Romania – Country Overview
Romania has been assigned Secondary Emerging market status by global index provider FTSE Russell, has re-elected its President for a new 5-year mandate, is preparing for a 2020 general election, and is profiling itself as a force in the areas of research and development for industry and logistics companies worldwide. Market liquidity currently supports important global investments and paves the way for an injection of private funding and know-how in the Romanian economy. The European Commission advises towards limitation of public spending in order to control mounting budgetary deficit no longer fully covered by Foreign Direct Investment inflows.
With world-leading internet speed and a strong pool of young and skilled tech talent, the IT sector has become a heavyweight, with technology being considered a primary stepping stone for both economic growth and social life enhancement. Smart city solutions development is building up as an industry in itself, fuelled by the private sector. The capital of Romania, Bucharest, has been listed among the cities with the most professionals working in the high-tech industry (alongside London, Dublin, Madrid and Budapest) with over 70,000 employees in the sector. Notably, the city of Cluj-Napoca recorded a 281% growth in IT start-ups between 2011 and 2016 and has been continuously seeking to adapt to the new technologies, with a plan to include autonomous vehicles in the public transport system.
The start-up environment has continued to receive massive funding, with crowdfunding becoming an important avenue of financing early-stage entrepreneurial tech projects. The first Romanian unicorn has become (at EUR6.3 billion) the most valuable company in Romania, thus outperforming traditional leaders of the energy sector.
While technology is moving towards an efficiency increase, new or upgraded bricks and mortar storage, processing and transport capacities are critical to overcome Romania’s historical infrastructure insufficiency and enable the economy to capitalise on its rich natural resources and strategic location. Public sector-driven infrastructure projects are progressing slowly, with major investments in roads, airports, ports and railways being postponed or aborted. The country is still below the target of 1,000 km of motorway and express roads and only 60% of the railway network can be used and at a speed not exceeding 60% of the projected one. Romania is confronted with a reduction of investment and social conditions, due to inadequate energy, environmental protection and social infrastructure.
18 months after it was first announced, the contract for the Government’s strategic projects - including approximately 750 km of motorways, a high-speed railway connecting the capital city to Cluj and Budapest, a new Bucharest metro line, additional commercial facilities for Constanța Port, several hospitals, hydropower facilities and tourist resorts - has still not been signed.
This is partly a consequence of Romania’s relatively unstable political environment for the past decade, which has inhibited the institutional ability to develop and pursue a nationwide strategy and made it difficult for a major national project to prevail over any other command that might push back or change the governmental agenda, as well as making it harder to offer predictability and to facilitate a convergence of policies, efforts and resources. Frequent changes of staff within the state administration are draining the scarce experience and know-how from the public sector and negatively impact the continuity of projects and vital public-private interaction. Budgetary constraints limit the Government’s capacity to power growth-fostering measures, including infrastructure development. Institutional weakness is a drawback for all sectors where the Romanian state is a stakeholder.
Compared to public projects, logistic real estate has developed at a higher rate, although it has continued to fall short of the needs of the businesses which have grown thanks to economic progress and changes in consumers’ behaviour. N and NE Romania still need to be covered and connected to the other regions, and digitalisation and multimodal integration are required countrywide. Market size and geographic position are expected to attract institutional investors’ opportunistic investments in the Romanian logistic sector.
Agriculture features one of the lowest prices per hectare of land in Europe and the availability of approximately 500,000 hectares of tradable land. This means there is a high potential for speculative investments (estimated to reach up to 800% return on investment). Romania also has one of the largest agricultural surfaces among EU countries (approximately 8% of the total agricultural surface in the European Union), in addition to high fertility or low costs for the restoration of lands and the continuation of non-reimbursable EU finance. Long-term investment in irrigation and precipitation protection systems, as well as in risk management tech, are required.
Romania's richness in natural resources has been an important trigger for some of the world’s largest players in the sector over the last 25 years. Onshore reserves of oil and gas, copper, gold and coal, as well as other resources, have been complemented in recent years by offshore oil and gas reserves discovered in the Black Sea. The exploitation of gas deposits in the area is among the top priorities of the first EU Energy Security Strategy, which aims to reduce Central and Eastern Europe’s reliance on imports via Ukraine. This is, however, subject to the availability of transportation capacities outside the Romanian borders. Local communities and industrial investors are expected to benefit from the completion of phase 1 of the BRUA pipeline in 2020, while the construction of the Azerbaijan-Georgia-Romania Interconnector is designed to offer the European Union an alternate route for Azeri gas. Royalties and other related fees to be paid by investors are still competitive and it is a realistic expectation that they will remain so.
As an industry, energy offers the entire range of value-added and speculative investment potential, despite the legal challenges. Romania has an impressive natural potential for renewable energy production and, thus, could secure the transition of industrial consumers to green energy. Investments in new means of generating energy from renewable sources, along with better interconnection of the country’s energy infrastructure with those of its neighbours, could turn Romania into the energy hub of the South-Eastern Europe region. In preparation, domestic and trans-national projects involving Romania are already ongoing or in the pipeline, and are targeted as the best investment opportunities.
Construction, manufacturing (primarily automotive) and services (such as renting, financial services, healthcare and transportation) are also among the key growing industries. The most severe challenge facing the economy is a shortage of workforce due to emigration, with certain geographical areas of Romania and certain industry sectors hit by negative unemployment.