across Transylvania via Ploiesti, Targu Mores and Cluj-Napoca. Back in 2003, the Romanian government signed a €2.2bn deal with US construction company Bechtel to build 415km of the planned highway. The contract was finally cancelled in May 2013 with just 52km completed, although Bucharest still ended up with a €1.4bn bill, most of which was penalties due to Bechtel.

The highway is finally close to completion, but until that happens companies that set up operations in central Romania are at a clear disadvantage to their peers closer to the Hungarian border; the latter benefit from Hungary’s more developed road network, which can quickly whisk their products away to Germany and other European markets. Meanwhile, manufacturers in central Romania are forced to build in extra delivery time for exports due to their slow and unreliable route to international markets.

Poor road infrastructure is also affecting the level of traffic through the Black Sea ports in Romania and neighbouring countries. Manufacturers in cities as far northwest as Vienna are closer as the crow flies to Romania’s Constanta than the North Sea ports. However, “due to the poor state of the Romanian roads, they send their goods north to Hamburg or Rotterdam. Even some companies in northern Romania are choosing to send their goods north,” according to Tomas Moser, chairman of Danube Logistics SRL.

Reputation damage

Overall, Romania only has around 450km of highway – a tiny amount for Europe’s 12th largest country. As a result, investors continue to curse the lack of investment into transport infrastructure. PwC forecasts that infrastructure spending will increase by a steady 5% a year to reach $30bn by 2025. However, the firm’s “CEO Survey 2014” finds that transport infrastructure is still one of the country’s “main economic vulnerabilities.” 88% of CEOs surveyed said that the government should make improving infrastructure a priority – the highest percentage in any of the countries in the worldwide survey. 78% of respondents thought the government had failed to put sufficient emphasis on infrastructure. “Romania’s attractiveness as an investment destination for manufacturing industries depends on improving the country’s transport infrastructure,” Belciu tells bne.

Other studies confirm the damage that a lack of investment in road and rail infrastructure is doing to Romania’s reputation among investors. The latest global competitiveness index from the World Economic Forum (WEF) finds that although Romania advanced to 69th place on this year’s index, its score is still dragged down by the poor state of its transport infrastructure.

Romania’s roads are not the only problem. While railways operator CFR has invested into some fast intercity lines, the average speed of trains on intercity lines is just 87km/hour. Data published by Eurostat in December 2013 shows that amid a pan-European decline, Romania had seen one of the sharpest falls in rail freight transport. Even river transport is problematic; the stretch of the Danube, one of Europe’s major waterways, along the Romanian-Bulgarian borders is one of the worst maintained of the entire river, making it difficult to navigate and deterring traffic.

Despite these obstacles, PwC’s Belciu believes that, “Romania could position itself to be a European eastern gateway by improving its transport infrastructure.” This would require investment into highways, developing sea and river ports, making use of the Danube-Black Sea canal and introducing multimodal connections (truck and train) across the Carpathians. The government’s new transport strategy is expected to set out some new goals for this sector, but only a serious commitment to increasing spending will stop poor transport infrastructure weighing down the Romanian economy.