Until recently, an investor was the energising presence in the economic discourse here - he always brought a note of optimism into future plans, balanced the current account when he was foreign and symbolised the rebirth of the Romanian pre-war industrialist when he was Romanian. Lately, however, a less sympathised variety of domestic investor has been detected - the demonstrating investor, a potential fiscal danger and a delicate electoral dilemma. Although sometimes difficult to understand, this deserves a more careful analysis - even more so since it reflects at a microscopic scale the dilemmas of transition themselves.
Investment behaviour in the post-communist period demands special treatment, beyond the pertinent comment that any investment bears an intrinsic degree of risk which someone else beside the investor, the hypothetical beneficiary of the profit, must assume. The special treatment compared to the standard economic environment in the West results on one hand from delays in instating an "economic common sense" (informal, but settled into every social layer), and on the other hand from some microeconomic imbalances with disastrous consequences on the risk/gain ratio. While both realities are equally imputable to half a century when the economy meant nothing but "money-commodities-money," the latter factor, the risk/gain ratio, is more important since it promises to deal with the former.
Besides the lack of a "market" culture, there is one more difference between the small Romanian investor and the small investor from more developed countries. Although at one point it has been said that people's savings could be an additional resource lacking sufficient foreign capital, reality shows that Romanian households have little left to save - hence the intermittent investments, as opposed to the continuous investments of Western households. An IRSOP poll this May found that of the 3.76 million urban households (therefore aside from the 4 million rural households), only 10% have a cumulated revenue in excess of 6 million lei, or $300. Of these 5% nation-wide, only one-fifth manage to save regularly, while three-fifths save sporadically. Sporadic saving is more frequent in households with less revenue.
Therefore, investments in instruments such as private pensions funds (facultative - the third pillar in the World Bank model) stand little chances of luring too many participants. Insurance with compound capital, although apparently a growing business, can be profitable for the institutions offering them, but certainly enjoys less demand than placements that do not require a continuous contribution from the investors. The discontinuous character of investments can explain the success of government bond issues to the populace (safe and with a relatively high gain), term deposits, as well as more exotic financial instruments, such as mutual funds, popular banks and even, at the extreme, pyramid schemes. The lack of high-yield instruments of this kind, caused by a yet under-performing capital market, further lessens the range of possibilities to the small Romanian investor. Funds are therefore diverted into these high-risk instruments partly because the institutional framework (mortgage credit, a dynamic stock market) has not developed.
The lack of a relationship between effort of any kind (physical, intellectual, entrepreneurial) and the results, a situation characteristic to the planned socialist regime, is paradoxically perpetuated in the post-communist period by no other vehicle than instruments specific to capitalism - the investments market. The lack of a positive correlation between the risk carried by the investment and the profit only confirms an older belief among the people - that honest work has nothing to do with wealth.
In more concrete terms, risky investments in Romania have a small and doubtful pay-off, while profitable investments have a rather low risk. Investments on the inter-bank currency market or in government bonds, for instance, are clearly more profitable than investing in listed shares (let alone unlisted shares). What's more, government bonds bear no risk (aside from the depreciation of the national currency for domestic investors or inflation for foreign ones), while stock market investments are more risky. Investments in bank deposits, somewhat riskier and less profitable (at least so far) than government bonds, probably yield better gains than stocks, confirming once again the reverse relationship between risk and gain. Similarly, investments in the real economy funded by foreign venture capitalists bring a profit of at least 25% (in hard currency) and are relatively safer than any small store that barely covers its expenses. Although "ex ante" the sovereign risk and other such arguments could justify such a wide margin perceived in profitable investments, observations made "ex-post," while contradicting the translation of this risk into failed ventures, reveal a discrepancy between supply and demand, a discrepancy that could be solved with arbitrage. Spending related to selecting the investment (finding the venture that will provide maximum profit) justifies to a small extent the premium charged by the creditor since this investment builds on the "market" relations brought by the entrepreneur. But in the case of government bonds, this argument is even weaker.
It has been said that Romanian enterprises have turned their back on the market. But it is just as true that the market has turned its back on Romanian enterprises, so if the latter changed orientation, one by one, nothing would change much. The lack of motivation is not the one driving the dearth of productivity in Romania, but the other motivations, the counter-productive ones, which make companies refuse a market where risk is inversely proportional to gain.
Traditionally, correlation between risk and gain is ensured by arbitrage, that is, by agents who speculate risk-free on the existence of abnormal profits. But this can only be accomplished on a standardised, regulated and safe market. Although some difficulties exist in this case, a market too small can be unattractive to foreign funds, and the lack of strict regulation can make the market seem even smaller. Recently, a major European bank left Romania, saying the profit rate was too low compared to what shareholders expected for investments in the South-East of the continent. It was not the first withdrawal with such a motivation. This occurrence denies the hypothesis that only initial spending ("sunk cost") is the barrier in the war of foreign capital. The way a bank has chosen to leave Romania after it had decided to take charge of a state bank confirms the unattractiveness of the Romanian domestic market (in this case, retail banking), as well as factors less quantifiable such as the discrepancy between the two utterly different "corporate cultures."
In an environment so tormented, it is understandable why small investors fail to find the relationship between risk and gain, as long as large investors are not following this law. As long as the market's delicate mechanisms do not work, not only can we not expect any efficient resource allocation (this being the somewhat technical aspect), but investment behaviour will be disoriented, and the "economic common sense" will not spring up by itself. Economic common sense is born out of repeated observation of a market that operates correctly and competitively, which is not yet the case.
Pentru alte știri, analize, articole și informații din business în timp real urmărește Ziarul Financiar pe WhatsApp Channels
