The FIC is a strong partner of the Romanian Government in identifying the most effective solutions and measures to attract Foreign Direct Investment (FDI). Attracting new FDI is vital for economic progress, as it results in capital, jobs, as well as knowledge exchange. Romania offers many interesting investment opportunities, with its highly trained labour force, abundant natural resources, geographical advantages that facilitate transport of goods and one of the largest markets in Central and Eastern Europe. The contribution of FDI to the Romanian economy has multiple ramifications: in addition to the direct impact consisting of the gross value added or the number of employees, there are also other effects, such as the impact of the transfer of know-how and technology on productivity.
The project Va Urma, developed by the FIC, with contributions from economic leaders, together with the Prime Minister of Romania, members of the Government and Parliament, estimated the investment which Romania needs up to 2040 to support economic development, i.e. the volume of investment required to maintain a high rate of economic growth in the new context guided by sustainability, including emissions reduction- reaching the net zero target in 2050 at EU level. Two important timeframes for the investment effort were identified: (1) an annual investment effort of around 34-35% of GDP for the period 2024-2030 and (2) an average annual additional investment effort of around 28-31% of GDP for the period 2031-2040.
The FIC welcomes the measures taken by the Government to stimulate foreign investment. The Romanian Agency for Investment and Foreign Trade (ARICE) can play a crucial role in publicising investment opportunities by organising direct meetings between foreign investors and government and local authorities under the authority of the Government. Moreover, the development of the Economic Atlas has been beneficial. This is an extremely useful tool for Romanian and foreign investors who want to develop businesses in Romania. It is a platform where economic and social information relevant in identifying investment opportunities in a particular region of the country will be uploaded.
Moreover, investments were an important component in the preparation of the 2024 budget, as the overall expenditures planned for public investment was 120.1 billion lei – capital expenditure from the state budget, local budgets, and European funds (grants and loans)-, representing approximately 6.9% of GDP. The role of public investment is crucial to leverage the impact of foreign direct investment and to create future opportunities for the private sector. It is to be hoped that a high level of public support will be maintained in the next few years to improve the potential growth rate of the Romanian economy.
The publication in the Official Journal of Romania of the legislation establishing the Romanian Agency for Investments and Foreign Trade (ARICE) under the authority of the Government and coordinated by the Prime Minister is a first step in aligning Romania with European best practices for attracting foreign investment. This legislation creates a dedicated body for promoting investment (“a one-stop shop”) whose main objective is to encourage investment in Romania through foreign-capital companies, as well as to stimulate trade.
However, during the last meeting held by FIC representatives with the President of ARICE, several challenges were highlighted, including access to basic resources and an insufficient budget for promotion. Despite these obstacles, the role of this institution remains crucial. A body responsible for promoting and attracting FDI can provide various advantages, such as attracting foreign companies, strengthening upstream connections between transnational companies and local firms, encouraging companies to develop subsidiaries, and bringing higher value-added segments of the production chain into the host country. It can also foster stronger connections between industry and universities, develop domestic human capital, and use FDI to promote decentralised economic growth or the generation of sectoral industrial clusters.
This entity must function as a partner in the relationship with potential investors, as well as with existing ones, in order to help them establish or expand their operations and ensure a stronger presence for Romania in international markets.
The efficiency of the agency will be maximised if it reports to a supervisory board that includes representatives from all institutions relevant to attracting foreign investment (Ministry of Finance, Ministry of the Economy, Ministry of Foreign Affairs, Presidential Administration) and even representatives of embassies and the private sector, who could bring more experience, contribute to its efficiency and hence enhance Romania’s image as a destination for investment. Direct reporting to the Prime Minister and the existence of a supervisory board with multi-institutional representation would be a signal that the entire government is orientated towards performance and reforms in the direction of attracting FDI, and that this is not just a consequence of the efforts of one small unit or of representatives of the private sector.
To maximise the efficiency of this institution, aspects related to the organisation and functioning of the agency must be considered:
The agency should work with the government, local authorities and the industrial parks in Romania in order to identify the areas which should be supported, the tax facilities that can be offered, the available qualified labour, the future contribution of the educational system etc.
The agency should have a similar size to other high-performance agencies in other comparable EU Member States (Hungary, Poland, Czech Republic, etc.) and be staffed with people from similar backgrounds to those who work in those agencies. In OECD countries, almost 94% of the employees of investment promotion agencies have a university degree and only around 6% of them do not. Moreover, 41% of the employees have post-graduate studies (Master’s degree, PhD). The professional experience of most employees is based on activity in the private sector (36%) or mixed public-private sector (37%) and only 24% have worked only in the public sector. Based on the experience of other countries, an organisational chart of a typical agency at central level can be suggested: approximately 40 operational employees (a number close to countries such as Greece, Spain, and the Czech Republic). Depending on funding, capacity, the organisational chart and the responsibilities of each directorate, one unit should then be replicated regionally, in each of the other 7 regions.
The agency should also play an important role in the development of the local capacity to manage foreign investors who come to prospect a particular area to choose the location for investments. A minimum toolkit should be ensured, available for each municipality in Romania, which will be able to organise sector presentations, as well as provide information about opportunities, the industrial base, potential suppliers and the dynamics of the economy in recent years. Groups of relevant indicators can include Labour, Supply Chain, Taxation and Incentives, Infrastructure, Finance & Legal Aspects, and Macroeconomics.
The agency should form partnerships with the main database providers in Romania in order to ensure a significant flow of data for investors interested in this country in the prospective phase of the investment plan (for example, the Trade Registry, the National Institute for Statistics, the Romanian National Bank, city halls, as well as sectoral and professional associations from the automotive, furniture and textile industries. Partnerships should also be formed with Chambers of Commerce, the Ministry of Finance, the Ministry of Labour and Social Solidarity, etc.
There is a need for data covering both local information (at least at county level, if not at locality level), and sectoral information (based on NACE code activity sectors) in order to have as much data granularity as possible and to be able to respond to enquiries with relevant information in terms of worker qualifications, cost of labour, local property taxes, number of companies operating in the sector, dynamics of a specific sector, profitability rate, competition, suppliers, number of employable workers, etc.
The agency should identify foreign companies in Romania that can potentially attract foreign suppliers, whose production and supply chains may be concentrated over a smaller area, for example regionally and not globally.
Compared to the other countries in the region, the level of FDI stock attracted by Romania in relation to both GDP and the number of inhabitants is one of the lowest. Furthermore, the speed with which the per capita FDI stock is growing is much lower than in other countries in the region. This not only has direct effect in terms of missed opportunities for growth of the Romanian economy but also indirect effect in terms of sending a negative signal about Romania’s competitiveness as an investment destination, which could impede inflows of foreign capital.
Sources: FIC, UNCTAD, Eurostat
Similarly, the reduced competitiveness and structural problems (poor infrastructure; lack of access to financing for companies, limited know-how, management, human resources that can be allocated, etc.) make exports per capita some of the lowest among CEE countries.
Even though, from some perspectives, there are also costs in attracting foreign investment (for example, providing state aid or providing facilities for large investments, greater exposure to the volatility of the global business cycle and decreased power of automatic stabilisers), foreign investment has proven, both globally and in Romania, its beneficial effects and the way in which it can have positive effects on the domestic economy.
FDI clearly brings numerous tangible benefits (“hard facts”) – which start with the inflow of capital, the creation of jobs, the increase in domestic consumption and exports, economic growth and an increase in budget revenue, as well as the opportunity for local suppliers to participate in global value chains. Furthermore, there are also numerous “soft” elements, such as the transfer of technology, enhancement of the skills of the labour force through the transfer of know-how, an improvement in the international competitiveness of local companies, increased domestic competition etc. These factors also contribute to the overall benefits of FDI and hence to economic growth.
Benefits are gained especially by the exposure of employees to foreign know-how and to high-performance management processes, and this knowledge is then integrated into the development of the business. Moreover, from a long-term perspective, for an emerging economy, such as Romania, attracting FDI can be an essential pillar in the country’s economic development strategy, as recommended by most World Bank studies.
Romania must shape a medium- and long-term strategy to attract and support investments in key areas and hence enhance economic growth to remain competitive with other countries in the region.
The work of the Agency for Foreign Investment should be fully coordinated with and contribute to Romania's long-term development strategy.
Priority sectors for attracting investment should be defined, which are in line with the directions undertaken in the National Recovery and Resilience Plan (NRRP) as well as other sectors that have significant traction potential and that can attract local suppliers.
The compatibility of local suppliers with the activity standards of foreign companies should be analysed.
Those foreign companies that are already operating in Romania and have the possibility/capacity to bring other segments of the value chain to the country should be identified. For example, if there are companies that have located their manufacturing segment in Romania (in general an activity with a low value added), they should be encouraged to consider locating other segments, like Research & Development or logistics/distribution, so that the added value produced in Romania will become higher. Consequently, the income of workers would increase, and there would be a move away from the middle-income trap.
Strategic use should be made of sectoral state aid schemes, focusing on a selection of areas that (i) are competitive at a local level or (ii) have high potential to bring more added value to the economy by attracting FDI in upper segments of the value chain with higher value-added activities such as research & development, design, and after-service activities.
Measures should be identified to improve the non-fiscal indicators in the Global Competitiveness Index. Regional/local offices of the Agency for Foreign Investment should be set up, replicating the central model in terms of organisation, materials available to investors and the skill sets of staff, based on the specific needs of each region.
Industrial parks should be developed, and local authorities should be encouraged to make available the land and facilities needed to attract companies to them (with at least one industrial park in each county).
Some “post-investment” services should be provided for companies, to encourage the expansion of investments and the localisation of other segments of the value chain in Romania (Research & Development, design, etc.).
In the last few years, Romania has undertaken significant reforms to its Foreign Direct Investment (FDI) legal framework, aiming to align more closely with European Union standards and enhance the regulatory environment for investors. Despite these advances, certain areas within the competition rules for FDI could benefit from further improvement to ensure a more transparent, efficient, and investor-friendly landscape.
The introduction of Government Emergency Ordinance No. 46/2022 (GEO 46/2022) marked a pivotal step in Romania's FDI regime, establishing a framework for the examination of foreign investments in line with EU Regulation 2019/452. Subsequent amendments, such as those enacted under Law No. 164/2023, expanded the scope to include EU-based investors, while Government Emergency Ordinance 152/2024 clarified that Romanian investors are also subject to the FDI screening rules. which has led to some ambiguity in relation to the specific criteria and thresholds for screening.
In its practice, the Romanian Competition Council, which holds a secretarial function within the FDI screening mechanism, has been open to provide informal guidance and clarifications, at the investor’s request, in relation to the criteria which trigger the requirement to undergo the FDI clearance procedure. However, provision of formal detailed guidelines on the notification criteria, as well as on what represents implementation of a foreign direct investment, would offer greater predictability for investors.
The FIC recommends the following steps in relation to the guidelines which are expected to be released in 2025 by the Romanian Competition Council:
Clarification as to what specific actions constitute implementation of foreign direct investment and delineation of these from preliminary steps undertaken in the context of an investment, which can be carried out prior to obtaining clearance under the FDI rules.
Provision of a clear methodology to assess the “value of the investment” criteria. Moreover, an increase in the monetary threshold to EUR 4 million, i.e. the value associated with merger control in Romania, could further streamline the compliance assessment undertaken by investors which are interested in pursuing business opportunities in Romania.
To conclude, while Romania has made commendable progress in creating an attractive investment landscape, focusing on these areas for improvement could further enhance the country’s attractiveness as a destination for foreign investment. By clarifying regulations, streamlining processes and enhancing transparency, Romania can foster a more conducive environment for sustainable economic growth.
State aid schemes in Romania aim to stimulate economic growth, support regional development, and enhance the competitiveness of various business sectors within the national economy. Romania offers the highest intensity of state aid in the EU, covering 30%-60% of the eligible costs, depending on the region (which can go up to 70% in four counties included in the Just Transition Plan) for CAPEX.
The state aid schemes currently available in Romania are targeted at specific sectors of the economy (the manufacturing industry, production of construction materials, food processing etc.). Accessing these schemes takes place through pre-announced yearly submission sessions, with the financing being awarded to the investments that obtain the highest scores based on each individual scheme’s scoring grid.
Besides the existing schemes, special attention will be given to strategic investments, with values of more than EUR 150 mil., and which have a significant impact on the economy, by creating jobs and contributing to regional development. In this context, individual state aid measures are encouraged by the government to attract new investors. The trend is to shift from one public financing source to integrated state support, by gathering more public stakeholders to actively support strategic investment projects. As such, state aid will take and cumulate several forms: cash grants, tax exemptions on local approvals, reductions for concession fees, expansion of road and/or utility networks, reduction of local taxes, tax credits, etc.
Recent calls for projects targeted at large investments have gathered hundreds of applications, while less than 7% have received or are going to receive financing agreements. As such, the FIC recommends an increase in the share of allocation from both EU and national budget funds to projects in the real economy, concentrated in the productive sector.
We recommend an increase in public budget commitments for state aid and investment subsidies, even if disbursements occur in later years, to encourage larger investments and ensure earlier launch of projects.
To achieve real economic growth, the FIC recommends promoting the criterion of gross added value in the evaluation process and selection of projects for financing (salary expenses + profit for the first 5 years after the completion of the investment)/ investment value).
Considering the unpredictable dynamics of the real economic sectors, the FIC believes that a permanent dialogue between representatives of the business environment and political decision-makers is necessary in the development or adaptation of current and future funding schemes.
Nevertheless, it has been observed over the last few years that the time periods between the adoption of a state aid support measure and the signing of the first financing agreements can stretch for up to one year or more. Consequently, the FIC recommends an increase in transparency in the evaluation process, and an acceleration of the entire process with the help of digitalisation, debureaucratisation and professionalisation of state employees who interact with foreign investors.