Romania needs better infrastructure, more qualified workforce, and better living conditions outside big cities

Mihai-Alexandru Cristea 08/12/2022 | 15:57

Romania has attracted billions of euros in foreign direct investments over the past three decades, and it has managed to close some of the gap that separates it from the most developed countries in the EU. However, there is still a lot to improve, especially in terms of infrastructure, education, healthcare, and digital skills. And right now, there are plenty of opportunities arising in all sectors of the country’s economy.

By Aurel Constantin

 

The second day of Business Review’s Foreign Investors Summit started with a speech by Economy Minister Florin Spataru, who explained that there were many things the Romanian economy had to change in order to make use of all the opportunities coming from European programmes and the associated non-refundable financing. “The economy must enter a period of transformation in order to become more sustainable, and we need to take exceptional measures in order to boost ESG investment. One of the solutions has to do with changing the way things are done in the manufacturing industry. We have a EUR 300 million programme to support the transition towards a more environmentally friendly industry, and I will fight to keep the programme going until all the funds are used up,” the minister said. “Then there are the measures being taken towards the development of a circular economy. We have the minimis scheme and we also creating new circular economy projects that we can get funding for. This is how we can create a framework for the economy of the future, one that is more sustainable,” he added. Next steps also include developing strategies for mineral resources, for boosting the competitiveness of the economic sector. “The government will have to make sure that these strategies are followed and put into practice,” Spataru concluded.

“Romania has grown into a major centre for mobile technology, information security, and related hardware research. The country has a well-earned global reputation for developing strong cadres of computer science, technical, and engineering talent,” stated H.E. Mr David Muniz, Charge d’Áffaires, Embassy of the United States in Romania, explaining why our country was such an appropriate host for the International Telecommunications Union Conference. “However, Romania’s ICT sector is just one of the many industries that have attracted US investors’ interest. Some of our most valuable brands—from the defence, energy, automotive, pharmaceutical, consumer products, healthcare, finance, and other sectors—are supporting tens of thousands of jobs and have invested billions of dollars on this market. As we salute the American Chamber of Commerce’s 30th anniversary next year, we would highlight that the number of its US and US-affiliated members have multiplied ten times to over 500 members today. We can say with pride that our commercial relationship is a critical component of the 25-year-old US-Romania Strategic Partnership.”

But Muniz also admitted that not everything is great in Romania. “The European Commission’s 2020 Country Report for Romania pointed to persistent legislative instability, unpredictable decision-making, low institutional capacity, and corruption as factors eroding investor confidence. US companies are echoing these concerns, along with shortfalls in energy and transportation infrastructures that reduce operating efficiency and increase costs. We urge the Romanian government to continue combatting corruption, holding consultations with stakeholders, and conducting impact assessments consistently before enacting legislation to improve the overall business climate and to strengthen its position among EU member nations who also seek to attract US investors,” he said.

Ramona Jurubita, Vice-President of the Foreign Investors Council and Country Managing Partner at KPMG Romania & Moldova, took over from David Muniz and explained that the panel would focus on investments, but also on possible answers to the crisis that we are experiencing today. “We’re seeing many problems in Romania today, from the workforce shortage to rising prices and the energy crisis, and we must find ways to tackle these problems and make sure that we can overcome them. One answer is in investments, specifically in US investments,” she argued.

The information & technology sector is one of the key components of the future economy. Romania is lagging behind other countries in terms of digital education, and this may impact the way the future is shaped. But while Romania as a nation has some of the worst digital education scores, a significant part of its workforce is highly qualified in IT&C. Elisabeta Moraru, Country Manager at Google Romania, noted that Google employs more than 300 developers locally, who are responsible for most of the development being carried out for smart mobile devices. “In the last five years we have done projects to improve the digital skills of more than half a million Romanians. That is a huge opportunity because the digital economy is the area where we are all trying to succeed and I believe Romania, as a digital challenger, can play a more important role in this environment.”

Teresa Shafer, Ph.D., Executive Dean for Institutional Affairs at Tiffin University, an institution that has been present in Romania for 23 years now, talked about bringing the US’s applied education practices to Romania. “What makes Romania unique is the fact that there is an open mindset, a strategic mindset among the leaders here, who want the youth and the senior leaders to think differently. Along with my responsibility of teaching and running part of our programmes, I have the distinct pleasure of working across our international campuses. And we have some that have failed, in countries that don’t have that open mindset, that want to keep doing things the way they always have. That doesn’t work, it doesn’t bring value,” Shafer argued, adding that she sees new positive changes in Romania every time she visits.

“I do believe that the workforce is Romania’s biggest asset,” said Mioara Iofciulescu, LL.M EMBA, Managing Director at Atlantis Romania, pointing out that the high number of qualified young professionals that are joining the workforce every year is crucial. “I think that US investors also see that. We are a country with hard-working people, and we have proven loyalty to our companies.”

Also on the topic of investments, Perry V. Zizzi, Managing Partner at Dentons Romania, pointed out that Romania was in a good position, geopolitically speaking. “We have been here for 25 years and we represent a large number of clients, so we have seen it all. The fact that Romania is a member of the EU and NATO makes a big difference to foreign investors, especially now when we have tanks at our doorstep. At this point, we are seeing a lot of interest not only from tech investors, but also from investors in green energy or agriculture and clients who are engaged in military procurement.”

 

On the lookout for new investments

The topic of the final panel of the 2022 Foreign Investors Summit was finding the proper balance between tradition and innovation for thriving businesses in the years to come, with a focus on FDIs originating from two of Romania’s most important economic allies, Israel and Italy. “There are many challenges regarding R&D in medtech, and the most important one is financing,” said Dr Elena Ovreiu, CEO & Co-founder of the BIOdyssey Health Innovation Hub and Senior Lecturer at the Politehnica University of Bucharest. “When I say that about financing, I am referring to Romania. What I saw in Israel was universities producing dozens of startups every year, many of which go global and are backed by research carried out inside the universities. There are many innovation tools available for startups, grants for professors, and other types of grants for different levels of innovation. There is also a great amount of collaboration between universities and hospitals, as you cannot have innovation without the involvement of medical institutions,” she explained.

The situation is different in the manufacturing sector, represented in the panel by Matteo Baldan, Group Chief Financial Officer at Martelli Europe. “In the last two years, we have seen more onshoring of manufacturing and a big increase in demand, despite the fact that we’ve been seeing pessimism on the market since February. We work only with luxury and premium brands. The biggest concern we have is finding local workforce that has the ability to work with automation and digitalization tools.”

Inflation and high energy prices will definitely impact manufacturing, but the solutions lie in more efficient processes or consumption cuts. “The most convenient approach is to reduce consumption, but this is not always possible for industrial processes. Therefore, players should try to secure fixed prices for their energy supply. For the medium term, they should look at installing PV panels in order to produce some of the energy they need,” said Bogdan Asanache, Country Manager at Ecoenergy Balkan. He added that there are some EU funds available for green energy, but they are not easy to access, so it may take a long time to get such funds.

“There are two aspects that should be highlighted. The first is the infrastructure gap and the second is the scarcity of skilled workforce. In terms of the infrastructure gap, we are certain that Romania can catch up rather quickly, but the lack of the skilled workforce is causing a bigger concern,” said H.E. Mr Alfredo Durante Mangoni, Ambassador of Italy in Romania. “Italian companies are operating in a number of sectors here, and the problem is that a significant share of Romanian workers are choosing to go abroad, where they can find better working conditions, public services, education, and healthcare. The biggest problem has to do with living conditions in areas that are not close to big cities,” he added.

H.E. Mr Reuven Azar, Ambassador of Israel in Romania, also brought up two key issues that Romania should address: permits and processing. “We are in a global crisis, which means there is less money available for investment, but if you look deeper you’ll see that there is also more reluctance about going to the stock exchange to find money. Foreign investors are looking for assets, including in real estate, and there is money waiting to come in, but all of that hits a wall due to the current issues around permits. The second big issue has to do with processing: sometimes it is caused by a gap in infrastructure, other times by an absence of labs for food sampling, for example.”

One of the biggest areas of opportunity for Romania is the agricultural sector, which should be developed more aggressively. And even though the largest farms in the country are already owned by foreign entities, there is still plenty of room left for FDIs. “Another major source of opportunities is tourism, with many Israelis now invading Romania, looking for new holiday destinations that are not too far from home. I saw some official statistics that said Israelis were the most numerous foreign visitors in Romania. This is something that we can develop much further, and we are already working on it,” Reuven Azar noted.

Identifying the right measures to improve Romania’s business environment is the most important thing authorities can do right now. “I think the education system should be reformed and that we should see a better link between the school system and the labour market. At the same time, we should try to attract European funds for smart projects in manufacturing and renewable energy. Great importance should also be placed on key infrastructure, its development across large territories of the country, as it would significantly boost the modernisation of these areas. Italian companies are currently based around Timisoara, Cluj, and Bucharest; we have an ongoing project at the embassy to assess other high-potential areas in Romania in order to generate a new wave of Italian investments,” Alfredo Durante Mangoni concluded.

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Mihai-Alexandru Cristea | 19/12/2022 | 18:45

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