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April 20, 2021
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FIC and ASE event: “Report on Foreign Direct Investment in Romania”

The Academy of Economic Studies (ASE) together with the Foreign Investors Council (FIC) organized on  April 6, an event dedicated to the second edition of the joint study entitled “Report on Foreign Direct Investment in Romania”. ASE and FIC initiated this analysis dedicated to evaluating the contribution of foreign direct investment to the development of the economy in Romania since 2017, when the first edition of the report was launched.

„The Academy of Economic Studies continues the series of studies and projects with the business environment, fulfilling, at the same time, its social mission. We thank the Foreign Investors Council for this constructive partnership. We are convinced that together we can contribute to the stimulation of foreign investments in Romania, an important factor for the economic well-being,” said the Vice-Rector of ASE for the relations with the economic-social environment and the student life, prof. Univ. Dr. Dorel Paraschiv.

The latest study conducted jointly by experts from ASE and FIC mainly includes aspects related to foreign investment at the global and regional level, but also at the local level, as well as a case study on the multiplier effects of foreign investment in three industries: energy, telecom and automotive. The objective is to highlight why investments are the basis of a strong, resilient and diversified economy, through which Romania can prosper, given that it is known that foreign direct investment (FDI) is an important source of financing for the economy and the transfer of know-how.

“Romania is going through a difficult economic context, but this is also a period that is characterized by growth opportunities. Investments are a good example and could be a success story for Romania. Equipped with the right resources – such as a dedicated body, following the successful models of the countries in the region when it comes to FDI – Romania should focus on attracting FDI in the short, medium and long term.” mentioned the president of FIC, Ramona Jurubiță.

“The trend towards digitalization started at the European level is one of the opportunities that the business environment managed to get to know better during the health crisis that began last year. Accelerating digitization can be a good starting point for a change in the structure of FDI stock distribution, towards industries with a higher degree of technological intensity, that Romania needs.” mentioned Francois Bloch, member of the FIC Board of Directors.

The main conclusion of the report is that it would be an opportunity for Romania to have a more intense presence on international markets, especially during this period, through government agencies for attracting investment and promoting exports. With a proactive attitude, the agencies could coordinate contacts with potential investors, facilitating the relationship with local governments in the implementation of investment projects.

 

Other conclusions that emerge from the analysis include the following:

 

Regarding the components of FDI, the negative values ​​of net credit indicate that the amount of loans granted by Romanian FDI enterprises to non-resident partners in the group is higher than the credit received by Romanian companies, which emphasizes that Romanian investments have reached, in the given context, a degree of maturity.

The services sector has the largest share of FDI stocks in Romania, approximately 47% of the total. In contrast, in the high-tech sector stocks of FDI as a share of the total manufacturing industry are only 5%, the lowest level in the region.

In 2016, Romania attracted only 5% of the total volume of FDI related to high-tech industries and knowledge-intensive services in the region. Instead, 52% of the stocks were directed to Hungary, 18% to Poland and 14% to the Czech Republic, the regional specialization thus acting to the detriment of Romania. The study notes the need to stimulate the attraction of FDI in high-tech sectors.

However, Romania is in competition with the states in the region and, as the results of this study show, given the low competitiveness of its regions compared to those of neighboring states and the lack of coherent public policy measures to attract high value added FDI, risks consolidating the existing trend of attracting activities with low added value and technological intensity.

It would be useful to outline the direction in which Romania wants to go and to identify the ways of action. Public policy measures could focus on encouraging FDI with the highest possible added value and facilitating the reorientation of FDI in high-tech and knowledge-intensive industries in the service-related fields.

Case studies from the energy, automotive and telecommunications industries show that the impact of companies with foreign capital in the Romanian economy is significant. The total estimated impact of the activities of the FIC representative members is 5.8% of GDP in the energy industry, 1% of GDP in the telecommunications industry and 1.2% of GDP in the automotive industry. The performance of foreign-owned companies is also higher in terms of gross value added per employee, which is higher than both the average for the economy and the average for the sector – in the latter case, except for automotive companies, where the values ​​are marginally equal.

In the future, Romania must continue to attract foreign direct investment by increasing the absorption capacity of the economy, developing long-term strategies and by an adequate approach, which takes into account the realities of the Romanian and of the European economy.

 

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