70% of economic growth in first three quarters of 2018, obtained by stocks increase. Foreign exchanges pulled down GDP by 1.6 percentage points
INS recalculated GDP in the third quarter and the first three quarters of the year. Here are the growth data for the Romanian economy, updated… Mai mult›
The estimates by economists of most important banks in Romania on the depreciation of the local currency for this year range between 4.73 and 4.77… Mai mult›
Final energy consumption of Romanian industry declined by about 75% between 1990 and 2016, compared to only 25% at the EU level, according to data… Mai mult›
Crash signal in foreign trade – export coverage ratio has fallen to 2011 level. And we do not import robots
The trade deficit on November 2018 was EUR 1.567 billion, the second worst monthly performance registered last year. Worryingly, the growth rate of exports compared… Mai mult›
The Romanian mergers and acquisitions market reached nearly EUR 2 billion in 2018, according to a Deloitte Romania analysis based on public sources and transactions… Mai mult›
Average income trap – danger for Romania and CEE states: Setting growth engine on innovation is the only solution
de Mariana Bechir , 12.2.2018
In the absence of strategies to increase technological levels and raise wages, Central and Eastern Europe (CEE) will remain in the average income trap without any prospect of closing the gap with the West, warns Martin Myant, senior researcher at the European Union Trade Institute (ETUI).
The analysis takes into account the countries of the Visegrad Group 4 plus Romania (which comes from an inferior level but had similar economic growth).
In the 27 years of transition, these countries have developed economies dependent on foreign capital, where the main engine was the foreign direct investment (FDI) attracted by cheap labour.
This model has reached its limits and active state policies are required to stimulate a new structure of the economy.
That is why strategies with a two-directional impact should be developed, in Martin Myant’s opinion:
- to influence the type of foreign investment that will be made (to stimulate FDI for high added-value industries)
- to encourage autochthonous autonomous development to surpass the technological level of multinationals present in these countries
Dependence on foreign direct investment (FDI)
The first significant foreign investments came in the early and mid-90s when companies from abroad participated in privatizations started in the five states.
In all these countries, the peak moment (the year when FDI reached the largest share of GDP) was reached before 2008, the year that marks the slowdown in foreign capital inflows.
The pioneer was Hungary, where foreign direct investment accounted for 10.3% of GDP in 1995, a percentage reflecting the government’s preference to privatize companies by selling them to multinationals.
In the case of Poland, it is noticed that it was initially much more reluctant to accept foreign companies, and Romania is the last one to reach the maximum FDI/GDP (in 2006).
Between 2009 and 2016, Romania had the highest annual average – 2% of GDP, followed by Hungary, where the share was 1.9%:
In all cases, EU accession has not influenced the process, with multinationals anticipating it and having massive investments before. It can be seen even in the case of Romania, where the peak was reached in 2006.
The exception is the Czech Republic, where the highest FDI share of GDP was recorded in 2005.
Romania’s case – the worst
Foreign companies have become the major exporters in these countries and this way brought additional benefits. The main sectors where investments have been made are electronics and the automotive industry:
Romania, with even lower salaries than in the other four states, is a slightly different case than Visegrad 4 – here it has been relocated the production of goods for which factors such as highly qualified workforce or Western proximity matter less.
That is why Romania has come to dominate the car wiring sector. The volume of exports of such products has surpassed in time the Czech Republic (in 2001) and even Germany (in 2006).
The production of these wiring systems is the most mobile – they are relatively simple to do, do not require highly qualified personnel, infrastructure or significant investments, so that the activity can be quickly relocated to countries with cheap labour.
This phenomenon even took place in the region, with closures of production in the Czech Republic and relocations to Romania.
The data that Martin Myant analyses show that the price per kilogram of such product exported from the Czech Republic and Romania is below the one from Germany (although the quality is the same) and even decreased as the export volume increased:
Multinationals have transferred to a much lesser extent the types of production that require a high number of highly qualified workers and complex activities (such as research and development) are not expected to be moved to the CEE in the future.
For political and image related reasons, these will be maintained in Western states.
The consequence is that this type of dependency creates limits for the convergence process, does not ensure the progress towards a competitive economy (from a complementary one where we are now) and even threatens the stability of CEE economies (by increasing the risk of relocating the production to countries with lower wages).Conclusion: Full wage convergence of the salaries can only be achieved if the income increases is accompanied by measures to create high value-added economic activity.
For this, there is a need for the state to take a strategic role to boost investment in skills, education and research so that we can reach an innovation-based growth.
Lăsați un comentariu
Mugur Isarescu: "Ordinance weird thing" reduces monetary policy efficiency, which will not help Government
The National Bank of Romania (BNR) will convoke the National Committee for Macro-prudential Supervision, where the Ministry of Finance will be required to clarify the… Mai mult›
Romania's economy will record an advance of 3.5% in 2019 and 3.1% in 2020, down one percentage point from June 2018 forecast, according to… Mai mult›
The benchmark government bond yield jumped above the 5% threshold on Thursday. The Ministry of Public Finance (MFP) attracted RON 300 million from banks on… Mai mult›
The Ministry of European Funds has taken out Iasi-Tg. Mures highway project from the Large Infrastructure Operational Programme 2021-2027 and the Ministry of Transport already… Mai mult›
Senate postpones discussions on DNA’s request on waiving immunity of Calin Popescu Tariceanu until February 2019
The Senate has decided that it will put to the vote the decision to waive Calin Popescu Tariceanu's immunity only in the spring session, that… Mai mult›
Implementation of 5G technology, a multiplication effect in economy of EUR 4.7 billion - announces Sorin Grindeanu (ANCOM)
The National Authority for Management and Regulation in Communications (ANCOM) launched on Wednesday the National Strategy for the Implementation of 5G Technologies in Romania for… Mai mult›
Some of the amendments to the criminal codes will generate mistrust regarding Romanian state's ability to ensure the legality, stability and predictability of business relationships… Mai mult›
European Semester / European Commission asks Romania to correct its medium-term structural deficit by 1% of GDP
Minister Eugen Teodorovici is pressured by the EU to reduce the budget deficit After finding that the Government has done nothing to adjust the deviation… Mai mult›
The Government adopted on Thursday the ordinance that provides for the general framework for the establishment of a Sovereign Fund. Later, after new talks with… Mai mult›
The representatives of Ford Craiova met on Wednesday with mayors of 30 localities from Dolj county in order to stimulate the attraction of 1,700 new… Mai mult›
Development strategy / Government squeezes even investment money from its own companies: EUR 120 million from only two entities in energy field
Nuclearelectrica (SNN) and Romgaz (SNG) have calculated the additional dividends to be paid to the state after the Ministry of Finance (MFP) sent to the… Mai mult›
DNA, officially: Senate President is suspected of having received a USD 800,000 bribe. Case file opened at a request from Austrian judicial authorities
The case file in which the DNA requested the waiving of the Senate President’s immunity was opened at the request of Austrian judicial authorities and… Mai mult›
Romania has to recover illegal state aid worth EUR 60 million granted to Compexul Energetic Hunedoara, announced the European Commission with a statement released on… Mai mult›
The Ministry of Public Finance (MFP) intends to borrow in November RON 4.74 billion, 1.4% more than in the previous month, according to the Ministry.… Mai mult›