FDI continues rapid rise in Romania

FDI continues rapid rise in Romania
By Iulian Ernst in Bucharest April 18, 2017

Foreign direct investments (FDI) made by non-residents in Romania increased by 7.7% y/y to €4.13bn, or 2.3% of the €182bn GDP projected for this year, in the rolling 12 months ending February, according to data from the central bank. 

The data was based on the directional principle, versus BoP under BPM6 methodology indicating €4.58bn net accumulation of liabilities. Irrespective of the FDI metrics used, last year foreign direct investments hit the post-crisis maximum and are likely to remain robust this year. From a broader perspective, investments are at half the level they were before the 2009 recession.

The FDI in the rolling 12 months accounted for nearly 2.4% of 2016 GDP one year earlier, as of February 2016.

FDI inflows increased by 43% y/y in 2015 and by 19% y/y in 2016. The stock of non-residents’ FDI in Romania hit €67.2bn at the end of December (latest data available).

The current account deficit for the 12 months ending February increased by 17% y/y to €3.93bn – safely covered by the FDI inflows. As the C/A gap is likely to widen driven by robust domestic demand, the coverage ratio might fall below 100%, requiring debt-generating financing of the Current Account gap, though.

As regards the drivers of the FDI increase last year and the sectors involved, it is worth mentioning that a large part of the FDI might have been in fact re-invested earnings. The central bank does not provide enough data to establish the share of reinvested earnings in the total equity FDI. But the profit generated by FDI companies surged to nearly €5.5bn in 2016, up from €1.8bn in 2014, central bank data shows. It is natural to assume that a large part of the profit was reinvested and thus accounted to the post-crisis record FDI.

As regards the key recipients of FDI, they are in the manufacturing sector particularly related to the automotive industry, but the real estate and healthcare sectors are also active. 

French car parts supplier Faurecia has opened a plant in Romania, its fifth in the county, with an €8mn investment, local media reported on March 29. The announcement came shortly after German premium car parts manufacturer Dräxlmaier said it will restructure its activity at a plant in Pitesti, Arges county, and is planning to expand two other Romanian plants. 

Another significant share of FDI goes to the real estate sector. Topmost Investments, controlled by Israeli businessman Teddy Sagi, has bought an office building in Bucharest for €17mn, according to market sources quoted by Ziarul Financiar on March 31. 

The healthcare and pharmaceuticals sector is emerging as an attractive area as well. The listing of private healthcare services provider Medlife last year was the largest such post-crisis event. South Africa’s Ascendis Health has reached an agreement to buy the Romanian vitamins and mineral supplements firm Sun Wave Pharma for €16.4mn, profit.ro reported on March 8. 

Looking forward, the €400mn paid by Enel for the minority stake in Electrica Muntenia and the planned IPO at RCS&RDS will support FDI volumes this year. The large-scale investments subsidised last year by the government, such as the €100mn Arcelik plant, will provide further impetus.

Equity investments in the non-bank sector, including re-invested earnings, increased by 8.0% y/y to €4.06bn in the period. The remaining FDI was formed by €431mn worth of investments by foreign banks operating in Romania.