COMMENT: Romania FDI inflows to stabilise above 5bn in 2007-2009

By bne IntelliNews March 20, 2007

UniCredit Group -

Over the last decade, the prospect of EU membership has represented the biggest stimulus for Romania, whilst challenging and fully supporting its modernisation process, largely contributing to its increased appeal for foreign investors. Since 2004 Romania has been one of the main beneficiaries of FDI in the region, with FDI registering an increase of 75% last year to top €9.1bn.

Traditionally, Romania has been a preferred destination for the delocalisation of production in sectors with high incidence of labour costs and specialised in traditional products like textile, clothing and leather. An increasing number of companies are targeting Romania to focus on higher value added products, where the pressures on costs are lower, while moving the rest of production to neighbouring countries like Ukraine and Moldova. This is reflected in the visible shift in export structure - from low value added products and raw materials to higher value added items - and the greater role played by foreign capital in sectors like telecommunications, transport vehicles and spare parts.

In many cases, foreign companies consider Romania very appealing in view of its growth potential compared to more saturated Western markets, targeting it for the commercialisation and production of cheap product lines, gradually widening the product range as soon as demand evolves in the market. In some cases, the choice to move into the country has been motivated not only by the possibility to exploit its comparative advantages, but also by its strategic position, which allows other markets to be penetrated where the establishment of a direct presence is still conditioned by the instability of the local environment.

The outlook in terms of foreign direct investment will remain positive in the coming years, supported by bright economic prospects and improving business conditions. Although losing some ground in terms of overall size due to the few remaining large-scale privatisations, the green-field component of FDI is expected to gather momentum in 2007, stimulated by the launch of large infrastructure projects connected to the modernisation of the country's infrastructure and the possibility of benefiting from EU co-financing. Overall, we expect FDI inflows to stabilise above €5bn over the 2007- 2009 period.

With a positive growth scenario and increasing demand for high-quality accommodation and retail outlets as well as large infrastructure projects (roads, motorways and utilities), the construction sector is expected to be one of the most attractive sectors in the coming years, generating a positive spill-over effect in other sectors like other non-metallic mineral products, wood and wood products.

There are also important growth opportunities in higher value-added sectors such as electrical equipment and transport equipment, sustained by the entry of new and competitive foreign investors, while sectors like wholesale and retail, communication and financial services will benefit from the larger market potential connected with increasing demand and the spending capacity of households.

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