Romania’s FDI position gains prominence despite regional challenges

Romania continued to attract foreign investments to the tune of EUR 3.1 billion in the first four months of this year versus the same period of last year, but the ongoing war in Ukraine and its risk of escalation could impact the local economy’s FDI position. The country is building on the significant performance of last year, when the volume of foreign investment more than doubled to reach EUR 7.2 billion.

By Ovidiu Posirca

Romania could enhance its supply chain routes to attract more investment

There’s still a hot war taking place near Romania’s border, and this could trigger the postponement of some investment decisions. Companies are still recovering from the pandemic crisis and they are now facing a different set of risks stemming from the geopolitical context.

“Companies want to invest in Romania; half of respondents say that their planned investments for this year are similar to last year’s levels, and 40 percent of respondents say they plan to invest larger amounts compared to the previous period,” says Cristian Secosan, president of the Foreign Investors’ Council (FIC), quoting the results of a business sentiment index published at the end of March.

Ionut Tata, the CEO of the Iceberg Plus consultancy, suggests that long-term FDI strategies will be very much divided between alternate pathways including near-shoring, friend-shoring, and telemigration.

“Some companies will choose to nearshore capacities that they would previously operate overseas, gambling on the potential of automation and AI to reduce labour expenditures and remain competitive from a cost perspective. Others will go on the friend shoring path, but Romania might not be among the first choices for neither American nor Western European investors, due to its potential exposure to the Ukraine conflict,” Tata tells BR. He adds that “safer” alternatives in similar cost brackets within the EU include Portugal, Greece, Croatia or Bulgaria. Countries in the Western Balkans can also meet the demand, although they are not EU members yet. For telemigration, Romania remains a strong hub with ICT-enabled and BPO-based sectors.

As a member of the European Union (EU) and NATO, Romania's profile as a safe destination for foreign investors has consolidated over the past decades, but it might still not be enough in the competition for capital.

Ionut Simion, president of AmCham Romania, suggested that the country’s objectives should be to join the Organisation for Economic Co-operation and Development (OECD) and use the EUR 30 billion available through the National Recovery and Resilience Plan (PNRR). Romania kicked off negotiations for OECD membership in early 2022, but there is no deadline for the completion of the accession process. Meanwhile, PNRR funds could help Romania improve its renewable energy capacities and accelerate its digital transformation and investments in education. According to Ionut Sas, first vice president of AmCham Romania, the country could enhance its supply chain routes to attract more investment. In May-June, AmCham conducted a survey among 168 of its member companies which showed that

the rising inflation is the biggest risk for Romania’s economy. Next are the increase in energy prices and the war in Ukraine. Rising financing costs are also mentioned by nearly to provide competitive support for FDIs in key sectors, through other governmental or EU programmes, such as the Just Transition Fund. Beyond that, the leanest way to attract

foreign investment would be to establish a friendly framework for companies engaging in telemigration, thus opening branches, and employing staff under a decentralised model, with local hub-type offices or even remote work at the core of operations,” Tata adds. may also be subject to examination and authorisation if, by their nature, they can have a significant impact on security or public order or present significant risks to them,” Loredana Popescu, partner at law firm Popescu & Asociatii, tells BR. The screening is part of an EU-wide effort to check the capital sources and ownership structure of foreign investors who want to do business in Europe. Approval from the CEISD shall be issued within a maximum of 60 days from the date on which a notification is declared complete. “Violating the obligation to notify the implementation of a foreign direct investment or the

half the companies surveyed, of which 43 percent are large taxpayers.

“Against the backdrop of geopolitical events, but also as a consequence of the vulnerabilities revealed by the pandemic, investor interest in Romania has increased, and it is an opportunity to position ourselves as a safe and attractive destination for investors,” Sas argues. Attracting new investments through friend shoring will see Romania working more closely with allies, including the US and EU members, to increase production of critical goods and reduce reliance on imports from China or Russia. However, public statements from local decision-makers on such a strategy have been rather limited until now. The Iceberg Plus CEO suggests that Romania could have played a better card in its friend shoring strategies if it had allocated a larger amount of the funds from its PNRR to support private investments by both large corporates and local SMEs in key value chains. “Still, there is some potential left NON-EU INVESTORS UNDER HIGHER SCRUTINY IN ROMANIA

Investors outside the EU that are planning to allocate at least EUR 2 million for projects in Romania would have to be screened by the Commission for the Examination of Foreign Direct Investment (CEISD) and obtain approval for the implementation of the investment. “Exceptionally, foreign direct investments not exceeding the threshold of EUR 2 million provision of inaccurate, incomplete or misleading information, as well as non-compliant or commitment-breaching enforcement constitutes a contravention that shall be sanctioned by the Competition Council with a fine of up to 10 percent of the total global turnover of the financial year preceding the sanction,” Popescu adds. Meanwhile, the FIC president points out that Romanian authorities should implement a high value-added investment policy with a multiplier effect on all sectors of the economy, while also establishing the strategic sectors for investments in a bid to boost FDI volumes.