BR ANALYSIS. Huge potential for foreign investments in Romania

Newsroom 14/10/2019 | 08:53

With Romania having the potential to remain one of the leaders of economic growth in Europe, the local business environment continues to attract foreign investments. While the FDI stock as of December 31, 2018 amounted to EUR 81.1 billion, according to the most recent data released by The National Bank of Romania (BNR), our country is still facing big challenges as the economic dashboard indicates that industrial output and exports have entered the red zone since the beginning of the summer, while soaring wages have continued to boost retail sales and imports.

By Anda Sebesi, Sorin Melenciuc and Aurel Constantin

The value of foreign direct investment (FDI) in Romania in 2018 was revised upwards by the National Bank of Romania (BNR) to EUR 5.27 billion, from the EUR 4.94 billion the central bank had initially reported in February. FDI stock as of 31 December 2018 amounted to EUR 81.1 billion, with EUR 57.5 billion in equity positions, including reinvestment of earnings, and EUR 23.6 million in debt positions.

The Romanian economy grew by 5 percent in the first quarter of 2019, driven by a rise in domestic consumption, which was fueled by wage increases. This year, the domestic economy is set to expand by 3.3 percent, according to an estimate of the European Commission, the executive arm of the European Union. Meanwhile, the Eurozone will grow by 1.2 percent, while the overall growth in the EU bloc will stand at 1.4 percent. On this backdrop, Romania will remain one of the economies with the fastest GDP expansion in the region. 


To answer some of the most pressing questions about Romania’s future, Business Review proudly presents the 6th edition of the Foreign Investors Summit, the event that brings together foreign business communities, state authorities and diplomats. Join us, professionals across the main industries, an exceptional line-up of speakers and representatives of major FDIs in our country, for a discussion on leadership and ways to build a brighter and more sustainable future for Romania.

“Undoubtedly, Romania will remain the leader of economic growth in Europe, hence – as in the case of many Western European companies – we were actively working on entering this dynamically developing – although still very young – market. Its advantages – like most emerging markets – are additionally lower entry barriers and the huge potential of Romanian entrepreneurs, who, following the development of the local economy, are starting their own business activities, looking for fast and attractive sources of financing. Nevertheless, access to capital can be hindered for local entrepreneurs,” says Klaudiusz Sytek, president of board at Aforti Holding, adding that Romania was the first foreign market to which Aforti Group expanded. “It is the country with one of the largest and most dynamically developing economies on the continent, so it was a rather logical step for us. We first entered the market with our fintech Aforti Exchange, which offers online currency exchange services, in October 2017, in order to “test” the market and see whether it would live up to its potential,” he says.

According to Sytek, for Polish companies, an expansion to the Romanian market, which is very similar to the Polish one, gives them the opportunity to grow their business as the market in Poland is already mature and requires different strategies than it did a few years ago, when it was a market of rapid growth, as Romania is today.

“In Romania, we see two major trends that are attractive for Polish businesses – on the retail side, household consumption is very high and consistently growing quarter to quarter, sustained by the consistent wage growth. For B2B services providers, like Aforti, we see on the one hand the increase in the entrepreneurial mindset, with more and more Romanians starting their own businesses, while on the other hand, there is still low competition among service providers on the local market. Both these trends are further enhanced by the size of Romania’s population, of 20 million, which ensures the appropriate market size to build meaningful businesses,” explains the representative of Aforti Holding.

The local economy has maintained high growth rates this year, boosted by higher earnings and spending, but two major engines have turned red, raising concerns regarding the risk of a looming downturn. The economic dashboard indicates that industrial output and exports have entered the red zone since the beginning of the summer, while soaring wages continue to boost retail sales and imports.

These opposite trends are adding pressure on the already high trade and current account deficits. 

“For the first time since the great recession, high frequency data offers hard evidence of trouble in the tradable sector of the economy,” Ciprian Dascalu, chief economist at ING Bank Romania, wrote in a research note. In July, “industrial data showed annual contraction on all fronts: mining (-7.4 percent), energy (-4.7 percent) and, most importantly, manufacturing (-4.4 percent). To add insult to injury, the previous month’s data was revised downward,” he added. Worse, experts now believe that the lagged contagion from softer demand in Romania’s main trading partner countries is just starting to show up in the data, “as a likely build-up in inventories kept things afloat for a while”. For the moment, weaker external demand is still offset by high domestic consumption and by booming investment in the construction sector, helped by the low base effect and fiscal facilities.


Despite higher deficits, considered unsustainable by many, the government increased spending on wages and pensions hoping to get some traction for ruling party PSD in the upcoming elections. 

Starting in September, pensions increased by 15 percent, a measure that puts pressure on both fiscal and external deficits. 

“The current account deficit rose to 4.5 percent of GDP in 2018, the highest ratio in the EU. The key driver was the continued deterioration of merchandise trade balance on the back of import-intensive growth and slower growth of exports of goods and services,” IMF experts noted in their latest report on Romania. “These reflected the eroding competitiveness of Romanian producers in domestic and export markets as well as the euro area slowdown,” they added.

Following the review of the local economy, the IMF emphasized the need to re-energize the structural reform agenda to improve Romania’s medium-term growth prospects. The executive directors of the IMF suggest that public investment should be increased by focusing on public infrastructure and achieving a more efficient absorption of EU funds, and called for moving ahead with the state-owned enterprise reform agenda. However, many Romanian experts doubt that such measures would be implemented during a busy electoral period.

The Romanian Fiscal Council, led by Daniel Daianu, recently said that the current fiscal-budgetary policy entails significant risks generated internally by the severe tightening of the budgetary construction. This is determined by the very low level of tax revenues and the high degree of spending rigidity, by excessively ambitious commitments in relation to the available resources. 

“I think the biggest challenge at this moment regarding the Romanian market is the question of how sustainable the growth is, how long it can keep growing at the current pace and what happens when it is no longer be able to do so. The so-called country risk has to be taken into consideration by all the foreign players who are already present or want to enter Romania,” says Sytek of Aforti Holding.


At the same time, the external context is characterized by a slowdown of economic activity as well as by the effects of the trade war between major economies. For Romania, the biggest threat comes from the slowdown of the German economy, accompanied by a visible collapse in car production.

As of June, German annualized car production plummeted to 4.7 million (about one million less compared to the 2015-17 average annual production) and reached a level close to the lows seen in 2009.

Romania is an important spare parts supplier of German car manufacturing companies and their troubles threaten to hit local suppliers and exports hard in the following months.


As pundits say, the Romanian property sector is facing the same challenges as the rest of the economy, stemming from fiscal instability, the lack of public investments in physical infrastructure and the quality of public policies and administration. In fact, these are some of the reasons why the volume and size of the Romanian real estate market place the country behind others in CEE. “The Romanian market has not exceeded EUR 1 billion per year in the last three years and has not reached the levels recorded before the economic crisis, even though the rest of the region had better performance. However, this expected market downturn will not be comparable to what happened in the previous economic crisis as the financial situation is now more stable. A market correction is more likely to take place, due to the shift in global forces and issues such as the trade agreement between China and the US, Brexit, and the situation in the Eurozone,” said Francesca Postolache, partner, assurance services at PwC Romania earlier this year for Business Review. 

Along similar lines, Fulga Dinu, country manager operations at Immofinanz Romania, thinks the local real estate market is definitely on the right path. “Recently I have noticed a healthiness and good structure of the real estate market thanks to experienced developers operating here who understand the ingredients of this business. This automatically leads to a good product that is immediately targeted by long-term investors, besides the fact that more and more local developers and investors are appearing, proving the high level of trust in the Romanian market,” says Dinu of Immofinanz Romania.

Elsewhere, investment activity in the Romanian property sector has pointed to a maturing industry that has also boosted confidence levels in the field among national and international companies. In 2018, the investment volume on the local market climbed to almost EUR 1 billion with Romanian investors starting to gain visibility on all segments, ranging from office to residential and logistics. In fact, domestic investors generated a quarter of the total investment volume in real estate, followed by South-African funds, with a share of 18 percent, according to research conducted by real estate consultancy firm CBRE Romania. 

“On a growth pattern but with a more cautious optimism reflected in the forecast figures of the main macroeconomic indicators, 2019 is shaping up to be a remarkable year with high transactional activity, as major real estate properties and portfolios are in different purchasing stages,” said Daniela Boca, head of research at CBRE Romania

As for office development in Romania, developers are adapting to the preferences of new generations of employees and changing the very idea of the offer. Developers now design projects for complex living, providing good quality of life and urban regeneration rather than just work premises. The Romanian capital only has another 216,000 sqm under development in the office segment, on top of the 3 million sqm already in operation, of which 51 percent are in Class A projects, pundits say. Last but not least, in large Romanian cities, traffic congestion is leading property developers to design projects that create new links between office and living spaces. 

“Although it is true that most foreign investors have decided to invest in the office sector, having a more profitable overview of their capital, more and more companies have shifted their priorities, considering the development of residential projects as part of a larger mixed-use development. There are a great number of examples on the Romanian market nowadays, besides us,” says Antoniu Panait, managing director at Vastint Romania. With a vast experience in many other cities in Europe, Vastint Romania has also decided to go further with a project that is meant to nicely complement its existing portfolio of office buildings, situated in key areas of Bucharest. “The project will have almost 600,000 sqm of built surface and one of the most relevant details about this project besides the fact that is located in District 1 of Bucharest is that it will have great focus on green areas, in order to increase the quality of life for those who choose to live there,” adds Panait.

As pundits say, the residential market in Romania is becoming more and more stable, with healthy and not-so-spectacular price evolutions. Potential buyers are increasingly interested in medium and medium-high apartments, located in areas with easy access to public transport, schools, parks, shopping centers and other social facilities. 

“As expected, due to the high demands of clients, who are now better informed and also more aware of their needs, the construction of residential projects has evolved a lot and the market is continuously developing. This growth has led to more conscious and optimized spaces that aim to meet the needs of clients who are more selective and have a clear overview of their choices,” says Panait. He highlights the fact that since a large number of constructions are old, all the new players on the market have chosen unexploited areas, most of them developing residential projects near Bucharest. “Spending less time in traffic and having more time for family and hobbies are the most important assets in a city that is getting extremely crowded. A good location in the city, with easy access to all the important daily destinations by alternative transportation, mixed with facilities that can ease the lives of the people living in a residential project are the trends that will define the next period,” adds the managing director of Vastint Romania.   

As for the attractiveness of the local real estate market, Dinu of Immofinanz says that Romania still offers very attractive yields, with a gap of approximately over 2 percent to neighboring countries. “We see an increasing transaction volume. A mild yield compression mainly refers to the good quality of products and demand from the investors’ side. More generally, economic stability and the overall interest policy are important factors for yield development,” she says. Dinu adds that Immofinanz’s focus on the office and retail segments is the consequence of the company’s overall portfolio strategy. “Therefore, we have decided to exit the residential segment. But there is definitely still enough space on the residential market for new projects as shown by statistics: Romania still has a lower stock compared to other CEE countries and, in addition, the yields obtained by developers or investors are still attractive. Added to this is a low level of taxation, which completes the larger picture of opportunities,” concludes the Immofinanz Romania representative. 


The IT industry remains one of the top investments in Romania, according to an analysis by KeysFin. US companies operating in Romania recorded a total turnover of EUR 347 million and a net profit of EUR 25.8 million in 2017, resulting in a 7.5 percent profit margin. 

Companies like Microsoft, Stefanini, Amazon or Adobe account for approximately 34 percent of the total profit made by US companies in Romania, reaching EUR 76 million.

“The IT sector in Romania has grown rapidly in recent years, and American companies, recognised worldwide for their quick ability to see business opportunities, have had a major contribution to this success. We are beginning to see the results of their strategy to co-opt Romanian employees in large projects, but we believe that the potential of this industry has not yet been reached, and that the next few years will surely bring more returns on American investments in Romania, in the IT sector,” said Roxana Popescu, the managing director of KeysFin.

One of the biggest investments made in 2019 in the Romanian IT industry was UiPath’s latest funding round. UiPath, the leading robotic process automation (RPA) company founded by two Romanian entrepreneurs, raised USD 568 million in a Series D investment round to reach a valuation of USD 7 billion, making it the fastest growing and highest-valued AI enterprise software company worldwide.

On another level, we can find that several investments have recently been made in the country. Blugento, a provider of e-commerce solutions based on the Magento platform, received a strategic investment of EUR 1 million, following the signing of an investment agreement with Polish IT group R22. The partnership involved the sale of a 31 percent stake and was aimed to develop the platform and expand the Blugento business on several European markets, the first being Poland and France. This was the second investment Blugento managed to attract in two years. The first capital injection, worth EUR 120,000, took place in June 2017.

Finqware, a Romanian fintech startup that is preparing to launch on the European bank aggregation market, received a seed investment of EUR 180,000 from Gapminder VC. It was the company’s first round of external financing following its establishment in 2018, and Finqware is planning to become the market leader for Open Banking in Europe in the coming years. 

The amount attracted by the startup founded by Cosmin Cosma, Dumitru Taraianu and Danut Covalciuc will be used to further develop its solution and infrastructure. The company’s objective is for its customers to be part of the first wave of adoption of Open Banking in the autumn of this year.


The most important investment in the communication sector in 2019, so far, has been Vodafone Romania’s takeover of UPC Romania. The deal was announced in 2018 by the two companies at the international level and it has involved the sale of Liberty Global (UPC’s owner) operations in 6 European countries. Vodafone agreed to pay EUR 10.8 billion in cash and assume EUR 7.6 billion in outstanding debt, in the biggest deal completed by Vodafone since 2000. The acquisition is one of the most significant in the Romanian telecom industry and it promises to bring higher quality communications services to customers after combining Vodafone’s expertise in mobile services with the proficiency of UPC specialists in TV and fixed services. The transaction was completed this year and Vodafone immediately launched the first combined offers to clients. 

While the most important investment in the telecommunications industry in 2019 will be the tender for the 5G frequency spectrum, the market is waiting for another huge takeover: the sale of Telekom Romania Communications (formerly Romtelecom) and Telekom Romania Mobile Communications (formerly Cosmote). We know for sure that the owners at Deutsche Telekom are looking to sell the operations in Romania, but it is still unclear who will buy it.

So far, after rumors circulated about Russian and Bulgarian investors, the media has reported on talks between Telekom and Orange for the sale of the former Romtelecom, which operates the cable TV and fixed-internet division, and between Telekom and RCS&RDS for the sale of the mobile communications division. None of the companies involved have yet commented on the information, so nothing is official. But if the sale is eventually completed this year, we shall have another huge deal, just as big as the Vodafone-UPC takeover. 


The most important takeover this year was the one in which EximBank and the National Bank of Greece signed an acquisition agreement for 99.28 percent of Banca Romaneasca. As a result of this transaction, EximBank will operate for the first time in the retail banking segment in Romania, thus becoming a universal bank, with a market share of 3 percent, positioning the bank among the top financial-banking institutions in Romania.

“I am pleased to announce this transaction, which creates a Romanian bank of reference that will showcase both the experience of the Romanian Bank in the retail banking segment, as well as the ability demonstrated over time by EximBank to support the local business environment,” said Traian Halalai, the CEO of EximBank.

The amount paid by Eximbank has not been made public, but it beat the offers made by First Bank or Patria Bank, another company in full ascension. The National Bank of Romania rejected, in 2018, OTP Bank’s takeover of Banca Romaneasca, not allowing the EUR 72 million offer to be finalised. First Bank, owned by the American investment fund J.C. Flowers, which had been interested in Banca Romaneasca, bought Piraeus Bank last year and Leumi Bank at the beginning of 2019. It has managed to reach a market share of about 1.8 percent and it is still looking for investments. “It is very likely that some of the smallest banks in the system will be bought by bigger players. It is a trend that we can also see in Europe and it is good for the local banking system,” said Dominic Bruynseels, former CEO at First Bank.  

The takeover of Marfin Bank by Vista Bank, part of Vardinogiannis group, was finalised this year and the brand was changed. The bank has 30 branches in Romania, of which 9 are in Bucharest, and it is planning to double its market share to 1 percent in the coming year. Antonios Mouzas, CEO of Vista Bank Romania stated that the change of name to Vista Bank Romania is the last step of an in-depth process of business consolidation, which included the EUR 30 million capital increase in September last year, the expansion of the management team, as well as the improvement of the product and services portfolio.


The Romanian energy sector is diversified but obsolete, and it needs investment, good management and functional markets. Today, the best hopes for investment are related to the Black Sea offshore gas projects. Two major projects are now more advanced than the others and could boost the entire sector. The biggest one, Neptun Deep, is being developed by a joint venture between US giant ExxonMobil and Austria’s OMV group.

In 2012, the two companies said they had discovered between 42 and 84 billion cubic meters of gas reserves around 170 km offshore. But this year, ExxonMobil and OMV Petrom decided to freeze the project due to both the offshore law and emergency ordinance 114/2018, which imposed new taxes on energy players.

The other major project, the Midia Gas Development Project, is operated by Black Sea Oil & Gas, together with two co-venture partners. Despite regulatory problems, the consortium decided to go ahead with the project and approved an investment of USD 400 million. Many experts say that Black Sea resources are a great opportunity for both the Romanian economy and the local energy sector.

But there are two key issues for the success of these projects: building transport infrastructure and a functional market to sell the gas. For Romania, the key pipeline project is BRUA. But this project “faces severe problems because of Hungary’s signaled opposition to transit arrangements to Austria, a move with potential consequences for the development of Romania’s offshore gas,” John M. Roberts, a UK-based senior fellow at the Atlantic Council’s Eurasia Center and Global Energy Center, said in a recent report. 

“Overall, current work on BRUA is intended to fulfil two purposes: to serve as a limited set of interconnectors in the four countries through which BRUA passes, and to enable production from Romania’s offshore gas fields to reach both the domestic Romanian market and, in a limited fashion, export markets,” John M. Roberts wrote.

Other hopes are related to the revival of renewable energy sources, following years of investment freezes due to a cut in subsidies. The total power of local wind turbines is 3,029 MW, but some experts say that doubling the production capacity of wind power could solve some of the problems Romania is now facing.

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