APPENDIX B BEST PROSPECT SECTORS FOR U.S. EXPORTERS TO ROMANIA (USD Millions) INDUSTRIAL SECTORS A) Rank: 1 B) Name of Sector: AIRCRAFT AND PARTS C) ITA Code: AIR 1993 1994 1995 Estimate Forecast D) Total Market Size 120 166 235 E) Total Local Production 48 60 75 F) Total Exports 9 14 20 G) Total Imports 81 120 180 H) Imports from the U.S. 73.3 110 165 I) Exchange Rate 762 1650 1700 Comments: Romanian demand for aircraft and parts is expected to witness a significant increase over the next years. The increase will be linked to major programs for the modernization of the national airline Tarom and the charter and cargo aviation company Romavia, as well as to programs for the rehabilitation of the country's aircraft industry. Tarom's and Romavia's fleets currently consist mostly of obsolete Soviet-made Ilyushins, Antonovs, and Tupolevs. Western-type aircraft includes Airbus- 310, Boeing 707-320C, and BAC 1-11-500. To rejuvenate and streamline its commercial fleet into only three basic types of aircraft (Airbus, BAC, and Boeing), Romania intends to replace the old Boeing 707's with 737's, and the Soviet aircraft with an upgraded version of the BAC 1-11. Other future general aviation plans include the purchase of western helicopters, especially for medical assistance. Romania's aircraft industry, which produces gliders, light multipurpose aircraft, trainers, helicopters, and the short/medium range twin-jet airliner Rombac 1-11, is currently being restructured, and as such will be an important end-user of western aircraft parts and airborne avionics and communications equipment. Major competition for U.S. exporters to this sector will come from France, which is strongly supporting its Airbus project with Romania, and from the U.K., whose British Aerospace Co. is involved in cooperation with the Romanian aircraft industry on the BAC 1-11 project. A) Rank: 2 B) Name of Sector: TELECOMMUNICATIONS EQUIPMENT C) ITA Code: TEL 1993 1994 1995 Estimate Forecast D) Total Market Size 160 170 180 E) Total Local Production 90 95 99 F) Total Exports 5 7 9 G) Total Imports 75 82 90 H) Imports from the U.S. 11.1 15 21 I) Exchange Rate 762 1650 1700 Comments: In 1991 the Romanian government launched a 15-year, $7-8 billion program to expand and modernize the country's telecommunications system. Targets include increasing the penetration rate to 25% (6.2 million lines); creating a digital network with 8 main transit switching exchanges; replacing old rotary exchanges; digitalizing the rural phone network; creating a national data package switching network; and introducing cellular services. Materials needed for the program include optical fiber cables, copper cables and associated splicing materials; switching, network monitoring and controlling equipment; pay phone sets; and instruments for network diagnostics, engineering, maintenance and repair. The most important near-term contracts will be financed from World Bank and EBRD loans, government credits, and supplier credits. The most promising subsectors within the sector are: broadcast equipment, microwaves, cable distribution networks, and cellular equipment. Competition in the sector will be heavy from such countries as France, Germany, Spain, South Korea, Italy and Japan. Nonetheless, U.S. firms, which are reputed for technological know-how in this area, stand a good chance of getting contracts. A) Rank: 3 B) Name of Sector: ELECTRICAL POWER SYSTEMS C) ITA Code: ELP 1993 1994 1995 Estimate Forecast D) Total Market Size 300 350 400 E) Total Local Production 284 280 325 F) Total Exports 20 20 50 G) Total Imports 46 90 125 H) Imports from the U.S. 2 3 10 I) Exchange Rate 762 1650 1700 Comments: Romania has a 22.3 MW installed electric power capacity, but uses only one third of it (6-7 MW), the other two thirds being in low-efficiency facilities. To increase performance in this sector, the Romanian Electric Power Authority (Renel) is focussing on the following projects, which are slated for top priority investment: the upgrading of coal-fired plants running on medium and low-grade lignite (an IBRD loan has already been granted for this project), the completion of Units 1 and 2 of the Cernavoda nuclear power plant, and the completion of the Iron Gates II, Bistra-Poiana Marului, Izbiceni, and Avrig hydropower plants. Estimated investment needed for these projects is $590 million for 1993 alone. This would also include some significant imports of high-technology parts and components. U.S. exports in this sector are expected to consist mainly of turbine and generator parts for the Cernavoda project. Romania's large manufacturers of boilers, turbines and generators are seeking joint venture arrangements as a means of upgrading their production. They could become important end users of western know-how, components, parts, and process controls. A) Rank: 4 B) Name of Sector: COMPUTERS AND PERIPHERALS C) ITA Code: CPT 1993 1994 1995 Estimate Forecast D) Total Market Size 138 142 146 E) Total Local Production 10 11 12 F) Total Exports 0 0 0 G) Total Imports 128 131 134 H) Imports from the U.S. 7 7.7 8.5 I) Exchange Rate 762 1650 1700 Comments: Romanian demand for computers is theoretically unlimited, given the virtual lack of computerization before the revolution of 1989. Until now, the greatest demand has been from governmental bodies, public corporations, private companies, banks, and some state-owned companies. After a surge in 1991-92, sales of computers declined due to shortages of hard currency. Domestic production is still virtually nil, although there are Romanian companies which assemble clone computers (e.g. with Packard Bell) or could become co-production venture partners. The most promising subsectors within the sector are high-performance personal computers, computer peripherals, local area networks, and wide area networks. Many U.S. computer manufacturers are already represented on the Romanian market. U.S. exports in this sector increased in 1993, in spite of unfavorable customs duties applied to U.S. products following Romania's association with the EU and the EFTA countries and in spite of competition from such suppliers as Germany, Holland, Taiwan, Austria, France, Korea, Singapore and Japan. A) Rank: 5 B) Name of Sector: OIL AND GAS FIELD MACHINERY C) ITA Code: OGM 1993 1994 1995 Estimate Forecast D) Total Market Size 250 260 300 E) Total Local Production 250 260 295 F) Total Exports 10 10 15 G) Total Imports 10 10 20 H) Imports from the U.S. 2.2 5 8 I) Exchange Rate 762 1650 1700 Comments: Romania is one of the world's most important suppliers of oil and gas equipment. In recent years, only about 15% of the industry's production was sold on the domestic market, the rest being exported. Currently, however, the sector is confronted with serious problems, mainly because of equipment and technology obsolescence. The modernization of this industry will require a massive influx of western technologies and imports of various state-of-the-art components, materials and parts. Due to the excellent reputation enjoyed by U.S. oil and gas equipment manufacturers, U.S. companies are well positioned to provide the necessary equipment and technological assistance to the Romanian industry. Joint ventures and co-production schemes that would take advantage of Romania's low labor costs, skilled workforce and export markets could be of interest to both sides. In addition, interest in Romanian on- and off-shore oil exploration/exploitation possibilities will generate a growing market for modern equipment in this area. A) Rank: 6 B) Name of Sector: MINING INDUSTRY EQUIPMENT C) ITA Code: MIN 1993 1994 1995 Estimate Forecast D) Total Market Size 175 175 196 E) Total Local Production 155 155 168 F) Total Exports 0 0 2 G) Total Imports 20 20 30 H) Imports from the U.S. 8 8 12 I) Exchange Rate 762 1650 1700 Comments: The Romanian mining industry, which currently provides more than 90% of the equipment used by the country's mines, is in dire need of rehabilitation in both the extraction and processing areas. Given the vital importance of mining for the country's economy, the government has provided priority funding for the sector, drawing on both its own resources and a World Bank credit earmarked for the rehabilitation of lignite mines. These funds, however, are far from meeting the needs of the industry. The upgrading of the nine lignite mines in the Craiova region selected for priority investment as part of the country's plans to increase electric power generation will alone require over $700 million. There is high Romanian interest in U.S. mining extraction, transportation and processing equipment. However, since the country's shortage of hard currency is endemic, the best business opportunities for U.S. companies could be found not so much in straight exports as in joint venture arrangements with mining equipment manufacturers. A) Rank: 7 B) Name of Sector: AGRICULTURAL CHEMICALS C) ITA Code: AGC 1993 1994 1995 Estimate Forecast D) Total Market Size 82 82 130 E) Total Local Production 91 91 130 F) Total Exports 15 15 20 G) Total Imports 6 6 20 H) Imports from the U.S. 2.5 2.5 5 I) Exchange Rate 762 1650 1700 Comments: In recent years, Romanian agriculture has suffered great losses due to shortages of agricultural chemicals. Local production of both fertilizers and pesticides cannot meet market demand because of lack of technology and raw materials. In spite of strong competition from other western countries, U.S. firms stand a good chance of increasing their sales to Romania. The good reputation enjoyed by such old-to-market companies as Dow Europe, Monsanto, Du Pont, and FMC has made Romanian importers quite receptive to U.S. agricultural chemicals. A) Rank: 8 B) Name of Sector: AGRICULTURAL MACHINERY & EQUIPMENT C) ITA Code: AGM 1993 1994 1995 Estimate Forecast D) Total Market Size 170 170 220 E) Total Local Production 150 160 200 F) Total Exports 70 70 80 G) Total Imports 90 80 100 H) Imports from the U.S. 0.2 1 3 I) Exchange Rate 762 1650 1700 Comments: With its 14.8 million hectares of agricultural area, of which 9.4 million ha is arable land, Romania is a large and diversified market for farming equipment. The Land Reform of 1991 returned 80% of agricultural land to private ownership. This resulted in Romania currently having about 5.5 million farmers with small holdings of up to 10 ha. Domestic output of agricultural equipment is far from meeting, in either quantity or adequacy, the demand generated by the new land-ownership pattern. Experts estimate a need for about 720,000 new tractors, 400,000 new cultivators, and 60,000 new harvesters over the next 5 years, compared to only 132,761 tractors, 23,868 cultivators, and 40,813 harvesters in operation at the end of 1991. There is also strong demand for irrigation equipment. While straight imports for the sector will be limited by Romania's shortage of hard currency, accessing the market via licensing agreements and joint ventures with the local industry (which has good basic technologies, skilled labor, and low labor costs) could be a rewarding option for U.S. manufacturers of agricultural equipment. AGRICULTURAL SECTORS A) Rank: N/A B) Name of Sector: SOYBEANS C) PS&D Code: 2222000 1993 1994 1995 Estimate Forecast D) Total Market Size 90.0 70.2 79.5 E) Total Local Production 23.8 13.0 13.0 F) Total Exports 0 0 0 G) Total Imports 66.2 57.2 66.5 H) Imports from the U.S. 8.9 32.0 26.0 I) Exchange Rate: 762 1650 1700 Comments: U.S. soybean exports to Romania will continue at high levels. Romanian domestic production is limited, and the U.S. is viewed as a major supplier. Competition is represented by South American countries. The utilization of export credit programs such as GSM-102 has been instrumental in boosting U.S. soybean exports. A) Rank: N/A B) Name of Sector: SOYBEAN MEAL C) PS&D Code: 0813000 1993 1994 1995 Estimate Forecast D) Total Market Size 79.2 74.8 74.6 E) Total Local Production 46.2 53.8 42.4 F) Total Exports 0 0 0 G) Total Imports 33.0 21.0 32.3 H) Imports from the U.S. 0 12.6 12.9 I) Exchange Rate: 762 1650 1700 Comments: Domestic production of soybean meal is insufficient to meet the feeding requirements of the Romanian livestock sector. The United States is an important supplier of soybean meal to Romania. Its major competitors in this market are the South American countries. A) Rank: N/A B) Name of Sector: POULTRY MEAT C) PS&D Code: 0114000 1993 1994 1995 Estimate Forecast D) Total Market Size 204.8 190.0 185.0 E) Total Local Production 184.8 160.0 170.0 F) Total Exports 0 0 0 G) Total Imports 20.0 30.0 15.0 H) Imports from the U.S. 16.0 20.0 10.0 I) Exchange Rate: 762 1650 1700 Comments: The United States is currently the main exporter of poultry meat to Romania. The U.S. product is of high quality and export prices are very competitive. The Romanian poultry meat production dropped significantly in recent years, primarily because of financial problems faced by poultry operations and feed shortages. A) Rank: N/A B) Name of Sector: COTTON C) PS&D Code: 2631000 1993 1994 1995 Estimate Forecast Forecast D) Total Market Size 125.0 100.0 110.0 E) Total Local Production 0 0 0 F) Total Exports 0 0 0 G) Total Imports 125.0 100.0 110.0 H) Imports from the U.S. 24.7 20.0 20.0 I) Exchange Rate: 762 1650 1700 Comments: Romania is not a cotton producing country. U.S. cotton exports, aided by agricultural export credits represent about 20-25 percent of total Romanian imports. If credits continue to be allocated to Romania, U.S. cotton exports will continue to be significant.