Romania still an attractive target for foreign investment

With an increase of over 21 percent in foreign direct investment in H1 2022 compared to the same period of 2021 and with the number of new companies with foreign capital also increasing by more than 35 percent during the first six months of this year, Romania still has a lot to offer to foreign investors. Our country can take advantage of today’s geopolitical and economic conditions, as there is a lot of pressure on companies to bring their suppliers closer to home in order to attract investment.

By Anda Sebesi

Despite the uncertain economic climate and complex geopolitical situation—including war, inflation, the energy crisis, and ongoing supply chain disruptions—we see that investors’ interest in Romania has increased, and Romania has a good chance to position itself as a safe and attractive investment target. Additionally, Romania’s business environment continues to show resilience and if we look closely at what is happening on the local market, we’ll see a lot of movement.

According to the latest data published by the National Bank of Romania, direct foreign investments have recorded an increase of over 21 percent in H1 2022 over the same period of 2021. The number of new companies with foreign capital also increased by more than 35 percent during the first six months. “As we see it, Romania has promising growth premises and continues to have a lot to offer to foreign investors across multiple industry sectors. It also has the capability to attract and absorb a large part of foreign capital in the coming period, especially with the increased number of Ukrainian and Russian companies looking to relocate here, to which we can add international companies reported to be prospecting the market,” says Yitzhak Hagag, co-founder & shareholder at Hagag Development Europe.

Daniel Anghel, Board member and Chair of the FDI Task Force within the Foreign Investors’ Council (FIC), says that private businesses in Romania can benefit from one of the most rapidly accelerating economies, some of the lowest CO2 emissions in Europe, and a high share of working age population, at 68.3 percent. “Romania can benefit from the current geopolitical and economic context, which puts a lot of pressure on companies to bring their suppliers closer to their production sites in order to attract investment. As a result, many companies are targeting Central and Eastern European countries (Romania, Poland, Hungary, the Czech Republic) at the expense of Asia.”

As noted by Perry Zizzi, managing partner at Dentons Romania, legislative predictability and consistency are key factors that investors assess when deciding whether to enter the Romanian market, while transparency of lawmaking and coherence in the way laws are applied are also crucial. “In many respects, these factors remain less than adequate—an example being the ham-handed implementation of the AVMS Directive a few months ago. The Romanian Parliament put in place one of the highest taxes on streaming services in the entire European Union and imposed onerous, internally inconsistent, and unnecessary reporting obligations. This, in my view, was an unfortunate example of ‘short-termism,’ which means implementing a quick fix to help certain local film producers at the expense of attracting major investments in film and television production from leading streaming services such as Netflix, Disney+, and HBO.” Zizzi adds that those kinds of investments on the ground in Romania—besides giving jobs to actors, set designers, and service providers—serve to raise the country’s profile internationally. “A good example is Croatia, which has benefitted from additional tourism revenues because Game of Thrones was filmed there.”

We are navigating yet another difficult and unprecedented situation, amid which the business environment in Romania is being heavily influenced by external factors. But things could be brought under control if all stakeholders from the public and private sectors agreed to move in the same direction. “I believe this is a time for business solidarity, when the government needs to consider the viability and the financial strength of productive companies and to come up with measures that would help them in their sustainability and resilience efforts,” says Lucian Enaru, country general manager at Schneider Electric for Romania, the Republic of Moldova, and Armenia.

Potential improvements

Compared to other Central and Eastern European countries, we still have a lot of work to do, in terms of both the volume of investment and the sectors that are attracting the investments. Education, digitalization, and health services must be prioritised in the country’s strategy to attract investment, because we need an educated and skilled workforce in order to deliver high quality services and the kind of added value that generates healthy economic growth.

Another important step in attracting new investments in Romania is the establishment of the Agency for FDI promotion under the direct coordination of the prime minister, which was announced a month ago. “This is very important in defining a long-term strategy to attract foreign investors to Romania with a focus on high added value and competitive advantage sectors like human capital or natural resources. Finalising and publishing the Economic Atlas—the platform containing the data needed for new investments in the country’s regions (available workforce, number of industrial parks, other economic operators in the area)—is also important in highlighting Romania’s key qualities,” says Daniel Anghel from the Foreign Investors’ Council (FIC).

Star sectors for foreign investors

Despite the geopolitical challenges, Perry Zizzi says that we’re seeing a lot of confidence and optimism in the development of strategic sectors that will support Romania’s long-term economic growth, such as renewable energy, technology, transport infrastructure, and agriculture. “Of course, reforms need to be implemented to close the gap between Romania and other European countries,” Zizzi argues, adding that the country should also attempt to attract investment in production capacity in order to be able to connect to global value chains and strengthen its economic security. “If the government can act swiftly to enable and support the above-mentioned critical sectors through pragmatic, agile, and effective legislation, as well as comply with the right European policy frameworks, it could successfully reposition Romania as a stronger player.”

Jan Demeyere, co-founder & partner at Speedwell, says that since the war in Ukraine started, Romania’s potential for nearshoring has increased. “Companies are moving away from China, and I believe Romania has a huge potential to attract international production facilities. This will entangle job creation, higher wages, and investments in infrastructure,” he says. Meanwhile, Enaru of Schneider Electric says that even though IT has been a focal point for investors in the past ten years, manufacturing still provides good opportunities as long as companies set up their production facilities properly, from their blueprints and foundations. “The era of big privatisations might be over, but there is always room for greenfield investments,” says the Schneider Electric representative.

Talking about the real estate sector, Yitzhak Hagag says that it continues to be an attractive industry for foreign investors, especially when it comes to residential and logistics projects. “The commercial segment has also been gaining ground recently. Automotive, IT&C, FMCG & fashion retail also seem to be on the map of international companies looking to either enter Romania or expand their existing local operations,” he adds.

The pros and cons of investing in Romania

“The top arguments for investing in Romania are related to its business environment and its people. The cons have to do with the uncertain political situation and the lack of investments in infrastructure. Nevertheless, my impression is that a lot of effort has been made in recent years and that we will start to see major improvements in the years to come,” Demeyere says. Along similar lines, Enaru of Schneider says that paradoxically, the pros and cons are both related to people. “Romania still has excellent professionals, who are driven and experienced, but they are increasingly difficult to find and retain. But we need to quickly understand that we are competing on an international human resources market—especially at the white collar level, but also at other levels—and that we need to provide a complex and rich offering to our people in order to keep them for a long time.”

All that said, foreign investors face an endless stream of challenges: recruiting and retaining the right talent, finding reliable business partners, securing financing, resolving supply chain issues, and complying with regulatory and tax obligations and bureaucracy, to only name a few. “In addition, there is a lack of predictability that makes it almost impossible for a company, whether foreign or Romanian, to draft an accurate medium- and long-term business plan, not to mention to ensure its successful implementation,” says Yitzhak Hagag. Demeyere of Speedwell shares his view.“Romanian law is challenging as there are no precedents to rely on. So I come back to my first point: uncertainty. Legal procedures can take a very long time. As developers, we like to have a long-term outlook, and the difficulties we are facing right now are making it even more challenging.”

Compared to other countries in the region, Romania’s low level of spending on public health and education, its skill shortage or its low internet usage and broadband access are also among the key market issues. “Romania only spends 3.1 percent of GDP on education, one of the lowest levels in the EU, and it has one of lowest levels of educational attainment at the tertiary level,” says Anghel of the FIC. He adds that the biggest challenge continues to be macroeconomic volatility, including the inflation rate, which is among the highest in Europe. “Creating an efficient, predictable, and stable tax system that includes tax legislation, tax administration, and budgeting is very important in attracting investments and having real economic growth.” Last but not least, Romania still has a lot of work to do on its infrastructure, as strategic investors that build manufacturing units here need to be able to efficiently and safely deliver their products to other countries. “On top of everything else, we also need to be doing a lot more to stop the brain drain phenomenon. For years, Romania was considered an El Dorado of highly educated and polyglot professionals. Over the past decade however, its top students have been leaving the country, many of whom are never to return,” Enaru of Schneider Electric warns.

Quotes

Yitzhak Hagag, co-founder & shareholder at Hagag Development Europe: “Romania continues to have a lot to offer to foreign investors across multiple industry sectors. It also has the capability to attract and absorb a large part of foreign capital in the coming period, especially with the increased number of Ukrainian and Russian companies looking to relocate here.”

Daniel Anghel, Board member and Chair of the FDI Task Force within FIC: “Romania can benefit from the current geopolitical context, which puts a lot of pressure on companies to bring their suppliers closer to their production sites in order to attract investment. Many companies are targeting CEE countries (Romania, Poland, Hungary, the Czech Republic) at the expense of Asia.”

Lucian Enaru, country general manager at Schneider Electric for Romania, the Republic of Moldova, and Armenia: “Romania still has excellent professionals, who are driven and experienced, but they are increasingly difficult to find and retain. But we need to quickly understand that we are competing on an international human resources market—especially at the white collar level, but also at other levels.”

Perry Zizzi,, managing partner at Dentons Romania: “We’re seeing a lot of confidence and optimism in the development of strategic sectors that will support Romania’s long-term economic growth, such as renewable energy, technology, transport infrastructure, and agriculture. Of course, reforms need to be implemented to close the gap between Romania and other European countries.”

Jan Demeyere, co-founder & partner at Speedwell: “The top arguments for investing in Romania are related to its business environment and its people. The cons have to do with the uncertain political situation and the lack of investments in infrastructure. Yet, a lot of effort has been made in recent years.”

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