Patrick Young: 2012, a lost year for Romania

Reporter: Mr. Young, how was, in your opinion, the year 2012, from economic and financial point of view, globally, regionally (Europe) and locally (Romania).

This has been a tough year for many economies and while the world limped along (with a few areas of eager consumer expansion such as Russia), the situation in the EU was precarious at best and little short of dire in the worst places.

In terms of Romania, it felt to me like another year that was largely lost to growth which is such a pity when we see the wealth of talent and resources in this wonderful country.

The problem for every government in 2012 has been the need to realize (not achieved by any major government so far) that the old era of the delusional European "third way" of a quasi-socialist government spending to control vast swathes of the economy is simply unaffordable. Now some nations are suffering appalling shocks because the money has run out, e.g. Greece, while others such as Spain have horrific problems with youth unemployment and overall joblessness. Then again, investors are not very motivated to invest in countries where they don't see much potential for reform and here governments have been cowardly in "biting the bullet. Put simply: the era of spendthrift government is over.

Patrick Young: How do you think the things will evolve in 2013, from the same perspective of financial and economic issues at global, regional and local level?

Well here we are chatting away with the USA dangling precariously on the precipice of the fiscal cliff. The USA exemplifies the "spend like a footballer's wife' approach to government. In just 30 years "pork barrel' politics have multiplied the US balance sheet from a total debt of 908 billion dollars thirty years ago to now borrowing 100 billion dollars per month. No, don't even think of translating those numbers into Lei, they are grim enough in US dollars! The US government spending limit was increased from 14.3 trillion to 16.4 trillion dollars as recently as 2011. In terms of spending what you cannot afford, it is difficult to tell who is worse when comparing western Europe with the USA! ...and don't get me started about Japan with debt well in excess of 200% to GDP. That is an ugly ratio for any nation!

Even if the US government manages to turn around its addiction to spending, US consumers may simply stay away from the shops. In Western Europe, there is a total vacuum in economic leadership and governments such as France live in a Shangri-la world where economic gravity can apparently be defied.

In summary, I am deeply concerned as, unfortunately, many of the chapters in "The Gathering Storm" which I edited a few years back are becoming reality.

At a regional level, the "New Europe" is going to suffer the tail winds of any storm battering either the West or the Far East. Moreover, the region's economic powerhouse Poland is already encountering difficulties sustaining growth. Only in Russia does there seem to be sustainable consumer demand currently and even that may yet shut down if a sudden western recession hurts demand for oil and gas.

Overall, I see a challenging year ahead although as a natural optimist I also must stress that there are great opportunities to be found, particularly in the New Europe and especially in Romania. However, funding acquisitions is tough and that will keep a lot of investors on the sidelines.

Reporter: What do you think about Romanian Capital Market evolution in 2012? Please give some perspectives for 2013.

Patrick Young: I really don't want to sound overly cynical here but the truth is the Romanian capital market is in crisis.

Brokers and bankers have been fleeing Romanian investment markets. BVB and SIBEX are both seen as utterly peripheral (at best) to investors and it is difficult to justify maintaining capital markets teams in the face of markets which simply don't even begin to fulfill their potential.

Adjusting prices may help create a blip but the difficult is that Romania's exchanges are like a pair of corner shops when what we need is a supermarket.

From what I can see, there is no coherent plan or thinking to actually create a tangible Romanian capital market. As I understand it, there are less than 85,000 customer accounts in Romanian exchanges. Even during a bruising year for stocks, the Warsaw SE added more than 25,000 accounts in one month.

Put simply: nobody trusts or sees the benefit of the Romanian capital market and there is no leadership to define it going forward. That is a tragedy for the many good people employed in the industry who are being held back by a complete lack of understanding how to go about providing capital markets services to the Romanian and regional economy. It is a very frustrating affair but confidence is a very precious thing and alas, as a whole, Romanian markets do not engender confidence in investors either at home or abroad. The images of Romanian investing in the minds of foreign investors currently is one of liars, fraudsters and cheats...and let's face it that was the one big story which emanated from the Romanian marketplace last year.

One positive, albeit complex, step will be the creation of a new unitary regulator. I say this not to criticise CNVM but rather that a new unitary regulator can hopefully help mark a new beginning for Romania's markets in every sense. It will be hard work to create this new body but it can do a lot of good and I wish it every success.

Reporter: We know that you are an active entrepreneur. Would you invest in Romania in the future or advise somebody to do it, in the capital market or any other domain?

Patrick Young: I have been investing in Romania recently along with other nations in the New Europe and maintain staff in Sibiu. Then again I am willing to be a contrarian investor. Romania's many incredible fundamentals (an amazing qualified, diligent, and enthusiastic, talent pool, low costs of operation and good internet connectivity to name just three core facets) are often over-shadowed by the utterly sclerotic bureaucracy and the perception of corruption.

At present, I continue to look for investments and am interested both in private and publicly held businesses in capital markets and elsewhere. I see a vast amount of untapped opportunity in Romania. Then again, the problem is that the same can be said of Poland, Serbia & the former Yugoslavia, Slovakia and a dozen other countries in the "New Europe." It's a competitive market for investment and to succeed, a nation needs to give investors confidence.

Reporter: As a shareholder of Sibex, what do you expect from the new Board? Are you satisfied with the results?

Patrick Young: I had hoped to see immediate action after the EGM to restore confidence in the marketplace but in fact there seems to be total inaction so far. The market has made no attempt to atone for its scandalous past and the board of directors collectively has yet to demonstrate that they understand the core failings of the exchange.

Ultimately, there is little confidence in using SIBEX. It has not got a sensible product mix for the markets we are in. The management is not credible and the only plan from what I can see is to attempt a little granular tinkering around the edges of existing products when what the exchange needs is a total revolution and restoration from the ground up. True, Rome wasn't burnt in a day and alas SIBEX continues to fester.

SIBEX is not so much an exchange, more a discredited entity missing a rich seam of opportunity.

The current plan for SIBEX is reminiscent of buying a man in a coma a pair of running shoes in the anticipation it will make him fit and healthy again.

Yet with exchange platforms remaining an exciting arena for development, in the right hands there is still a great opportunity to create a regional marketplace even from the current mess which can within a few years be worth 30-50 million Euros and more.

Naturally, I am a very disappointed small shareholder. I invested in an exchange with a future, found myself soon owning a glorified ponzi scheme and now we have a very sick enterprise with no clear direction. This is another tragedy of the Romanian capital market...

I sincerely hope 2013 will be better than 2012 but right now I am not very confident.