Romania's economy Abace
Before World War II, Romania’s economy entered a new chapter and period with the Adrianople Treaty in 1829. Until then, and before World War II, Romania was the second-largest producer of oil and food in Europe. Currently, the country ranks seventh among major economies in terms of purchasing power parity. In the era of modernity, centuries of Turkish control and dominance over Romania’s economy came to an end. During this period, Romania’s economy experienced significant growth for several reasons, which will be discussed later, including the discovery and industrial exploitation of oil in 1857, the implementation of radical agricultural reforms, the adoption of a new constitution, and the establishment of a democratic framework that led to the political union of Wallachia and Moldavia in 1859, as well as the construction of an extensive railway system during the reign of King Carol I.
Following the dissolution and collapse of neighboring Russian and Austrian empires due to World War I, several Romanian provinces aligned and united with the Kingdom of Romania, establishing and forming the modern Romanian state as it exists today. Romania’s industrial production doubled between 1923 and 1938, despite the impacts of the Great Depression on the country’s economy. Romania’s economy ranks tenth in the European Union in terms of gross domestic product. The country’s economy can be described as a high-income economy with a very high human development index and a skilled workforce.
Romania, a Leading Investment Destination
According to recently released statistics, Romania’s economy, with an annual output of $585 billion, ranks 36th globally. In recent years, Romania has become a leading destination in Central and Eastern Europe for foreign direct investment. Romania is also the largest producer of electronics and equipment in Central and Eastern Europe. Foreign direct investment in the country since 1989 has exceeded $170 billion, a significant figure for the nation. Over the past two decades, Romania has also become a major hub for mobile technology, information security, and related hardware research. Romania’s top exports include machinery, vehicles, transportation equipment, chemical goods, electrical equipment, food products, electronic products, pharmaceuticals, basic and heavy metals, rubber, and plastics, which account for a significant portion of the country’s revenue.
In recent years, Romania has seen a 9.3% increase in the import of goods and services, while exports grew by 7.6% in 2016 compared to 2015. According to the latest forecasts by the CNP, or National Forecast Commission, exports of goods and services were expected to grow by 5.6% in 2017, while imports increased by 8.5%. Romania’s industry accounted for 33.6% of the country’s gross domestic product (GDP) in the first half of 2018.
Romania's Exports
In recent years, Romania has enjoyed the highest economic growth rate in the European Union. In 2020, the country’s GDP, in terms of purchasing power standards, reached 72% of the EU average, up from 44% in 2007, marking the highest growth rate in the EU-27. Romania is a leading destination in Central and Eastern Europe for foreign direct investment. Total foreign direct investment in the country since 1989 has exceeded $170 billion. Romania is the largest electronics producer in Central and Eastern Europe. Over the past 20 years, Romania has also become a major hub for mobile technology, information security, and related hardware research. The country is a regional leader in fields such as information technology and motor vehicle production. Bucharest, the capital, is one of the leading financial and industrial centers in Eastern Europe.
Romania’s top 10 exports include vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transportation equipment, basic metals, food products, and rubber and plastics. Imports of goods and services have increased by 9.3%, while exports grew by 7.6% in 2016 compared to 2015. According to the latest CNP (National Forecast Commission) projections, exports of goods and services were expected to grow by 5.6% in 2017, while imports increased by 8.5%. Industry in Romania accounted for 33.6% of the gross domestic product (GDP) in the first half of 2018.
Romania's Economic Recession
Following the transition to a free market after the end of the communist era, Romania experienced a severe economic recession. The country’s global economic ranking dropped from 0.8% in 1983 to 0.3% in 1993, suffering a significant decline. Subsequently, 70% of the remaining ownership of enterprises was transferred to the State Ownership Fund, with the decision to sell its shares at a minimum rate of 10% per year. The privatization of industry began with the transfer of 30% of the shares of approximately 6,000 state-owned companies to five private ownership funds in 1992, where every citizen who had reached the legal age received an ownership certificate.
The privatization law also called for the direct sale of about 30 specific and selected companies and the sale of “assets,” meaning smaller business units capable of remaining viable, from larger companies.
Inflation in Romania was 7.8% in 2008, up from 4.8% in 2007, as estimated and announced by the National Bank of Romania. The inflation rate was around 6% in 2006, as reported by the National Bank of Romania in March 2007, at 3.66%. It is noteworthy that since 2001, Romania’s economy has consistently experienced growth of approximately 6-8%. Therefore, based on purchasing power parity, Romania’s per capita GDP in 2008 was projected to range between $12,200 and $14,064.
Romania, the Largest U.S. Partner
Before Romania’s first president, Nicolae Ceaușescu, relinquished the Most Favored Nation (MFN) status in 1988, the country was considered the largest U.S. trading partner in Eastern Europe. However, after this event, U.S. tariffs on Romanian products increased, and this partnership experienced a significant decline. Congress passed the restoration of MFN status, meaning that a country receiving this treatment must nominally enjoy equal trade benefits as the “most favored nation” from the country granting such status. This law was enacted on November 8, 1993, as part of a new bilateral trade agreement. Tariffs on most Romanian products were reduced to zero in February 1994 with Romania’s inclusion in the Generalized System of Preferences.
During the later years of Nicolae Ceaușescu’s presidency, Romania signed significant contracts with several developing countries, particularly Iraq, for oil-related projects. At that time, Romania’s major exports to the United States included footwear, clothing, steel, and chemicals. The European Free Trade Association in 1993, stricter access to European markets, and the establishment of a basic framework for greater economic integration enabled Romania to officially join the European Union in 2007.
Romania's EU Membership
Romania is part of the European single market, which has over 447 million consumers. On January 1, 2007, Romania and Bulgaria joined the European Union, granting the EU access to the Black Sea. This led to the immediate liberalization of international trade for these two countries. With EU membership, several domestic trade policies were determined by agreements among EU members and EU regulations for the newly joined country. Low interest rates ensure the availability of financial resources for investment and consumption. For example, a boom in the real estate market began around 2000 and has not yet subsided, continuing to rise. However, annual inflation in Romania’s economy is unpredictable and varies across years, ranging from a low of 2.3% to a high of 7.8% in the mid-2000s, between 2003 and 2008.
Romania introduced a flat tax rate of 16% on January 1, 2005, to improve tax collection rates. Romania subsequently enjoyed the lowest tax burden in the European Union until Bulgaria adopted a flat tax rate of 10% in 2007. According to Bloomberg, the country’s economic growth has progressed at the fastest pace since 2008. The country is now considered the next startup technology hub in the European Union. Today, with Romania’s digital infrastructure ranking higher than other Central and Eastern European countries, it has become an attractive location for starting a technology business.
Romania's Industry and Economy Status
One of the main indicators for assessing a country’s economy is the state of its industry. In this section of the article, we examine Romania’s industry status to provide an accurate assessment of its economy. It should be noted that our reference in this text is the World Bank’s data. This data is based on the latest World Bank information published in 2019. According to these statistics, Romania’s industrial value added was approximately $70 billion. This amount has neither increased nor decreased significantly. In fact, Romania’s economy has neither experienced significant growth nor decline. Between 2010 and 2019, Romania’s industrial value added experienced fluctuations, causing the economy to remain relatively stable overall.
Romania’s economy has faced sinusoidal fluctuations in recent years. It should be noted that from 2015 to 2019, this trend was upward. During this period, Romania’s economy performed slightly better than in the past, following an almost ascending trend. The largest increase in industrial value added in Romania occurred in 2017, when the country’s industry experienced a 1.4% growth compared to the previous year. However, it must be said that Romania is still far from becoming an industrial nation.
Global Retail Index
Another aspect we examine in assessing Romania’s economy is the Global Retail Index. Regarding the Global Retail Index, it should be noted that this index measures consumer demand for final goods. It is determined by measuring the purchase of durable and non-durable goods over a specific period. The Global Retail Index is considered a broad economic indicator. Therefore, retail reports are always among the most up-to-date reports, as they provide data that is only a few weeks old. Regarding Romania’s economy and the Global Retail Index, it should be noted that Romania is considered a gateway to Eastern Europe. With a population of approximately 20 million, the country is a development target for foreign retailers.
For countries aiming to enter Eastern Europe, Romania is highly significant. This global interest in selling goods to the country impacts Romania’s economy. Romania’s retail sector expanded in 2016, representing 200,000 square meters of retail space. It should be noted that significant changes in consumer prices can affect retail index figures. Accurate retail measurement is crucial for assessing a country’s economic health. Therefore, to understand Romania’s economy, it is essential to continuously monitor its Global Retail Index.
Romania's Economy After Communism
After the communist era in Romania, foreign direct investment was the fastest and most reliable way for Romania to achieve its key, influential, and decisive goals, namely entrepreneurial and managerial skills. Until 2018, total foreign direct investment in Romania amounted to €81 billion, with 63% of the €51 billion being greenfield investments. Based on official statistics provided by the country, the top ten foreign direct investment shares by country of origin in 2018 were as follows: Netherlands 23.9%, Germany 12.7%, Austria 12%, Italy 9.5%, Cyprus 6.2%, France 6%, Switzerland 4.5%, Luxembourg 2.4%, Belgium 2.2%, and the United Kingdom 1.2%.
In recent years, Romania, with over 15.7 million domestic and foreign tourists in 2018, is considered a popular tourist destination. Romania’s tourism sector suffered a significant blow during the COVID-19 pandemic, with a 68% decrease in foreign visitors in 2020, but fortunately, it regained an upward trend and recovered in 2022. Romania boasts cities with cultural attractions such as Bucharest, Timișoara, Constanța, Iași, Cluj-Napoca, or Alba Iulia, coastal resorts, ski resorts, and pristine rural areas with well-preserved traditional structures.
Conclusion
In the 1970s, the Romanian government borrowed heavily from the West to build a large industrial base. President Ceaușescu announced in the 1970s that he would repay the country’s $11 billion debt within the same decade. Following this policy, austerity measures were implemented, which, on one hand, facilitated the repayment of foreign debt but, on the other, led to a severe decline in living standards. Since the fall of the Ceaușescu regime in 1989, successive governments have sought to establish their market economy in a Western style. The pace of restructuring was slow, but by 1994, the legal foundation for a market economy was quite suitable. By this time, Romania’s economy had reached commendable stability, making it a destination for many investments. Romania’s economy continues to grow at a good pace, and its economic ranking improves each year. If you are determined to invest in this country and profit, you can entrust the immigration process to RoVisa Group and focus on your investment.