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Accelerating Growth in Southeast Europe: The Role of Roads Road Congress for Southeast Europe September 18, 2000 Dr. Keith Crane Director of Research 1 PlanEcon, Inc. Outline After Difficult Decade, Southeast Europe Poised for Growth Higher Incomes Resulting in More Cars, More Driving Rapid Growth in Trade to Drive Transport Demand Road Transport to Dominate Shift to Heavy Trucks Necessitates Better Quality Roads 2 PlanEcon, Inc. Southeast Europe Primarily Composed of Small Economies with Low Incomes GDP in Billion 1995 USD 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 7.1 31.2 67.1 37.6 6.2 3 Albania Bosnia Bulgaria Croatia Macedonia Romania Per Capita GDP Al ba ni a Bo sn ia Bu lg ar ia C ro at ia M ac ed on ia R om an ia 5.3 PlanEcon, Inc. After Difficult Decade, Bulgaria, Romania Recovering Annual Change in GDP (in%) 8 6 4 2 0 -2 -4 -6 -8 -10 -12 1994 1995 1996 1997 1998 1999 2000 FORECAST Bulgaria 4 Macedonia PlanEcon, Inc. Romania Albania, Bosnia, Experienced Very High Growth, But From Low Base Annual Change in GDP (in%) 20 68% 28% 15 10 5 0 -5 -10 -15 1994 1995 1996 1997 1998 1999 2000 FORECAST Albania 5 Bosnia PlanEcon, Inc. Croatia Lower Inflation Key to Recovery Average Annual Inflation Rate 350 579% 300 250 200 150 100 50 0 1994 1995 1996 1997 1998 1999 2000 FORECAST Albania 6 Bulgaria PlanEcon, Inc. Romania Despite Economic Difficulties, Southeast Europeans Are Buying Cars Car Parks Regional car park has risen 7 Million Cars 6 5 4 3 2 1 0 1992 1996 Bulgaria Macedonia 7 2000 2004 Croatia Romania 60% between 1992 and 2000 Most of the increase stems from imports of used vehicles from Western Europe Dacia sales added to Romanian total Increased park has dramatically increased road use, especially in cities PlanEcon, Inc. New Car Owners Have Different Road Use Patterns Executive — Drives D, E segment vehicles less than 3 years old — Averages 30,000 kilometers per year Mid-level manager — Drives C segment vehicle — Averages 15,000 to 30,000 kilometers per year “Middle income” driver — Drives to conduct personal errands and vacations — Less than 5,000 kilometers a year Retirees and farm workers: Sunday drivers 8 PlanEcon, Inc. Road Use to Rise Rapidly Rising incomes result in Bulgarian Annual Driving Distances greater personal use of cars — Shopping — Vacations 7000 6000 levels in Central Europe, southeast European usage will gravitate to these levels Usage concentrated in cities, ring roads, improved urban corridors needed 9 Kilometers Car usage double Bulgarian 5000 4000 3000 2000 1000 PlanEcon, Inc. 0 1995 2000 2005 2010 Transport Activity Collapsed in First Years of Transition % Fall 1990 - 1996 Output of heavy 0 10 -10 -20 -30 -40 -50 PlanEcon, Inc. Romania -70 Macedonia -60 Bulgaria industry plummeted Disintegration of Yugoslavia reduced trade Increased tariffs reduces demand Profit motive improves rationality Transport Industry Transformed Shift to market economy transforms transport industry —Explosive growth in small private businesses increases demand for frequent, reliable deliveries —Growth in international trade in manufactures spurs demand for freight forwarding Fall in output of bulk goods reduces demand for rail, barge services Demand shifts from industry to consumers, heavy manufacturing centers to capital cities Costs, not bureaucrats, determine mode 11 PlanEcon, Inc. Transport Volumes Destined to Rise Again Economic growth to boost 300 Billion Tkm 250 200 150 100 50 0 1997 2000 2003 2006 Croatia 12 Romania transport of manufactured goods Croatia to benefit from boom in transit trade Continued declines in bulk commodity production in Romania slows transport volume growth Interregional trade growth to be major contributor to increases PlanEcon, Inc. Exports Key Driver of Economic Growth, Transport Demand Million USD Southeast European Exports 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 1995 Albania 13 Bosnia 1999 Bulgaria 2003 Croatia PlanEcon, Inc. Macedonia 2007 Romania Interregional Trade Forecast to Increase Bulgarian Exports Interregional trade relatively — — — — Similar export mix Low per capita incomes Poor transport links Tariffs and other trade barriers Recent policy change triggering expanded trade — CEFTA membership, free trade agreements — Improved border crossings — Growing economies 14 Million USD underdeveloped 600 500 400 300 200 100 0 1997 2000 2003 2006 Albania PlanEcon, Inc. Macedonia Romania Road Dominates in Tons Lifted Romanian Transport Common hauliers’ share of tons hauled has remained high But rail dominates in terms of ton-kilometers Barge has lost ground to rail Despite low wages, sea transport has suffered as state-owned fleets have deteriorated 15 Road River Sea PlanEcon, Inc. Rail Pipeline Despite Shift to Road, Southeast European Rail Still Major Player Percent Share of Road in Romanian Surface Transportation 50 45 40 35 30 25 20 15 10 5 0 1992 16 1995 1999 Subsidized rail tariffs has delayed shift Freight traffic most profitable rail operation, commercialized railroads concentrate on retaining freight customers Private hauliers account for most road traffic, face difficulties in financing operations PlanEcon, Inc. But Railroads Will Continue to Lose Market Share Railroads have responded to declines in traffic, revenues by reducing maintenance, investment Railroads remain heavily overstaffed —Traffic less than 1/2 former levels —Employment down by far less than traffic declines Major customers often insolvent Passenger service still treated as social obligation Railroads seek more investment, but no economic need for capacity expansion 17 PlanEcon, Inc. Road Haulage Going Private Over 50,000 trucking Private Share of Romanian Truck Park companies active in Romania Bulgarian road haulage sector privatized 40 35 — Large state-enterprise, SOMAT, sold to German firm — Thousands of small companies Percent 30 25 20 15 10 Most companies focus on 5 0 1992 18 1994 1996 1998 domestic hauling Bulgaria, Macedonia center for transit traffic PlanEcon, Inc. Expanding Small Business Sectors Rely on Road Transport Retailing recovering throughout the region Stores remain small, need frequent deliveries Capital-poor small business sector focuses on low-cost LCVs Sector needs improved city streets, local 2lane highways 19 LCV Sales 30000 25000 20000 15000 10000 5000 0 1996 Bulgaria PlanEcon, Inc. 1997 1998 Croatia 1999 Romania Transport Industry Moving to Heavy Trucks Economic expansion Bulgaria 20 PlanEcon, Inc. Romania 2004 2002 2000 1998 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1996 '000 units increases demand for longdistance hauling Decrepit truck park makes renovation imperative Subsidiaries of MNCs need just-in-time deliveries Expansion of retail, wholesale networks increases heavy truck demand Heavy Truck Sales Who Buys Heavy Trucks in Southeastern Europe? Heavy truck buyers fall into five groups: — Formerly state-owned international hauliers — Privatized domestic regional trucking companies — New, incorporated international truckers — Small, domestic companies — Distributors, manufacturers that operate their own fleets International truckers, distributors key customers for Western trucks Domestic tariffs generally still so low that used imports, domestic vehicles remain attractive 21 PlanEcon, Inc. Old East European Makes Finally Being Scrapped Hungarian Registrations 60000 1990 1995 1998 50000 40000 30000 20000 10000 0 Barkas 22 Csepel IFA PlanEcon, Inc. Multicar Robur Operating Costs Rising Average Monthly Wages 700 600 USD 500 400 300 200 100 0 BUL 1997 23 CRO 1998 FYROM ROM 1999 2000 Diesel prices up sharply in 1999, 2000 Repair costs rising as devaluations push up parts prices Tolls, taxes up Drivers wages stay low, little growth since 1996 PlanEcon, Inc. But Capital Costs Falling Interest Rates in Southeastern Europe Domestic interest rates down sharply in Bulgaria, Macedonia, Romania Bulgaria, Romania cut tariffs Stable currencies in Bulgaria, Macedonia result in substantial real effective appreciation, making heavy trucks more affordable Improved commercial codes leading to use of leases, credit sales 24 25 20 15 10 5 0 PlanEcon, Inc. BUL 1995 CRO FYROM 1999 Despite Rising Heavy Transport Fleet, Operators Face Limited Ability to Pay Tolls Easy entry makes competition fierce, domestic rates too low to finance new vehicle Low per capita incomes preclude rapid rise in haulage rates Few retailers, manufacturers willing to pay premium for guaranteed delivery times Hauliers take longer routes to avoid tolls “Chargeable” tolls unlikely to completely cover road construction costs 25 PlanEcon, Inc.
