EU funds to fuel Romanian economic growth

Leonard Orban, minister of European Affairs, has said that Romania has few growth options remaining, and a better absorption rate of EU funds could fill the void left by foreign investments.

From a maximum of EUR 16 billion in 2008 foreign direct investments (FDI) plummeted to EUR 2 billion last year and the estimates are not optimistic for 2012 either. “This year we have ambitious targets for EU fund absorption. We want to attract EUR 3.5 billion in cohesion funds, from EUR 1 billion achieved last year, and for agriculture we want to reach EUR 2.5 billion,” said Orban.

The EUR 6 billion absorption rate will be crucial in the ongoing negotiations for the new EU budget that will be rolled out through to 2020, as Romania will be allocated fewer funds if it fails to absorb more in the current EU budget that ends in 2013.
Orban said European funds will need to address local youth unemployment, which stood at 23.4 people at end-November. Although this is better than in Spain or Greece, where the rate is close to 50 percent, the issue is still critical. Around 720,000 Romanians are currently out of work.   

Industry delocalization is another hot EU topic, from which Romania has already suffered. Nokia closed its manufacturing plant in Cluj, due to lower demand for mobile phones produced here, and the company decided last week to move all manufacturing from the EU to Asia.

Valentin Lazea, chief economist at the National Bank of Romania, argues that Europe should fight delocalization through education, not regulation. The economist thinks industries will choose destinations where labor is cheap and educated.  “In Europe, including Romania, labor is no longer cheap nor well trained, and we should look at countries with an efficient education system, because unemployment is lower there,” said Lazea.

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Romania’s economic growth for 2011 is thought to have reached 2.5 percent of GDP, but estimates from international financial institutions halved the growth this year.  

Ovidiu Posirca