EY Attractiveness Survey Romania 2020: How to reshape Romania through investment?

FDI performance across the globe has been profoundly impacted by COVID-19. In order to recover from this crisis and become more attractive, Romania will have to focus on key issues and explore sectorial strengths in a reframed business environment.

R

omania has been placed in the top 15 European countries that attract the most foreign investment, while foreign investor’s perception of Romania’s attractiveness before the pandemic was equal to European average (27% of investors questioned planned to establish or expand operations in Romania before COVID-19). However, the COVID-19 pandemic has had an inevitable impact on FDI across the globe, with 46% of investors having cancelled, paused or decreased their investment plans for Romania.  The fast reactions towards pressing issues that the pandemic has revealed, such as safety & security measure, digital transformation, education and skill development, infrastructure among others will determine how Romania’s FDI attractiveness will evolve post-pandemic.

2019: Decrease in FDI projects, similar FDI flow

In 2019, 78 foreign investment projects were carried out in Romania, a decrease of approximately 28% compared to the previous year (113 projects in 2018), placing our country on the 15^th place in Europe. Nevertheless, it is important to mention that the value of FDI has not decreased significantly from 2018 to 2019.

A similar trend can be observed across the region, with Central and Eastern European countries experiencing a decrease in the total number of FDI projects by about 20% compared to the previous year. 2019 was a year in which foreign investors expressed a higher appetite for Western Europe, which held 80% of the European market share.

Digital and business services sectors, leaders in FDI project numbers

In 2019, in line with European trends, the digital and business services sectors attracted the largest numbers of FDI projects, with a 36% market share for the digital sector and 16.7% share for business services. Together, they accounted for over 50% of the number of new jobs created.

Occupying the third place, the agri-food business generated far less new jobs, being a much vulnerable sector, suffering from revenue losses considering COVID-19 supply chain disruptions.

Machinery and equipment manufacturing generated the second highest number of new jobs in 2019 (18.2% of the total number), even though there were 4 FDI projects last year.

Romania, a possible future manufacturing & mobility hub

The pandemic has made business leaders reconsider their companies supply chains, since lockdowns have generated halts across operations.  Among the most disrupted were manufacturing and supply chain & logistics companies. Interestingly, they are among the top choices for investors already planning to establish or expand their operations in Romania before the emergence of the pandemic.  Even though foreign business leaders believe Romania should invest more in infrastructure projects, they see potential in Romania as a European advanced manufacturing and mobility hub. 

Stability, labor supply, cost-competitiveness among top investment factors

Social & political stability, labor supply and the cost-competitiveness of the country are cited as the top factors considered by foreign companies when thinking about investing in Romania. Current geopolitical tensions have influenced business leaders to look for stable investment destinations, who have successfully addressed the COVID-19 crisis.  Contrary to the European Attractiveness Survey, which placed national stimulus packages on the top of the investor’s agenda, our survey shows that foreign companies are less interested in financial aid coming from the local government.

Education, technology and infrastructure should be top priorities

According to our perception survey, education, technology and infrastructure projects should be top priorities on Romania’s agenda, as businesses see the need for improvement to rise the country’s competitiveness.

COVID-19 has made the acceleration of technology an imperative for various fields, since costs and accessibility reasons prevailed. The European Attractiveness Survey shows that 82% of investors expect technology adoption to accelerate in the next three years as a result of COVID-19. Therefore, Romania will inevitably have to adapt to the rising of the new digital economy.

Global supply chains have been disrupted by the pandemic, driving investors to rethink the way they carry their businesses and their FDI plans.  Our survey shows that 26% of business leaders pan to change supply chain models in response to COVID-19 by increasing manufacturing presence in Europe. Furthermore, investors were more drowned supply chain logistics and manufacturing FDI projects in Romania, demonstrating the country’s potential in these areas among businesses planning to establish or expand operations locally. However, business sentiments must be matched with real investment in major infrastructure and urban projects, an opinion voiced by 81% of interviewees. 

Top industries that will drive Romania’s growth: Agriculture, IT&C, Transport & Automotive sectors

Resources available within the Romanian economy in the agriculture, IT and Transport & Automotive sectors are not lost on survey participants, since these 3 sectors are considered to be crucial in driving Romania’s economic growth in the following years.

At European level, cleantech & renewables, digital economy and healthcare & well-being are regarded as sectors that will drive economic growth for the region. For Romania, these sectors occupy lower position for investors in terms of contribution to the country’s economic development. Being at the beginning of its journey to digitalize its economy, Romania will still have to concentrate its resources on more traditional sectors with a lot of potential, such as agriculture, while also focus on more innovative sectors, such as clean tech or renewables. 

Optimism for the future FDI Attractiveness

Europe’s prospects post-COVID-19 are pessimistic: 49% think that Europe is at risk of being less or much less attractive for investment in a post-COVID world. Contrary to European level, investors are more optimistic about Romania’s attractiveness in the coming years: 41% believe Romania’s attractiveness will improve after the pandemic. Nonetheless, Europe must act decisively as a whole to retain its attractiveness.