Romania may have just become a huge investment opportunity

Romania is often dismissed by investors as too small, too corrupt or too complicated to bother with — sometimes all three. And yet, this little-understood country has, over time, delivered huge profits to those foreign investors who knew how to navigate the often complex issues that it is faced with.

A recent political phenomenon could present investors with new opportunities, this time for the longer term – if things play out right.

Romania’s President-elect Klaus Iohannis was voted into power on November 16, riding on a huge wave of popular discontent about endemic corruption in the country. This discontent was underestimated by most pundits and also by Iohannis’ strong opponent, current Prime Minister Victor Ponta.

Since the election, enthusiasm has been high; everybody’s hopes have been poured in the surprise winner of the presidential race – and investors should be keeping an eye on his decisions.

However, this is not an easy task, as not many people know what the new president is about. Iohannis’ autobiographic book “Step by Step” sold out in just a few hours at a book fair that took place in Bucharest in the week after the election.

Many Romanians who had voted for him openly admit that they don’t know anything about him, other than the fact that he was the mayor of the Transylvanian city of Sibiu – a postcard-pretty place with a population of nearly 150,000 – and that he is a member of the country’s dwindling ethnic German minority.

Paradoxically, this relative obscurity could be Iohannis’ main advantage. On the surface at least, he does not owe his victory to any political party – and he doesn’t need to please any sponsors. He could re-write the rules without the fear of alienating any allies.

So far, the signs are good. The main fear of those who voted for Iohannis was that, if his rival had won instead, he would have stopped or even reverted the progress that Romania’s justice system has made in prosecuting and convicting various former officials for corruption. This progress has in fact been huge – and it’s something that investors have yet to wake up to.

Only so far this year, more than 1,000 people have been convicted for corruption or corruption-related offences in Romania, according to official data quoted by the country’s media. Of these, 85 were ministers, members of parliament, mayors, judges and prosecutors. Ironically, even an organised crime prosecutor was recently retained for questioning by anti-corruption officials.

Klaus Iohannis’ Mission

This drive to root out corruption started a few years ago. Its most high-profile victim so far was former Prime Minister Adrian Nastase, who in June 2012 tried but failed to commit suicide before he was arrested and sent to jail for corruption-related offences.

Iohannis has the unique opportunity to encourage a continuation, maybe even an acceleration of this drive to root out corruption. And it sounds as if he knows exactly how bad the situation is.

He is a man of few, but well-chosen, words. In a recent speech, the president-elect said that right now corruption is “the main enemy of free competition” in Romania and that it hinders meritocracy, “frustrating and demoralising” the country’s “true professionals.”

More than three million Romanians are estimated to have chosen to live abroad since the country joined the European Union in 2007; many of them are doctors, nurses, engineers, programmers and other highly-skilled professionals.

“Corruption affects our day-to-day living; it’s the disease that stops foreign investment, civic development, initiative, innovation. Corruption intimidates, corruption generates parallel and illegal centres of control and power, which are incompatible with democracy. Over the long term, it leads to regression, social and economic stagnation and, worst of all, an endemic reversal of values,” Iohannis warned in the same speech.

He has pledged to help develop the capacities of the anti-corruption prosecutor, the DNA, so that its performance at a local level improves further, and to support the creation of a Code of Conflicts of Interests that would unify the various laws that exist on this matter.

Iohannis has also promised that, as president, he would insist that all institutions that are involved in fighting corruption and organised crime receive adequate funding and are free from political pressure. He has also said he would advocate cooperation among the various institutions that carry out financial and fiscal audits, so they can quickly identify and fight corruption.

The president has the power to pardon those convicted of various crimes, and many Romanians speculated that if Ponta had become president, he would have pardoned some people jailed for corruption. In his electoral pledge, Iohannis specifically promised that he would not pardon those convicted for corruption.

“It will take many years before the ability to defend the rule of law is consolidated and the fight against corruption is won. In this process, pardoning those convicted for corruption would not serve this cause, on the contrary,” Iohannis wrote in his electoral pledge.

He may be a newcomer to national politics, but the new president’s words sound promising. Investors should watch his deeds to see whether they should, once again, commit some of their capital to Romania. They could be rewarded handsomely, if Iohannis delivers.