In 1990, the CEE countries started off in their transition towards democracy and market economy from similar positions. The reform programs applied in these countries were meant to inaugurate a new development process, focused on capitalist values and mechanisms. Three decades later, the gap between Romania and former Communist countries has widened, and inequalities persisted after Romania became a member of the European Union. Consequently, the theme of development is crucial for Romania, that has had the highest economic growth in the EU in recent years, but is still last in various classifications indicative of wealth and development. [read more]
This points to an important truth: a country’s economic development cannot be measured exclusively by means of GDP growth. The growth of strictly economic parameters over a limited period of time does not necessarily point to that country’s development. Romania needs to approach development as a cumulative, high-complexity process, that involves structural changes and the convergence of factors and processes from various fields: demographic growth, competitive education, adequate infrastructure, accessible resources and their efficient use, positive trade balance, good management at political, economic and administrative levels, with beneficial effects on the population’s well-being and health, citizen safety, living standards, and quality of life.
At the same time, sustainable development is not a spontaneous result of social evolution; it presupposes strategies and programs that aim at protecting the environment, balancing the economic and social impact of reforms, balancing agriculture, industry and services, as well as other objectives that need to be met systematically. Given the complexity of the field, we have grouped the statistical data in four subfields: economic development; industry and entrepreneurship; trade; infrastructure (transport, utilities and communications). One of our priorities is to conduct a comparative analysis with other European countries.
Economic development
Industry and entrepreneurship
Trade
Infrastructure
The prerequisite for a country’s development is economic growth and the distribution of results to other sectors, with an impact on living standards. That is the reason why the main indicators are GDP growth rate and GDP per capita. It is important for even a moderate growth to be constant and balanced across sectors and regions, to generate development. Unfortunately, in Romania the gaps in GDP growth rate and GDP per capita have widened constantly across development regions and urban-regional areas. It looks as if there are several Romanias, with completely different development rates. [read more]
This subfield equally analyses what supports the country’s economic evolution compared to the rest of the region and of the EU. It is important for economic activity to be diversified and for growth to rely on those economic sectors with high added value, such as breakthrough industries or IT. In Romania, the share of industry in the GDP has dropped significantly in the last years in favour of construction and services (from a share of 49% in GDP to 23% in 2015), which sees Romania now highly dependent on imports. While in 1990 Romania’s GDP was made up of sectors with high gross added value (115.81%), in 2013 gross added value was just 87.7%.
Another solution to stimulate economic development is to support exports. However, Romania’s GDP dependence on exports (rising from 26% of GDP in 1990 to over 43% in 2017) has increased jointly with its dependence on imports (from 12% in 1990 to over 43% in 2017).
Economic growth can be achieved by appeal to foreign loans. The so-called “debt-driven development” is only beneficial when it supports driver investments (in infrastructure, for instance) and not import-fuelled consumption, which stimulates development elsewhere. Although Romania has the third lowest debt ratio in the region, debt has grown by approx. 22% a year, while investment in the economy (gross fixed capital formation) has increased by 12% only.
This subfield focuses on two important resources in the process of economic development: entrepreneurship and the industrial sector. Without entrepreneurs, a nation will have difficulties in putting resources to work. Unfortunately, in the period 2009-2012 130.000 more firms were dissolved than were established. The situation has not improved much. [read more]
Romanian entrepreneurship continues to be vulnerable to economic cycles and has difficulties in integrating into economy. In 2015, Romanian companies’ turnover was 11% higher than the turnover of foreign companies, although they represented just 6,3% of the total number of Romanian firms and employed 38,3% of the workforce. Romanian entrepreneurs have difficulties in the field of innovation, as well. For instance, the number of firms in high-tech sectors is twice lower than the number of similar firms in Hungary (2014 data). Similarly, if we look at one of the most innovative entrepreneurial sectors in Romania, IT&C, we can see that in 2015 the turnover of the firms in the field represented 61.29% of the turnover of similar firms in Hungary and just 33.27% of Polish firms. Moreover, the value of the turnover was similar to that of the period 2008-2015 (an increase of just 11.5% in 2015, compared to 2008).
On the other side, with the increase of industrialization, the economy specializes in high added value products. In Romania, added value in industry has been slightly, but constantly decreasing: in 2015 it dropped to 24.4% of GDP, compared to the European mean, of 34.9%. Romanian industry is still dominated by food and beverage (22%), followed by vehicles (17%) and metallic products (10%), which reveals the fact that Romania remains a processing, rather than manufacturing economy, with characteristic development problems.
This subfield treats a vital part of economy: Romania’s consumption potential, compared to that of the EU, in order to identify those sets of data that could enable analyses of consumption in Romania, and equally show export opportunities. From the perspective of development, the structure of a country’s internal consumption offers information on the quality of life, degree of complexity of consumers’ behaviour and competitiveness of local producers, compared to producers in other countries, from where we are currently importing. [read more]
The consumption of households (% of GDP) has been constantly at around 60% since 2009, a decrease from 68% in 2005 and 76% in 1998. This type of consumption is fed not just by the local production, but by imports, as well. The total number of trading companies in Romania had dropped in 2015 by 18% compared to 2007, although their turnover had increased by 15.9% in 2015, compared to 2007.
Romania is the only country in the region with a negative balance of trade (although decreasing significantly). Along with Bulgaria, Romania is one of the countries that are highly dependent on consumption GDP. At the same time, Romania has the highest current account deficit in the region, despite significant decrease. Compared to 1991, Romania exports goods that require a lot of manufacturing (electric equipment or means of transport), but also goods that require less manufacturing (metals, vegetal or mineral products).
However, the structure of Romanian exports generally coincides with the structure of imports, which translates into net added value contributing to a lesser degree to Romania’s development. For instance, import coverage ratio was 98.5% in 2015, the lowest in the region (110.9% in Hungary, 106.6% in Poland, 101.7% in Bulgaria). Romania’s significant growth continues to generate a significant increase in imports, which is a sign that local producers are slow in adapting to the increase in internal demand. The effort to increase exports is most often accompanied by a similar increase in imports (technology, raw materials, etc.).
This subfield covers the main relevant indicators for the transport, utilities and communications infrastructure. It is important to note that the data that allows comparative analyses with EU countries in time are quantitative, rather than qualitative (for instance, the state of Romanian infrastructure is evaluated by the European Commission based on World Economic Forum Global Competitiveness Report at 2.6 for rail infrastructure and 2.7 for road infrastructure in 2016-2017 – the last position in the EU, where 1 means underdeveloped, and 7 extensive and efficient). [read more]
The volume of transported passengers is an important indicator of well-being, not to mention that it directly impacts the development of various economic sectors (by decreasing labour force costs). The volume of passenger transport relative to GDP, that shows to what degree this field has contributed to economic growth, has been decreasing in Romania, but is close to EU average. The volume of freight transport relative to GDP is a key element in a nation’s economic development, but the volume of goods transported by road or rail in Romania has been under significant decrease recently, mostly due to poor infrastructure, but also because of low demand. For instance, in 2015 just 59% of total goods were transported by road, while the volume of transported goods by rail was 5% higher. We can evaluate the quality of the transport system by looking at investment. In Romania, this investment has been constantly decreasing in the last years: for instance, in 2012 Romania invested just 2.32% of its GDP in road transport, compared to 7.70% in the case of Poland or 8.19% in the case of Croatia. Romania invests even less in the rail transport system (relative to GDP): eight times less than Poland, which might be an explanation for the quality of this type of infrastructure. In absolute terms, in 2015 Romania invested in the road infrastructure 18.72 times less than Poland.
In modern economies, communications infrastructure (internet, mobile services, data servers, etc.) has an increasingly prominent role. Although in Romania data transfer is very fast, there are problems about how this infrastructure is used economically. For instance, at the level of the EU, in 2017, in the Digital Economy and Society Index, Romania was on the 28th place: the degree of digitalization of economy, including the digitalization of public services, and the level of digital competences, are low. For instance, just 56% of Romanians use the internet (compared to EU average, 78%), and just 7% of Romanian SMEs sell online (compared to EU average, 17%).
It is competence that makes the difference!
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