IT-Financing
IT-Financing
Overview
Direct funding for the state IT
industry has fallen considerably and steadily since 1989. For example,
by the mid-1990s the total budget for R&D on electronics, higher education,
telecommunications, and IT and computing applications, was less than $20m.
Of this, less than $1m was allocated specifically for informatics R&D.
However, this figure is deceptively small since Ministries and public sector
enterprises
spend much more than this on the
"applied research" that is, effectively, a set of public sector contracts
for information systems development. Put together with European Union (EU)
funds for the development of applications in government, these sums mean
that the state remains by far the most important locus of money for the
local IT industry. State spending on IT procurement and R&D plus state-oriented
EU funding ensure the continuing employment of several thousand IT staff
and, hence, the continuing preservation of Romanian IT capabilities. (19)
However, the returns on Romanian R&D investments still remain too limited. Applied research investments tend to lead to a single working application. Other R&D work has sometimes been even less successful, leading to a prototype software program from which there are no returns except the employment of its developers. Because the majority of these programs failed to be commercialized or even used, the government set up the Agency for Technology Transfer in 1996. The Agency is supported by PHARE funds: a European Union aid scheme supporting reform in Central and Eastern Europe. This will provide half of the money necessary to commercialize software programs from a working prototype to a marketable product.
Sources of Finance
IT spending is largely financed via loans and grants from international financial institutions (IFIs) and bilateral donors. At the beginning of 1999, Romania’s most important IFI creditors were the World Bank ($1,393 million), the EU ($634.2 million), the IMF ($626.6 million), and the EBRD (382.1 million). Main foreign government creditors included Germany, Canada, Italy, Japan, and the US. US credits consisted mostly of loans granted by USDA ( with GSM having a large share) and loans through the US EXIMBANK. Grants for technical assistance are also available under certain conditions. The most extensive assistance of this type has come from the EU’s PHARE program and from the United Nations. Individual countries have also initiated technical assistance programs. Romania became eligible for U.S. Trade and Development Agency (TDA) program funding in November 1991. Since then it has received 18 grants (with a combined value of $6.2 million) for feasibility studies covering the most important sectors of the Romanian IT industry. (20)
To stimulate the development of capital markets in Romania, the Parliament enacted a securities exchange law in 1994. The law established the National Securities Commission (CNVM) responsible for regulating the primary and secondary securities markets, including the activities of broker/dealers and mutual funds. The Bucharest Stock Exchange (BSE) commenced operations in November 1995 and as of 1999 had 101 listed companies. The trading volume was generally low in 1997, but showed sharp increases in most of 1998. In May 1999, an average trading session amounted to USD 3.52 million.
An over-the-counter (OTC) securities market, designed to complement the BSE through the effects of the privatization process, opened in September 1996 with assistance from the U.S. Agency for International Development. This market, whose acronym is RASDAQ (Romanian Association of Securities Dealers Automatic Quotation), provides capital for shares of firms (including both newly-privatized and other companies) that are unable to meet the more stringent listing requirements of the BSE.
Out of the 207 brokerage agencies licensed to operate on RASDAQ, 10 currently account for over 90% of the OTC transactions volume. The total market capitalization on RASDAQ reached lei 15,201.9 billion (USD 1,799 million) by end-March 1999. The weekly volume of transactions reached USD 18.5 million. In May 1999, there were 5,449 companies listed on RASDAQ. On average, 802 companies are traded on RASDAQ daily. Problems affecting RASDAQ's further development include uneven regulatory policies of the National Securities Commission and high bank interest rates which have made most individuals prefer bank deposits over portfolio investments.
A USG-funded, privately-managed
Romanian-American Enterprise Fund was approved in April 1993 and started
operations in June 1995. It is capitalized at $50 million.
The purpose of the Fund is to promote private sector development in Romania
IT industry. It has authority to make equity investments and loans,
and offer technical assistance to promote new private initiatives and privatization,
with special emphasis on the promotion of small and medium-sized businesses.
The Fund may support joint ventures which match U.S. investors with
Romanian partners. (21)
