Romania, still attractive for investors. FDI exceeded EUR 1 billion


Largest investment flow of the year was reported in May.

An analysis released last week by the Vienna Institute for International Economic Studies (WIIW) indicates Romania and Bulgaria are the only EU countries from Central, Eastern, and Southeastern Europe to experience an increase in direct foreign investments in 2013, as opposed to the dramatic decrease reported in 23 states and ‘alarming’ levels reported by Slovakia and Poland. Last year, direct foreign investments in Romania and Bulgaria went up by 27.4 percent and 2.1 percent, respectively.
The scenario of a continued upward trend for this year seems promising, considering that in January – May 2014 the balance-of-payments current account posted a deficit of EUR 351 million as compared with a surplus of EUR 191 million in the same year-ago period, mainly amid the increase in income deficit (by EUR 1,002 million), National Bank of Romania announced in a press release yesterday.
Non-residents’ direct investment in Romania totaled EUR 1,091 million (up 13.9 percent as compared with January – May 2013), of which equity stakes (including reinvested earnings) amounted to EUR 910 million and intragroup loans to EUR 181 million.
Medium- and long-term external debt at end-May 2014 stood at EUR 76,115 million (80.9 percent of total external debt), down 1 percent from end-2013.
Short-term external debt at end-May 2014 totaled EUR 17,949 million (19.1 percent of total external debt), down 6.3 percent from end-2013. Medium- and long-term external debt service ratio ran at 35.5 percent in the first five months of 2014 against 41.9 percent in 2013. At end-May 2014, goods and services import cover stood at 6.6 months, as compared to 7 months at end-2013.
Therefore, May was the best month since the start of the year in terms of direct foreign investments attracted by Romania, given previous levels of EUR 215 million in April, EUR 290 million in March, EUR 36 million in February, and EUR 244 million in January.
Direct foreign investments registered a 26.8 percent climb last year, compared with EUR 2.71 billion, the peak of the last four years after 2012’s first increase since the onset of the crisis.
Investments in economy in sharp decline
Investments in the economy dropped sharply in 2013 and 2014, as did net investments in the national economy, predominantly where equipment is concerned (public means of transport included). Thus, compared with an overall decrease of 10 percent both last year and in this first quarter, the equipment segment suffered a near 14 percent drop in 2013 and 11 percent in Q1 of 2014, according to CursdeGuvernare.ro, as cited by realitatea.net.
Investments in constructions were also negatively influenced in 2013 and had yet to recover in the first half of 2014 following a tentative comeback in 2012. Having anticipated higher consumption levels, the trade sector remains a point of interest for capital placement while maintaining a proportion of around one third of the total after last year’s climb.
The good news is that regardless of the overall trend in percentages, the industry continues to have a rather high ratio, with a close to 1 percent decrease from 2011 to 2013 and a local maximum percentage reported in Q1 of 2014. Likewise noteworthy is the continually growing interest for agriculture, a sector with a high potential for growth in labor productivity.
Balancing budget by lowering public investment levels
Romania’s assumed obligations to international institutions to gradually diminish the budget deficit and the perpetual shift in social policy indexes from left to right, coupled with the lowering of taxation in the business sector have determined a reduction in public investments. In turn, this has become the solution to solving budgetary tensions ensuing from a collection rate slower than the pace of economic growth.
The sharpest decline was reported in reimbursable financing program expenditures. Not only did they diminish considerably, but the very speed of decline has increased as of 2011. Moreover, non-reimbursable financing programs have also failed to maintain a growth pace, which decreased in 2013 and entered the negative range in the first half of this year.

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