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December 8, 2022
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Romania is the least innovative country in its region

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu

 Romania is continuing its decrease on the innovative scale as it shows the latest Global Innovation Index – GII 2022. We are toward the end of the ranking in Europe. Even Bulgaria is 14 places ahead of us in the global index.

Latest data published by the National Institute of Statistics is showing an increase in R&D activity in Romania in 2022.  The expenses in the field represented 0.48% of the GDP with 0.29% going to the private sector and 0.19% to the public one. The number of employees in the R&D sector increased 3.8% compared with 2021 reaching 47,011 people. But the increase was due to hiring made by the private sector while government and higher education personnel decreased. The R&D activity was financed 51.8% by companies and only 31.6% by public funds including the ones for universities.

While at the first glance the increase in R&D activity in Romania is good news, in the Global Innovation Index, the country moved lower, dropping three places since 2020. In the latest issue of the index published in 2022, Romania reached 49-th place out of the 132 economies in the world. Romania is placed in 31-st place out of all 39 European economies. The index is published by the World Intellectual Property Organization.

This is a surprising outcome for a country with a strong IT community and policies aimed at supporting this sector. Even Romanian investors are favoring tech over other industries as it is shown by the latest eToro Retail Investor Beat survey. More than two thirds of surveyed investors are having in their portfolio stocks or other assets related to the Technology sector.

According to the GII 2022, Romania is behind all comparable economies in our region. Czech Republic is on 30-th place, Slovenia on 33-rd, Hungary on 34-th, Bulgaria on 35-th, Poland on 38-th and Slovakia on 46. Smaller economies like the Republic of Moldova are behind us on 56-th place. The report is highlighting Romania’s weaknesses, the largest being the Romanian institutions, especially with regard to the policies of doing business. Other weaknesses are related to Market sophistication related to the domestic credit to the private sector as percentage of GDP and the amount of venture capital received. We are very weak concerning the amount of GDP spending on education. We have strong points too, the best being knowledge, technology outputs and the ITC infrastructure.

The world leaders in innovation according to the index are, in order, Switzerland, the United States and Sweden. The UK is in fourth place followed by the Netherlands and Korea. Germany, the largest European economy ranks 8-th, China ranks 11-th followed by France in 12-th place. In the top 20 we also find Japan, Israel, Austria and from the Eastern Europe countries block – Estonia.

The pandemic in 2020 accelerated the R&D expenses and the trend continued in 2021 too. The top global corporate R&D spenders increased their expenditure by almost 10 percent to over USD 900 billion in 2021, higher than before the pandemic. This increase was primarily driven by four industries: Information and Communication Technologies hardware and electrical equipment, Software and ICT services,  pharmaceuticals and biotechnology, and construction and industrial metals. Venture capital (VC) deals exploded by 46 percent in 2021, recording levels comparable to the internet boom years of the late 1990s. Latin America and the Caribbean and Africa regions witnessed the strongest VC growth. According to the Index, for the end of 2022 estimations are toned down, tightening monetary policies and the effect on risk capital will lead to a deceleration in VC.

2022 brought a significant shift within top 15 innovators, with the United States, Singapore, Germany and China moving up the ranking, the latter overtaking France. Türkey, India and to some extent the Islamic Republic of Iran continued their progression. According to the GII 2022, Romania continued its decrease in the ranks, hindered by its own institutions and economic policies, while having a strong ITC community and ITC infrastructure. This situation may bring dangers like becoming an outsourcer of technology services like the confections industry became the favorite provider of services and workforce for the Western economies in the 90’s.

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Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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