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Investors are cautious in Romania amid Covid concerns, but don’t fully retreat

posted onNovember 28, 2020
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The pandemic has made its mark on FDI across Europe and companies are reconsidering whether manufacturing, research or support services projects are still financially viable. In Romania 46% of investors cancelled, decreased or paused investments, while 51% did no changes or increase in their investment plans, according to EY Attractiveness Survey Romania, the first EY attractiveness survey dedicated to the Romanian market.

Looking forward, investors are still optimistic and believe Romania will become more attractive after the COVID-19 pandemic will pass. Supply chain (35%) and manufacturing operations (36%) are regarded as main investment attractions.

To increase the country's competitiveness, the majority of foreign investors believe Romania should focus on its agriculture and IT assets. Romania should focus on its efforts on funding key issues like education, technological transformation and infrastructure.

How was Romania performing in terms of FDI before COVID-19 emerged?

COVID-19 has determined large scale economic disruptions across the globe. Nevertheless, it is still relevant to understand FDI dynamics in Romania prior to the crisis in order to fully grasp on current and future trends.

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 the country on the 15th 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.

While COVID-19 might have a negative influence on FDI dynamics in the future, in the past 13 years, following the succession to the EU, Romania has witnessed a considerable increase in terms of annual number of FDI projects, directly contributing to local economic growth.

FDI Romania

(Evolution of FDI projects number 2000-2019 Data: EY)

Europe, main investor in Romania

At the end of 2019, the most important economies investing in Romania were, based on FDI stock data provided by BNR: Netherlands, with a share of FDI in the FDI stock of 23.2%, followed by Austria with a share of 12.6%, and Germany, with a share of 12.3%.

Overall, the top 10 investor countries had a total share in total FDI stocks of 83.4%, while the top 20 countries had a share of in FDI stocks of 95.4%. It is noteworthy that the member countries of the European Union they had a share of 89.5%  in total FDI stocks, which emphasizes the EU's role as Romania's main strategic partner.

FDI concentrated in Romania’s major cities

Similar to other European markets, foreign investment was highly concentrated in major cities in 2019. Bucharest attracted 50% of the total number of announced FDI projects (a 10% increase from the previous year), while Timisoara took the second place, for the second year in a row, with a 11.5% market share.

Regional areas of investment

In the last decade, most FDI projects were implemented in the Bucharest-Ilfov region (59.3% of the total in 2015). A notable growth during this timeline can be observed in Western region of Romania (10%).

During the same period, the Southern Region of Romania (Muntenia) attracted 15.5% more investment compared to the previous year.

The North-Eastern region is characterized by a low FDI quota mainly due to the quality of local infrastructure, an aspect that isolates the region from the rest of the regions and implicitly from the activities that involves long-distance transport.

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, being also more vulnerable 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 announced last year.

How can Romania retain its attractiveness post-COVID-19?

"FDI could represent a central driving force for Romania’s post-pandemic economic growth. But for this to happen, Romania will have to reshape its approach towards attracting FDI in order to increase its attractiveness for foreign investors" said Bogdan Ion, EY Romania & Moldova Country Managing Partner | EY CESA Chief Operating Officer.

The survey shows investors decisions will be driven by the following market factors: social and political stability (66%), labor supply - skilled and unskilled (65%), cost-competitiveness of the country (65%).

Industries (81%), investing in major infrastructure and urban projects (80%). In terms of sectors that could accelerate Romania's development, the majority of foreign investors mentioned agriculture (35%), the IT sector (29%) transport and motor vehicle (21%).

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