CONFERENCE CALL: Romania’s missed opportunities

CONFERENCE CALL: Romania’s missed opportunities
Panelists discuss Romania's lack of investment into infrastructure and human capital at the Foreign Investors Summit in Bucharest.
By Clare Nuttall in Bucharest November 24, 2018

Romania is one of Europe’s fastest growing economies, but the growth is largely consumption-driven, and such rates cannot continue without investment into both physical infrastructure and human capital. 

The point was made forcefully at the latest annual Business Review Foreign Investors Summit in Bucharest at the beginning of November, when Romanian and foreign businesspeople and investors get together to discuss the state of the business environment in the country and what can be done to improve it.

Thomas Lubeck, regional manager for Central and Southeastern Europe at the International Finance Corporation (IFC), who delivered the keynote speech, said Romania needs to focus on infrastructure, health and education. Other panellists concurred, though also singled out other important areas such as the development of private entrepreneurship and SMEs, access to capital, and the development of the stock exchange

The poor state of Romania’s transport infrastructure is a perennial gripe at conferences in the country, so unsurprisingly this was at the top of the list. Indeed, Lubeck pointed out that while the situation has changed a bit from five to 10 years ago, “frankly we were hearing and saying the same things [back then].”

Particular lament
A particular lament was Romania’s failure to use the EU structural funds available to it, which could have been mobilised to pay for much needed infrastructure investments. 

“Leaving free money on the table is really unfortunate,” said Lubeck. On top of this, Romania could access a lot of money to invest in infrastructure from other institutions like the European Investment Bank (EIB) and World Bank, as well as finding ways to bring in the private sector to fill some gaps. 

“Right now Romania is in a unique situation in the region, where it is able to access all kinds of free of charge money from EU funds to all the money available from IFIs, to private money from funds or banks,” Lubeck said. In fact, he concluded, “Romania is flooded with funds. The bad news is we don’t know how to use it — that’s a paradox for Romania.”

A similar point was made recently by Romania’s European Commissioner, Commissioner for Regional Policy Corina Cretu, who urged the Romanian authorities to improve their use of EU funds especially for international transport links, citing cumbersome procedures and reduced administrative capacity as obstacles to absorption. 

Other panelists at the summit stressed the need to improve efficiency of capital spending if Romania wants to achieve its goal of becoming the 10th largest economy in the EU (or the ninth if Brexit goes ahead) by 2036. 

Human capital
The other main issue examined at the conference was human capital, and the lack of investment into health and education, which are important contributing factors behind the exodus of Romanians to western EU member states since Romania joined the bloc. Romanians aren’t leaving just to get higher salaries, but to improve their quality of life, they stressed. This in turn is leading to a tightening of the labour market, especially in certain sectors like IT and tech, as many of those who leave are young and highly educated. 

“Because we neglected these problems for many years, we are now lacking human capital. Human capital is not missing because salaries are low, the average income per capita has increased significantly in the last 10 years. People are no longer leaving just for money — they are leaving for health, education for their children, rule of law, general way of life,” said Lubeck. “This is more difficult to fix.”

Lukasz Olszewski, head of business development CEE, Turkey and Greece at S&P Global Ratings also noted the shortages of workers, including blue collar workers, across Central Europe. “Companies are now employing workers from as far away as Nepal and the Philippines,” he said. “The region is experiencing a brain drain, and to get young people back there to work, structural reforms are necessary — in infrastructure, education, healthcare — to create a welcoming environment with more opportunities.”

Given the lost opportunities in the past, the panels moderator Jorg Menzer, partner and head of CEE Offices at law firm Noerr, raised the question: “Can [Romania] still harness the future or has it been taken by someone else because they take away the best people?” 

When it came to taking action, politics raised its head for the first time; until that point there seemed to be a consensus that the less said about Romania’s political situation the better. However, the frequent changes of government and lack of policy certainty were inevitably raised when considering strategies to address the lack of infrastructure investment and the brain drain. 

In the two weeks following the conference, Romania was plunged into a fresh political crisis as President Klaus Iohannis refused to fully endorse a government reshuffle initiated by Prime Minister Viorica Dancila — the third prime minister in office since the coalition led by the Social Democratic Party (PSD) won the December 2016 general election. It is still uncertain if or when the reshuffle will be completed. 

“At the end of the day the government’s role is to take the lead,” said Lubeck. “The missing part is political consensus. What the country needs are some strategies which will endure for a longer period, not just for short political election cycles.

“The first priority should be infrastructure, second should be education,” he added. 

“We can’t do it in four years, we must have a plan, stick to it and have some milestones,” concurred Laurian Lungu, economic advisor to the Foreign Investors Council (FIC). 

His organisation has had “interactions with the authorities. We are trying to avoid politics but without politics we can’t go ahead. Every time Romania had some sort of objective like joining Nato, or the EU there was a sort of political consensus.” This will be needed again if Romania is to take long-term strategic action to improve its infrastructure and living conditions.