How can Romania attract the FDI it needs to recover?

Mihai Cristea 24/07/2020 | 13:00

As Romania posted a negative foreign direct investment (FDI) inflow in 2020, we should look at solutions for recovery in the short and medium term. Romania must act decisively to retain its attractiveness.

By Claudiu Vrinceanu

 

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Romania had registered a decline of EUR 454 million in FDI by the end of April this year, compared to a positive figure of EUR 2.16 billion during the first four months of 2019.

Foreign direct investments are projected to plunge by 40 percent in 2020 due to the recession caused by the COVID-19 pandemic. “Developing and emerging economies are expected to be the worst affected, with export-oriented and commodity-linked investments projected to be severely impacted. The decline in FDI may transform international production and increase sustainability,” said the United Nations Conference on Trade and Development (UNCTAD). The projections are based on UNCTAD’s 2020 World Investment Report, which estimates that FDI will decline below USD 1 trillion for the first time since 2005. FDI is expected to further decline by 5-10 percent in 2021. An alarming number of executives are pessimistic about Romania’s prospects post-COVID-19, with many believing that Romania is at risk of being less or much less attractive for investment. Of course, all countries are likely to be less attractive for cross-border investment, not just Romania. One way Romania could act decisively to retain its attractiveness would be by investing in the technology, health care, and environmental industries.

“The importance of Europe’s technology and sustainability sectors in economic growth is not lost. Investors rank CleanTech first in terms of its potential for economic growth across Europe in the coming years. The digital economy sector ranks second, and the health care and well-being sector is third,” said EY representatives. But continued investment in Romania’s technology-intensive sectors is not guaranteed. The local economy needs a robust digital infrastructure, with fast and reliable connectivity.

COVID-19’s impact on market demand and operational capacity varies significantly by sector and this influences FDI as well. A global survey of investment promotion agencies conducted by the World Bank revealed that supply chain disruptions were hitting production and revenues. This is resulting in Capex and employment reductions in investment plans, particularly impacting manufacturing investments in the transportation and textile industries.

“We need to have a much more proactive approach to attracting foreign investment in the country and, at the same time, work on Romania’s image as a destination that should be on the map for potential investors,” said the president of the Foreign Investors’ Council (FIC), Ramona Jurubita.

In this framework, what should be the role of Invest Romania, our investment promotion agency, especially in the context of COVID-19? The focus should be on aftercare to secure the portfolio of actual investors, but government representatives should also scout for potential investors, identify their concerns, and facilitate their access to support services offered by local authorities. Another priority could be the digitalization of certain marketing services and creating a new online platform to promote Romania. This might be a good way to cope in the post-lockdown recovery.

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