Foreign Direct Investment: Development and importance in Romania – Report

This report is a first step in a longer-term project and cooperation between the Foreign Investors Council and the Bucharest University of Economic Studies (ASE).

From the point of view of our institutions, public policies will only succeed to the extent they are backed up by real-life data.

In recent years there has been growing concern among citizens, politicians and the media about the effects of globalization on the economies of the United States of America, the European Union and, in our case, Romania.

In this context, the FIC plans to speak more loudly about the benefits of free trade, the European single market and Foreign Direct Investment (FDI) for Romania. The FIC has realized that despite extensive studies at international level, the effects of FDI on the Romanian economy have not been studied extensively. The National Bank of Romania publishes an annual report on foreign direct investment and the National Institute of Statistics publishes one on the activity of foreign affiliates. However, there are no detailed studies and analyses on the impact of FDI on the economy.

The FIC and ASE have agreed to work together to look in closer detail at the development of FDI in Romania and the role it has played and will continue to play.

This report presents Romania’s attractiveness for FDI in the region, the development of FDI in Romania and a brief analysis of the impact of FDI on Romania’s economy. The report will be followed by other studies on issues of public interest such as the contribution of foreign companies to the state budget.

We believe that FDI has played a fundamental role in Romania in the last 20 years and helped in the development of a functioning market economy.

In 1990 Romania had an uncompetitive economy with low productivity, but the country looks very different today. Romania has sectors which are competitive at regional and global levels, is integrated into international production chains and exports high-quality products. We believe that all of these achievements would have been impossible in the absence of foreign capital, which contributed with funding and know-how and helped Romania capitalize on its competitive advantages and skilled labor force. Last but not least, we would like to mention that this report is based on solid scientific research and its conclusions suggest that some recent negative public statements on foreign capital are misleading. It would be a mistake for Romania to discourage foreign investment through hostile public discourse that does not take into account Romanian and European realities. The role of public policies is to fix problems as they appear and, in the long-term, to channel foreign direct investment in a way that will contribute significantly to Romania’s economic development and its real convergence with Western European economies.

Main Conclusions 

Foreign Direct Investment has contributed significantly to the modernization of the Romanian economy as well as to its integration into the European market and international production chains

Foreign companies employ a third of the private sector workforce in Romania; approximately 1.2 million people.

Foreign companies have a level of labor productivity which is twice as higher as that of Romanian companies and invest twice as much in each employee.

Between 2010 and 2015, foreign companies continued to hire even though their turnover remained relatively constant. This suggests that most have made long-term investments in Romania and they are not focused on merely making short-term profits.

Foreign companies account for an average of 70% of Romania’s exports, as well as for 60% of its imports.

Although the general perception is that the volume of FDI is high, Romania has the lowest FDI stock per capita in the region (3,130 EUR per capita).

The period when Romania was preparing to join the EU and that which immediately followed accession overlaps with the highest inflows of FDI into the country. FDI flows rose more than five times between 2003  and  2008.

The Netherlands, Austria, and Germany are the most important economies that invest in Romania, holding over 50% of the total FDI stock.

FDI flows in Romania have a large component of equity and less reinvested profits and net loans.

According to official statistics, 60% of the FDI stock is in the Bucharest-Ilfov region. However, this figure is misleading because investment is measured based on where a company has its headquarters, and most foreign companies are located in Bucharest. After the Bucharest-Ilfov region, most foreign companies are located in the Central and Western regions of Romania, due to proximity to the rest of the EU and better-developed infrastructure.

Almost half of all FDI has been in the industrial sector. These investments are long-term and capital intensive.

The share of gross value-added of multinational companies exceeds 60% in industries such as automotive and ICT, according to Eurostat data (FATS).

The official methodology used for the calculation of FDI stock and flow may potentially underestimate the actual figures by up to three times.

See the full report here

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