Foreign Direct Investment in Romania

Martie 2008

LARIVE ROMANIA

The accession of Romania to the European Union took place on January 1^st, 2007. This date was set at the Thessaloniki Summit in 2003 and confirmed in Brussels on June 18^th, 2004. The accession of Romania, together with Bulgaria, means that EU now has 27 members and half a billion people, and stretches as far as the Black Sea.

Romania’s strategic geopolitical location will influence the EU’s policy towards its relations with all of Eastern Europe, the Middle East, Turkey, and Asia. Due to its strategic location in the region, Romania is being seen as a zone of stability and democracy in its immediate neighborhood.

Romania benefits from the EU accession that offers a harmonization of capital market regulations and taxation accounting rules. The exporting procedures to the EU members are now simplified in business administration, the exchange risks and conversion charges are diminished and a new extended market is open. EU integration will boost economic growth and foreign investment, at the same time putting pressure on inflation and generating exchange rate volatility, as analysts state. The immediate impact of integration will not be perceivable in terms of the economy or the capital market, and the benefits related to accession must be expected to surface on a longer term.

Considering the experience of other countries that joined the European Union and according to many analysts, the economy will continue to expand, also boosted by investor’s confidence, the capital inflows will increase and direct investments will tend to be replaced by portfolio ones, once financial instruments diversify. Though, the EU integration will not have immediate effects in terms of foreign investment. The increase in foreging investment will be mainly determined by the expansion of foreign companies already operating on the market, but was not yet visibile in 2007. The significant effects to be registered soon after the accession are: a boost in the economic growth, increase in portfolio investments, moderate price increases, exchange rate volatility. However, being one of the largest EU members in terms of size (the 9^th in the EU 27) and population (the 7^th in EU 27), Romania is likely to become more and more appealing to investors.

As an EU member, Romania will benefit from post-accession funds, which are significantly larger that the pre-accession funds. The total amount allocated for Romania for the period 2007-2013 for Structural and Cohesion Funds is EUR 19,668 billion. The Funds are meant to increase economic competitiveness, improve transport and environmental infrastructure, develop and strengthen regional development, improve human-resources development and strengthen the administrative capacity.

The National Development Plan (NDP) is the fundamental tool that Romania will use in order to diminish the social and economical disparities with the EU as soon as possible. Six national development priorities have been set up for the period 2007-2013, bringing together a multitude of priority domains such as: economic competitiveness, transport infrastructure, quality of the environment, strengthening administrative capacity, etc.

 

Legal framework with impact on direct investment

In order to improve the business climate and to offer incentives for large investment projects, the Romanian legislation regulating the foreign direct investment is still subject to frequent revisions.

The foreign investors in Romania are stimulated and attracted by free access to domestic markets, the possibility of taking part in privatizations, no imposed limits on foreign participation in commercial enterprises. Foreign investors, despite usually preferring Joint Ventures, are free to establish foreign-owned enterprises in Romania, and more, to repatriate 100% of their profit after taxes.

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