European Investment Bank: Investment activity in Romania remains one of the lowest in the EU

Investment activity in Romania remains one of the lowest in the European union as only 68 percent of firms invested in the last financial year, compared to 87 percent EU-wide, according to a European Investment Bank (EIB) study.

“Investment gaps are prevalent despite the strong – but mainly consumption driven – growth in recent years, Uncertainty about the future and business and labour market regulations are the most significant barriers to investment,” the study says.

Innovative high-technology firms are more likely to face difficulties in obtaining external financing, according to EIB.

“Understanding investment constraints is crucial for Romania to continue its path towards economic convergence,” the study indicates.

The EIB survey reveals that the perceived investment gap – expressing the share of firms that did not invest enough in recent years – is above the EU level (20 percent vs 16 percent).

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“This confirms the low investment rate on the macroeconomic level and significantly lower quality of assets. The average share of state-of-the art machinery and equipment in firms is one of the lowest in the EU, as is the share of energy-efficient building stock,” according to the EIB.

Following a prolonged post-crisis period, with both public and private capital investments staying 30 percent below the 2008 level, investment growth turned positive in 2017 and expectations improved, the study shows.

Public expenditure prioritization towards consumption and the relatively high leverage of corporations on the private side were the main factors of holding back the investment recovery until last year.

“Understanding the reasons behind this slow and uneven recovery in investment over the past decade is key to defining appropriate policy interventions in order to confirm and take advantage of a more positive trend,” the study says.

Firms’ investment in Romania remains focused on replacement and tilted towards tangibles. Investment in intangibles is considerably below the EU level (25 percent vs 36 percent), according to EIB.

A closer look at firms’ innovation activity in Romania shows that among the innovators, most rely on adoption rather than development.

“Altogether, this underscores the need to do more in the area and to support a transition towards more innovation-led growth in Romania,” says Debora Revoltella, director of the EIB’s economics department.

About 12 percent of firms face finance constraints, and reliance on internal financing sources remains high.

Access to finance is more of an issue in Romania than in other EU countries and innovative, high-technology intensive firms face even greater difficulties in successfully tapping external financing.

“Uncertainty about the future and business and labour market regulations are the main barriers for businesses in Romania. Additionally, the lack of adequate transport infrastructure is more of an obstacle for Romanian firms compared to EU peers. Finding people with the right skills is particularly a challenge for innovative companies,” the study points out.

This country overview presents selected findings based on interviews with 475 firms in Romania in April-August 2018.

The survey is part of the annual EIB Group Survey on Investment and Investment Finance (EIBIS), an EU-wide survey of 12 500 firms that gathers quantitative information on the investment activities of both SMEs and larger corporates, their financing requirements and the difficulties they face.