Romania shows fast economic growth after 10 years in EU

Bucharest, Romania (jaime.silva, CC BY-NC-ND)

Ten years ago Romania entered the European Union as its full member state. In this time, Romania has undergone significant changes, from legislation to the economy's structure.

Now, many are assessing the impact of EU accession on economic and social environment in Romania, as well as the main challenges that lie ahead of business and administration in the coming years. This is even more important after the massive protests in the beginning of 2017. These were the biggest protests the country has seen from the transition of power from Communists do democratic regime.

Today, Romania is the second fastest growing economy in the European Union, right after Ireland. Estimates point out that Romania might finish 2017 with 5 per cent economy growth, a dream percentage for many other European countries. Historical burdens and poverty are still images of nowadays Romania, even for the neighboring countries such as Serbia. Still, the dictatorship of Nicolae Ceaușescu ended in 1989 and poverty is bygone time. Many believe Bucharest will once again be the „small Paris“, as a metropolis of IT companies. Romania, with its 19,7 million people, has its specificities, which have contributed to its rising success.

The major changes

Economy, politics, and society in Romania is seen before and after the rule of the Communist dictator Nicolae Ceaușescu. A decade before his overturn and execution, Romania was impoverished country, capable of exporting only nuts and lunch dishes. In many countries one could find Romanian expatriates looking for jobs. The same, however, could be seen today. Romanian workers got the chance to escape uncertainties in their country in 2007, when Romania and Bulgaria joined the EU. Most of them find jobs in Italy and Spain, where they can adjust easily. Because of this emigration, a chronic deficit of workers is present in Romania, and consequently the country has no problem with unemployment. At the same time, while the Romanians migrated to the Western countries, many Western companies opened their offices in Romania and eventually transferred most of their business to Romania. Romanians themselves proved to be able to open and preserve companies on the local market.

The Romanian parliament voted new rise of personal income in the public sector starting from the January 2018. This is done despite the fiscal problems, but was deemed necessary to stop the emigration of workforce, especially medical doctors and professors. The European Commission and International Monetary Fund criticized this decision. The Commission warned Bucharest not to raise salaries, while the IMF told the successive tax cuts in the last two years already negatively affected the public income. Some 1,2 million public servants will receive a raise of their income and the state will lose some EUR10bn in next five years.

The salaries are still very low in comparison with their Western counterparts. Next year the best ranked doctors employed in the national health service will receive EUR2,700 from current EUR1,000. Nurses can expect rise from EUR530 to EUR900. Some professors wait for 100 per cent rise but it will be gradual, from 2018 until 2022. “This law will change the history of Romania,” said the leader of the leftist Socialdemocratic party Liviu Dragnea.

Agriculture

An expansion is also visible in the agriculture sector. After Ceaușescu’s death, Romania had a serious deficit in the agriculture production. Being a country traditional tied to the cultivation of land, it had a devastating effect on the local population. Now, Romania successfully uses the European funds to develop large agricultural land. Romania has an agricultural capacity of 14,7 million hectares, but some 6,8 million hectares are not used. Close to 30 per cent of the county’s labor force is employed in agriculture, which ranks among the highest percentages in the European Union. Lack of major investments was always a prime problem for the Romanian agriculture business, but this began to change as the major agricultural companies entered Romania. Now in Romania operates Meggle, Smithfield Foods, Bunge, Cargill, Glencore, and Lactalis, making an upsurge in production of wheat, potatoes, sunflower, tomatoes, apples.

SME and FDI

Dramatic effects of the 2008/2009 crisis were visible in lack of investment, but lately this is changing. The capital flows are more free and investments are rising. SMEs slowly but surely spread their business, although it is mostly within the service sector and little in production. The Romanian Central Bank eased some preconditions for credits and it is now easier to lend money, which also helped in the economy growth. This year the European Commission in agreement with three commercial banks, Raiffeisen Bank, Banca Comerciala Romana and ProCredit Bank gave EUR246m, as an initiative to boost the development of Romanian small businesses using new and innovative ways to invest Cohesion Policy Funds. Over 4,300 Romanian SMEs will benefit from this financing.

The membership in the European Union affected in growth of the Foreign Direct Investment (FDI). Last year, FDI net flow in Romania stood at EUR4,51bn and continues to rise slowly. Many foreign companies transferred their production and factories in Romania, where they find cheaper labor force. Many European car industries came to Romania and through the cheaper production they have successfully passed through the transition from the financial crisis. Other areas of FDI are: metallurgy industry, banking and insurance, wholesale and retail, energy, construction and telecommunications. The main investors in Romania are traditionally France, Austria, the Netherlands and Germany. An interesting catch is also a great internet infrastructure and excellent broadband speed. Today, Romania is in the same group as Estonia, Poland, and Slovakia in the terms of developed technological and start-up market.

In the regional aspect, Romania looks how to profit on its geographical position. After the Polish-Croatian agreement on the transport axis Gdansk-Rijeka, Romania’s Constanta comes into picture. Romanian government looks for the added value of this initiative in its ability to shape concrete interconnection projects, particularly in the transport and energy sectors. As an active and committed supporter of the Trans-Atlantic relationship, Romania is also seen as one of the major barrier to the Russian influence in the ex-Communist countries and in the Balkans.

It is in Romania that antiballistic shields are positioned. Through Bucharest a watchful eye is set on the Black Sea, another frozen-conflict area of the world, where large powers seek to administer and control the flow of transport and energy.

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