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Romania – the Fourth EU Economy in the Share of Foreign Capital Enterprises

Romania – the Fourth EU Economy in the Share of Foreign Capital Enterprises And an Interesting Paradox

Romania ranks fourth among EU Member States in terms of the share in gross value added (GVA) of enterprises with foreign capital (controlled from abroad) – FCE –, according to a study published by Eurostat, based on data from 2017. Although they represented only 1.3% of the total number of European companies, FCE generated 26% of GVA.

The trend at Union level is one of continuous growth overall, as evidenced by the increase in this share of the effect of foreign direct investment by 4.5 percentage points compared to 2010 and 1.6 pp compared to 2016 and consistent with the process of globalization of the economy.

The highest relative value produced on the basis of foreign investment in EU countries is found in Ireland (62.8%). It is followed by three economies from the former Eastern bloc, Hungary (50.0%), Slovakia (48.1%) and Romania (44.2%). Only small Luxembourg is interspersed with the Czech Republic, Estonia, Poland and Latvia. Surprisingly, Bulgaria is only 11th, after Malta. In 2017, foreign-controlled enterprises accounted for 1.3% of the enterprises in the European Union (EU), generating 26.0% of value added. 

On the other hand, the lowest share of GVA in FCE is found in Cyprus (13.2%), Italy (15.9%), Greece (16.5%) and France (17.2%). A recent development is the largest increase in this indicator being reported in Ireland (where an important factor was the recent Brexit, +19.8 pp) and the largest decrease in Hungary (where the factor is called Viktor Orbán).

Note the current trend in other former socialist states, initially important destinations for foreign investment: Bulgaria (-0.7 percentage points) and the Czech Republic (-0.4 pp) are at the top of the relative narrowing of the effect of foreign capital, along with Luxembourg (-0.9 pp), Belgium (-0.8 pp) and Austria (-0.5 pp). 

The paradox of growth based on foreign investment 

If we refer to the public perception of foreign investment, it would have been expected that this segment of the economy would be the most dynamic and bring the greatest benefits for GDP growth. Paradoxically, official Eurostat data does not confirm this, if reference is made to the evolution of GDP between 2013 and 2017. 

Thus, it can be seen that the maximum number of enterprises controlled by foreign capital was reached in 2014, after which it was capped at around 27 thousand. The value of production advanced during this time by 25.5% and the value added to the cost of factors of production by only 23.3%.

Or, according to the definitive INS data (GDP is recalculated and remains final at the value announced only after two years, for example GDP 2017 remains “nailed” in 2019, which explains the year for the most recent comparative study for all European states), Romania's GDP increased by 30.2%, from 144.25 billion euros to 187.80 billion euros.

Of course, the contribution of technology and labor organization techniques coming through Western expertise cannot be denied and the supplementation of domestic resources through international financial flows is very useful. But it seems that, overall, the dynamism of the economy must come mainly from within, including on the path of much stronger development of national capital.

 

 
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OEconomica No. 1, 2016