Romania: strength to strength?

So Romania’s economy grew by about 8% in the first quarter of this year.

To put this in context: Romania has been growing at a rate of around 6% per year nonstop since 1999. So — on paper at least — its economy has nearly doubled in size since then.

And you can see it. Bucharest bustles with traffic and new construction. People on the streets are visibly dressed better than just a few years ago. A large and growing middle class is serviced by European hypermarkets and superstores, including several Carrefours and an Ikea.

But… it doesn’t feel like a country that’s seeing Asian-style hothouse growth. Doing well, yes, but not that well.

I started a longish post discussing reasons for this (Geographical and sectoral imbalances, distribution issues) and also whether it’s sustainable (credit issues, balance of trade, of course demographics, corruption) but decided to throw this one to the commenters instead.

So: Romania. Good? Not so good? Sustainable?

18 thoughts on “Romania: strength to strength?

  1. I am a romanian and i can clearly see the growth in everyday life. Well, at least here in Bucharest which, more or less, makes about 30 % of the IBP i think …

  2. Several figures:
    – 30-40% of the population live in countryside without any contribution to IBP and autarchically consuming only what they produce
    – energy consumption per IBP unit is 4-5 times bigger than the average in “old Europe ” (EU15)
    – agricultural prduction per square unit is 5-6 times smaller than in EU15

    I would say that the growth is sustainable IF investment will go in the right directions.

  3. It’s been suggested that EU policy promotes economic growth for a proportion of Europeans. This leads to obvious economic advancement for some cities and EU citizens throughout Europe, but it also widens the wealth gap between local populations. I think one can see this not only in Romania, but in a number of newer Member States.

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  5. Horia:

    “energy consumption per IBP” in 2003:
    Germany – 163.9 Tonnes of oil equivalent (toe) per million constant 2000 international $
    Rumania – 248.7
    according to
    http://earthtrends.wri.org/text/energy-resources/variable-668.html

    “- 30-40% of the population live in countryside without any contribution to IBP and autarchically consuming only what they produce” — this is sooo wrong. The criteria that put “30-40%” of Rumanians in “countryside” would put also 50-60% of US citizen as living in countryside. Employment in agriculture was below 20% even in 1990, resulting in severe labor shortages. You might be thinking about retirees and commuters, but those do not live “autarchically”.

    “- agricultural prduction per square unit is 5-6 times smaller than in EU15” — again, you mix statistics: most of the land that was declared “agricultural” (including steep hils or mountain valleys exposed to floods) in Rumania would not make the mark in the “EU15”, and most of it is no longer used for that purpose. Anyway, production was never 5-6 times lower, only about 2 times lower.

    Moreover, the myth about Rumania as “granary of Europe” is completely flawed. It was based on the grain trade of Galatz, Braila (Ibrail) and Constanta (Kustendje) during the second half of the XIXth century, forgetting that a lot of that traffic was based on grain arriving from Austria/Hungary, Serbia and Bulgaria. Indeed, Galatz used to be one of the largest grain trade ports (during the 1850s and 1860s even the grain trade of Chicago were described as being almost as important as that of Galatz, then “equal” to that of Galats, and for some time even during the 1870s Galatz was mentioned in comparisons). Still, Rumania’s agricultural surplus was never great and varied a lot due to weather, Russia and Rumania serving as buffers for each other.

    Those that imagine that Rumania might become again that which it never was, namely a “granary” are completely deluded. Cultivation seasons are shorter than in Western Europe, rain is about a third than it is in England, and then it falls mostly in early spring and during the autumn and agricultural land is, excepting the Danube plain and the artificial islands of the Danube (Borcea Isle and Braila Isle), very fragmented not only by property but also by relief etc. At the same level of technology, agriculture in Rumania will require, excepting only a few areas in the South-East and in the West, a lot more investment and entail a lot more risk.

    Douglas:
    “So: Romania. Good? Not so good? Sustainable?”
    So far, rather good, I would say. It might have been better, and it might have started sooner, but unfortunately it took some time until the generation of apparatchiks (Iliescu et. comp) and that of their children (Nastase, Gioana etc.) was replaced.

    Sustainable ? Rumania no longer plays alone. If the EU Greenies keep on being crazy and in charge, and if the EU bureaucrats keep pushing their statist agenda, I would say growth will slow to “normal” EU15 levels or worse.

  6. News reports today indicate that they sped up the issue of a new Eurobond (raising $1.2 billion) — it was supposed to be issued in 2nd half of the year but brought forward. Does the government expect financial trouble ahead?

  7. P:

    financial trouble probably not, but I think they expect to lose the elections, which they did not know for sure a month ago.

  8. Emil, interesting post, but one point: I think you’re wrong about Romania having shorter growing seasons and/or less rainfall than Western Europe.

    I researched this when I lived there. Bucharest’s climate has no perfect analog in Western Europe, but is almost identical to Dayton, Ohio: same monthly temperatures to within 0.3 degrees, same growing season to within a couple of days, same total precipitation. The only difference is that Dayton’s precipitation is distributed more evenly, while Bucharest’s is more irregular from year to year, and tends to be more concentrated in spring and early summer. But it’s not a very big difference.

    Chisinau, up in Moldova, has the climate of Iowa City — again, somewhat more irregular in rainfall, but identical in terms of temperature curve, growing season, and total precipitation.

    (What’s interesting is that Romania is a major wine producer, which Ohio certainly isn’t, and even Moldova produces lots of wine for brandy. But that seems to be a historical and cultural issue, not an agricultural one — there /are/ a few vineyards in Iowa, and even as far west as Nebraska.)

    So while the “breadbasket of Europe” thing gets overstated, there’s no question that Romania has a lot of agricultural potential that is still untapped.

    Doug M.

  9. Thank you, Doug, for the most encouraging reply. Hope you won’t regret it, considering what follows 😛

    “The only difference is that Dayton’s precipitation is distributed more evenly, while Bucharest’s is more irregular from year to year, and tends to be more concentrated in spring and early summer. But it’s not a very big difference.”

    Well, “irregular” is the key: it increases the risk. Right now and using existing tech UK and Germany (oh, well, throw in Italy for fruit and wine, too) taken together could provide food and booze to the whole Europe and to the whole former Soviet Union, only if they were allowed to produce that much. There is no need for an either expensive or unreliable breadbasket some place else, and EU.Com. seems to act on this idea since it insists that Rumania declares some 10% more of it’s territory as “nature preserves”.

    The same rainfall only concentrated in spring and early summer is no problem ? Then the potato growers from the “potato basket” of North Romania should be announced soon. I doubt that this year many put the tubers in the ground before 15th of May. In fact, I know for sure that only the minority that kept horses managed to do it, since due to a very rainy spring the tractors could not be used unless one wanted to make funny pictures showing horses pulling tractors out of the mud.

    “Romania has a lot of agricultural potential that is still untapped”

    That is a very dangerous and rather old idea.

    It began with David Urquhart and the Anti Corn Law League. England was looking for places to outsource it’s low return activities (in exemplum: agriculture), so in 1833 Urquhart, in Constantinople with a business concerning the borders of the new Greece, was sent to scout the nearby markets. Urquhart made a report (published in 1835 if I remember well) where Wallachia and Moldavia got very rosy portraits as far as their food export potential was concerned, even if he did not go far from the main ports, Braila and Galatz. Some twenty years later he would write about the wretched dusty plains of Wallachia, drenched in the spring and scorched in the summer etc. etc. that he had to travel across, but that was a bit too late as the damage was already done. His and some other people’s accounts brought in British shipping (the terrain on which the town of Sulina is built was said, around 1855, to have it’s origin in the ballast that seagoing ships were forced to dump before entering the mouth of the Danube), and with them lots of preachers, engineers, and other men or women without something better to do, who all seem to have sleepwalked while reading some “Roman antiquities” book or some numismatic catalog since they all saw a land of plenty, exceedingly fertile and rich in precious minerals (copper, silver, gold … not oil, since at that time having petroleum well up on it’s own on your land would have lowered the value), and all used as their main argument some Roman coins showing a personification of the province Dacia holding either a horn of abundance, or corn plants/grapes.

    What was dangerous about this ? Well, while the natives took advantage of the new market for their grains, they did not raise the output as much as it was hoped they would, so by the 1850s everybody interested in the matter (import of wheat and maize) was clamoring about poor management by the “boyars” and the need to change the current administration (administration that was more interested in the acclimatization of cotton, since cotton thread was the main import of both provinces around that time, and more concerned to secure the supply of quality coal for the fledgling industry). The “progressive”, “non-boyar” party even made plain offers: I.C.Bratianu, often credited with a lot of heroic and patriotic stuff, promised, in a letter to Napoleon II, that if his pals are helped to take over, the provinces would become a de facto French colony, that they would buy from the metropolis, supply it with raw materials, and even guard themselves without costing France a dime. In 1856 England (who would have rather favored the “boyars”, but in fact did not have a strong preference for one party or another as long as trade went on) suddenly lost interest (probably because during the 1850s the US grain exports soared and surpassed what was imported from the region of the Black Sea), so France got it’s way.

    The “progressives” won and during the following decades managed to increase the wheat and Indian corn (maize) surpluses by:
    – changing the contract law, so there were only a few days between the moment the rent for the next year was announced and the moment when the farmers had to decide if they take the offer; the result was that the farmers lost any leverage in negotiating the rents and were turned into peasants/manual laborers; in the 1830s, the wheat trade agents contracted directly with the farmers that worked the soil, while about 1870 they contracted either with the landowners or with companies that administered the domains;
    – virtually tied the former farmers to the landlord they used to rent land from by forcing them to buy a small plot and then forbidding them to sell it; the leader of the “boyars” who supposedly wanted to “keep the peasants as serfs”, Barbu Catargiu, was assasinated in 1862 (according to the records of the debates in the Parliament, Catargiu only wanted to keep the land-renting market free, which would have favored the “peasants”);
    – killed any competition for labor from industrial establishments by taxes, citizenship law, regulations and monopolies; this was done against strong opposition; traders and owners of workshops revolted long before the agricultural workers got their turn: 1862, 1864 – protests against taxes or regulations were ended with the new professional army shooting the protesters; 1866 – the traditional militias that used to own their guns were disarmed, once more again using the professional army and live ammunition, to be replaced by a toothless “national guard”.

    The result of the enthusiasm for the agricultural potential that was still untapped was the extinction of the silk thread and silk cloth industry (if you wondered about the abundance of wild mulberry trees in Rumania, the explanation is that during the first half of the XIXth century there was a lot of silk produced and exported from there, and that was no “domestic industry”), the extinction of the wool cloth industry (which was pretty much mechanized during the 1840s, using either water power or steam) due to the strong preference given by the state to French producers (during the 1870s this issue was brought to the attention of the Parliament more than one time), drastic reductions in the bee wax and in tallow output, also cured leather production stagnated, the shipbuilding virtually stopped and the commercial fleet that used the Wallachian or Moldavian flag kind of disappeared (after managing to change a bit of maritime law during the Crimeean War when a Moldavian merchant ship left the Russian occupied Galatz and attempted to break through the British blockade, was captured, arrested and then subjected to a long and complicated trial when the courts could not make their mind if it was an “enemy” ship, since it left a territory occupied by an enemy power, or a “friendly” ship) etc.

    The end of the agricultural delusion came when the good folk of Ohio, Kansas, Idaho etc. managed to outproduce the Rumanians to such a degree that exporting grain was not profitable anymore (for which every Rumanian citizen should be forever in their debt, since the Rumanian elites of the 1920s were cured of their agricultural mania and were forced to make not-so-easy money in industry), so the “peasants” once more got forced to buy land, this time most of the agricultural land available and at a fixed price (in order to supply their former landlords with seed capital), and without much restrictions on what they were supposed to do with it afterwards.

    The last episode in the story of the “breadbasket of Europe” happened during the 1950s, when the green revolution made the Rumanian agriculture even more irrelevant (not because of technology – the average US yield per hectare is not much higher than that of Rumania – but because the costs were higher), and the Communists were pretty much forced to go back to the methods of Bratianu and reinstate the latifundia system and reinvent the manual agricultural laborer in order to control the production and be able to get food for exportation.

    Agriculture in Rumania? Why not. It managed to survive the de-mechanization of the early 1990s, the European “export compensations”, fuel prices equal with those for road vehicles and road taxes that doubled the price of fuel, red tape, utter neglect from the government, the acquisition monopolies and the bloody unpredictable weather while managing to produce enough for internal consumption and even get a bit for export. I think it will survive even EU red tape. I think it will do well. Still, I pray to the FSM that it will not get back to “breadbaskety” ideas.

    Hope that was not boring. I would have given more references, but I still hope to get the longer version finished and published some time this century.

    Ohio: how are the aquifers holding ? I hear that Kansas has a bit of trouble with them, meaning they won’t last much longer and then it will get really expensive to irrigate.

  10. A few weeks ago, i had a conversation with a Romanian friend who lives in a little village near Calafat. Nowadays he is working in Italy. I asked him how many of the young people left his village in search for work. Oh, that’s an easy question he said, they all left the village to work somewhere else. I was surprised, and asked him if they all went abroad to look for a job. No, he answered, only about half of them went abroad, the rest is working in the surrounding big city’s. He explained that most of them, like himself, liked to in stay in their village they grew up. But they are forced to leave, because there is a total lack of jobs there. He stated that the economic development was concentrated in the bigger city’s but was not notable in the rural areas.

  11. Ron first: the young people are leaving the villages all across Eastern Europe and much of the former Soviet Union. In Armenia, I saw villages that had lost half of their population, with abandoned buildings (including a small factory and a schoolhouse, shuttered and closed) and few people visible between the ages of eighteen and forty.

    The reasons for this are complex, and deserve a post of their own. But it’s not unique to Romania.

    Doug M.

  12. Emil, thanks for the history lesson. Seriously — I love this stuff.

    I would argue with some points (the collapse of agricultural production in the 1920s was not only about competition from American exports; WWI and the subsequent border revisions had a major negative effect, as did the subsequent land reforms — a botch which gave the peasants just enough land to starve on. About the only thing it accomplished was to defuse another peasant uprising, which is why Romania didn’t have a 1907-style jacquerie in the 1920s) — argue with some points, but mostly I found it very interesting.

    But it’s not really what we’re talking about. I didn’t say Romania was anyone’s breadbasket; I said it has a lot of agricultural potential going untapped. I think we agree? Agriculture in post-Communist Romania, as you note, has been systematically starved of capital, neglected by the government, and subjected to damaging monopolies and monopsonies. There’s no question it could do much better. The fact that agriculture has historically been the subject of some huge mistakes… well, isn’t that like saying Romania should never build any large buildings again, because Ceaucescu built the Palace of the People?

    Doug M.

  13. rain/growing seasons in Rumania:

    according to “Roumania Past and Present”, by James Samuelson, Longmans, Green And Co., London, 1882: “in England we have on the average 172 rainy days in the year, there are in Western France 152, in Germany 141, and in Roumania only 74” and daily temperatures extremes from 95 F in the summer to 0F in the winter. There has been a bit of warming since then. I have found some recent detailed datasets, but I’ll have to learn Fortran to get access to the data … During the last years the winters had been milder and the summers were cooler (except last year when there were some 14 days of 100F in the cities). Average rain in mm (from a not very authoritative source): 400 in Dobrudja, 500 in the Wallachia and Moldavia, 600 in the western counties or Bukowina (and keep in mind that most of it falls in them mountains which get like 1000mm per year, leaving a lot less for the cultivable plains) , while England gets some 920mm per year.

    “I said it has a lot of agricultural potential going untapped” — this is where we disagree.

    My position is that agriculture in Rumania has only a bit more untapped potential than agriculture in Israel: to unlock that potential a lot of labor and a lot of investment is needed. Whatever potential there is and can be unlocked with reasonable costs, it is already tapped. There is place for improvement, since I know small farmers who manage to get 5-6 tonnes of wheat/ha (average yield in Rumania being 2.5 tonnes/ha) and potato yield of 25-30 tonnes/ha (average yield in Rumania being about 12 tonnes/ha), but if everybody would get to that level, where would they sell ?

    Rumania is moving from low return production to high return production. The energy/IBP ratio that Horia mentioned is going down quite fast (from 400 in 1990 to 240 in 2003 to around 200 right now). If the Dutch get 45 tonnes of potatoes per hectare and 8 tonnes of wheat per hectare while poisoning the North Sea with nitrates, let them do it. During the last 10 years Rumanians managed to carve a niche in services, IT and automobile tech, in addition to the oil technology niche that seems to have never disappeared but nobody mentions unless Iran attempts to hijack Rumanian floating oil rigs in the Persian Gulf. They lost the market they used to have for agricultural machinery in North Africa and South America, but that might still be recovered if more auto parts makers move in and Deere and other big guys take the cue from Ford and move in too.

    Any emphasis on agriculture would only put more pressure on the labor market and endanger the progress made by services and industry, and I think the government and the president know that and that’s why they don’t bother much with supporting agriculture. Hell, Rumania became the maverick of the Communist camp only after Soviet Union had that “brilliant” idea about turning Rumania back into a “breadbasket” during the 1960s, and since the current elite in charge now is made of the people that had technical roles in the Communist government during the late 1980s, I think they know what they are doing 😛

  14. Emil,

    Your data are quite convincing and informative. Still , traveling through Oltenia and even Muntenia (Baragan), one can see a lot of non-cultivated land. This spring I still saw peasants using hand plough with oxen to labour the land. I can’t help asking myself what would they say about the ideea that the Romanian agricultural potential is used almost as much as the Israeli one.
    IMO in a country where irigation is scarce and where the difference between a “good” and a “bad” agricultural year is 1BEUR it still is much to be done. I agree thet the necessary investments are considerable.

    Romania imports much more agricultural products than it exports. I believe that it should at least be auto-sufficient. Nu am marota unei Romanii “Corn al Abundentei”.

  15. Horia,

    you have not seen peasants: you saw unemployed factory workers or retirees playing with their hobby horse. Peasantry disappeared in Rumania in the late ’80s, unless one counts the housewives that kept on playing agriculture games around the house instead of getting a lawn to manicure. If you’re old enough, you might remember being dragged to the fields from September to November to help pick the crop, and being joined only by old “peasants” while doing that. There were the CAP retirees that depended on the products of their plots for their food, but those were not that many as you think: everybody not living in a city and wanting to keep the plot near his or her home had to work for the CAP too, so got a second pension from there when they retired: there seems to have been lot if “peasants”, when in fact you had only “weekend” peasants that spent 8 hours a day, 6 days a week doing their factory/whatever work and in the afternoon, during the one free Saturday of each month or on Sunday pretended to hoe the plot they were assigned by the CAP management – pretended because there was not much need of hoeing since agriculture was pretty much mechanized. The fact that most of Rumania’s “peasants” were fake was seen during harvest, when school students, petty bureaucrats and everybody not working for some vital industry or service was dragged kicking and screaming to the fields to help take in the crop.

    Private plots were important during the 80s when food was rationed, and during the crisis of the ’90s, when the recently unemployed got something better to do with their time than skulking around and waiting for the government to help them.

    If you question a “peasant” about how much money does he spend to cultivate his plot you will find out that he spends more cash to get his crop than he would spend if he bought the products in the market. Some will need a bit of goading to acknowledge that, though, since for many (even for those “peasants” with a university degree) it’s a matter of pride to prove that they can do it, don’t need to buy “chemical” food from the supermarket etc.

    ‘IMO in a country where irigation is scarce and where the difference between a “good” and a “bad” agricultural year is 1BEUR it still is much to be done.’

    My opinion is that there is _less_ to be done. I mean: if the difference between a good year and a bad year is 1 billion Euro, maybe you should not do it. Before the “breadbasket” craze got started the Southern half of Muntenia, the Southern half of Oltenia and the whole Baragan were not cultivated. Those plains were used as pastures for cattle and sheep, and that was the right thing to do, since those plains are dry. Irrigation works only until the salt from evaporated water accumulates in the soil (this is the reason invoked when the irrigation systems were abandoned in the early 1990s) and turns it into a sterile desert. Extensive agriculture (like cultivating a plot for two or three years then letting it fallow and moving to other plot) was practiced because it required less investment and lowers the risk: if you lose the crop, then at least you have not invested much effort into it from the beginning: while in the plains of Wallachia and Moldavia the plots would have been abandoned after a few years and left fallow, in the hills the crop rotation system is documented as being practiced for as long as there is clear information about it (which means at least since ~ 1820 for M&W, earlier in T.).

    “I can’t help asking myself what would they say about the ideea that the Romanian agricultural potential is used almost as much as the Israeli one.” … I was talking about the “untapped potential” and trying to be amusing: it is obvious I have failed. Israel was probably the wrong comparison, I should have used Greenland instead: with enough investment, you can get grapes in Greendland, too … the only question is: does it make sense to do it only because it’s possible ?

    “Romania imports much more agricultural products than it exports. I believe that it should at least be auto-sufficient.”

    From about 1800 until WWI England was not self sufficient as far as food was concerned. Did not seem to bother them at all 😛 . Anyway, while the food imports might be larger than the food exports, I don’t think they make a very large percentage of the total consumption … I did not look this up, so it’s only a gut feeling. Also, I wonder how much of the imported agricultural products are exported as processed products.

  16. Interesting thread – I know one man who’s involved in developing big dairy farms on ex-communist landholdings, and another who’s promoting Romanian IT companies in the west.

  17. There they go: “Less than a century ago, the country was considered among the world’s agricultural superpowers.”, from Oxford Business Group.

    Key statement: “With private and public support in the right areas, it might eventually be able to claim back that long-lost title. ” — which means: with cities being kept at current sizes by eco-madness and other sources of red tape (such as a strict enforcement of registration rules, which would chase home to their “villages” some 1 million people currently working in the large cities), and free money being pumped in “agriculture”, this might happen. I only hope that by then I won’t be too old to emigrate to a far away and far more reasonable place that has no “agriculture superpower” ambitions.

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