United States getting

United States getting more involved in Romania’s economy

For the first time, the United States are signalling increased interest in the economic framework of the CEE region. Poland and Romania are prime targets, as the US already has significant military presence in the two countries.

By Sorin Melenciuc

In October, the Romanian government signed its first major economic agreements with Washington: American money will finance the construction of units 3 and 4 at the Cernavoda nuclear power plant and the refurbishment of unit 1.

It is a large project for Eastern Europe, as it implies an USD 8 billion investment which will be financed through a US-led scheme.

According to a draft intergovernmental cooperation agreement signed on October 9 in Washington by Romanian Economy minister Virgil Popescu and US Energy Secretary Dan Brouillette, AECOM – an American construction and engineering company – will lead the project, which will also involve Romanian, Canadian, and French companies.

The draft agreement has already been sent to the European Commission for approval.

This first project is paralleled by another agreement with the US Exim Bank, which could agree to a USD 7 billion financing package for the Cernavoda investment, but also to other energy and infrastructure projects including LNG, gas deposits, roads, and railroads. The importance of the project, which will use the same Canadian CANDU 6 technology as for the first two units, was highlighted by the Romanian government.

“Today, Romania is taking a huge step forward in developing its strategic partnership with the United States of America, in terms of the energy component as well as our cooperation in the civil nuclear field. As promised, we have fulfilled a strategic mission: identifying partners among NATO members for the third and fourth units at Cernavoda,” Economy

Cernavoda nuclear power plant attracted American funds earlier this year

MAJOR NUCLEAR ENERGY PROJECT

minister Virgil Popescu said. STRATEGIC INFRASTRUCTURE Infrastructure is another key component of the agreement. During the same official visit by the Romanian government delegation in Washington, Foreign Affairs minister Bogdan Aurescu had a discussion with US Secretary of State Mike Pompeo regarding the importance of the two major regional interconnection projects: Rail-2-Sea and Via Carpatia, backed by the United States and promoted by Romania, including within the Three Seas Initiative.

Rail-2-Sea, a railroad project, aims to connect the Black Sea port of Constanta and the Baltic Sea port of Gdansk by improving the rail connection through upgrades of existing infrastructure or the construction of new links.

The other project – a motorway from Lithuania to Greece with a large section passing through Romania – is even more ambitious and requires a huge investment. It is not clear whether the US will be involved in these projects financially as much of the infrastructure is not on the map of the EU’s top mobility corridors. However, these projects have a direct strategic impact, including on military mobility, on NATO’s eastern flank.

During his visit to Washington, Romanian Foreign Affairs minister Bogdan Aurescu urged the US to involved in the implementation of these projects, including financially, stressing the need for a strong US economic

and investment presence to grow along with its enhanced military presence in the region.

The minister also highlighted Romania's efforts to strengthen interconnectivity between northern and southern Central Europe, as a strategic objective in the process of recovering and increasing the European Union’s economic resilience.

KEEPING CHINESE INTERESTS OUT This fresh and unexpected American interest in the region could be associated with the current US-China trade war.

In fact, prior to the Romanian-American agreement to build the two units at Cernavoda, an older agreement with a Chinese partner had been cancelled by state-owned company Nuclearelectrica as a result of pressures from its main shareholder, the Economy Ministry.

But this was part of a larger plan. Two other sectors are also involved in this war and influenced by the US-Romania strategic partnership and the US-China long-term geopolitical rivalry: 5G networks, with Huawei almost excluded from the planned tender in Romania, and infrastructure, with Chinese firms losing one contract after another.

The 23-year-old US-Romania strategic partnership, which has mainly been based on military aspects, seemed boosted last year when Romanian president Klaus Iohannis had a meeting with US president Donald Trump at the White House. The discussion was focused on ways to advance and expand the two countries’ strategic partnership. At the end of the meeting, Klaus Iohannis and Donald Trump made a joint statement.

More importantly, during the visit, a Memorandum of Agreement was signed by the two governments regarding 5G technology, “taking into account the importance of securing the fifth generation wireless communication networks in order to ensure prosperity, as well as national security,” said a press release by the Romanian presidency.

OTHER INVESTMENTS However, investment from the US is quite important in Romania and has gained some momentum over the past few years. Since 2018, US companies have increased their presence in Romania, following several takeovers of local businesses in key sectors like banking or pharmaceuticals.

In June 2018, Piraeus Bank Romania was acquired by JCF IV Tiger Holdings, an entity belonging to American fund J.C. Flowers. The bank’s new shareholders changed its name to First Bank and it now proudly advertises itself as an American lender. This was the the fund’s first investment on the Romanian market and in Central and Eastern Europe.

Another major US investment in Romania was the acquisition of generic drugs producer Zentiva by Advent International, one of the largest US private equity investors.

Zentiva has a strong presence in Romania, where it owns one of the biggest pharmaceutical manufacturers – Zentiva SA, formerly known as the Sicomed factory. Following the acquisition, also completed in 2018, this factory is now owned by a major US investor. At the same time, US e-commerce giant Amazon opened a large development centre in Bucharest, employing 1,300 people. This was Amazon’s second – but also largest – development centre in Romania, after it opened the first in Iasi, the biggest city in Romania’s historic Moldova province. American firms already have a strong presence in Romania as the country is known for its welleducated IT specialists.

Oracle runs its biggest European centre in Romania, employing more than 4,500 people across its local businesses, including IT and support services. Another US tech giant, IBM, has more than 3,000 employees in Romania, where it has been operating since 1995. Last year, IBM’s business in Romania exceeded USD 200 million in turnover and the group is planning to expand further. IBM is also looking to open a European and National Romanian Innovation Cognitive Hub to focus on the development of advanced cognitive technologies. Microsoft is also present in Romania through support and development centres in Bucharest and Timisoara, and these businesses are increasing every year as demand for such services is rapidly growing on the global market.

This year, Romania was ranked among the 30 most favourable markets for US tech firms, based on a wide range of factors, including the availability of skills, complexity of the regulatory landscape, quality of connectivity and infrastructure, GDP growth, and inward investment by Velocity Global in its Global Expansion Tech Index.

FOLLOW THE FLAG EFFECT? Americans have two major military bases in

Romania, in Deveselu – hosting the US Aegis Ballistic Missile Defense System – and at Mihail Kogalniceanu airport. However, until recently, American businesses and money hadn’t really followed US troops in Romania.

Some experts have already associated military and economic interests in the US’s geopolitical thinking. The study “Following the Flag: Troop Deployment and US Foreign Direct Investment,” written by Glen Biglaiser and Karl DeRouen Jr., finds that security factors can impact FDI in two stages: the initial decision over whether to invest and the second stage, which refers to the amount invested.

“Our results indicate a selection effect and that follow the flag factors are influential both in the selection phase and in the main equation for US investors. However, such results are not found for global investors, suggesting that positive links between economic and security goals only hold for US firms,” the study says.

According to the authors, based on past experiences in several countries, “it appears that US FDI follows the flag.”