Romania - On the Convergence Way

Martie 2008

LUCIAN ANGHEL - Chief Economist BANCA COMERCIALA ROMANA

The reforms carried out in the last years and the economic progress made possible that Romania join the enlarged European family since January 1^st 2007, thus marking a new historical development phase that could place our country as a financial and economic hub in the region and a bridge for expansion towards east.

 

Second largest market in Eastern and Central Europe after Poland and the 7^th in the European Union

Romania is an emerging economy with one of the greatest growth potential in the region and an attractive investment destination in terms of risk-benefits ratio.

Romania – a sought after long term business location. The business climate improvement as well as the legislation aligned to the Acquis Communautaire, including the stimulating taxation framework (flat tax of 16%) made Romania attractive for the foreign investors that poured in last year an estimated EUR 7.2 bn representing FDIs (around 6% of GDP). Ford and Nokia, two international market leaders decided to start business in Romania in 2007 and their combined contribution in the next couple of years will be over EUR 1 bn with positive effects on increasing exports capacities and improve substitution rate between foreign and locally produced goods (based on the expansions plans, car exports (Renault and Ford) could reach around EUR 5 bn in 2010-2011 as compared to an actual EUR 1 bn).

Business relocations (Nokia’s case) could become even more intense in Romania in the next years, since some of the major European leaders could find themselves in a less advantageous position in terms of competitiveness in relation to their US counterparts (key rate in US might be further on lowered during 2008). Romania is cheaper in terms of labour force costs relative to productivity gains, even when compared to peer CEE 4 countries (Czech Republic, Slovakia, Poland and Hungary) and this should be for now a competitive advantage that big EU companies might want to resort to if they are to preserve their competitive position. This should calm down somewhat work force migration towards Euro Zone countries which has become increasingly visible in the last years.

All these recommend Romania as one of the major stages in Europe within which both foreign and local capital can prosper in the next years, and the signals so far are encouraging.

Nevertheless, Romania still has a lot to catch up with, even compared to other countries in the region as regards the convergence to the EU standards, so that the country will have to increase the pace in order to achieve the real convergence expressed generally by the improvement in living standards.

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