Romania in the European Economy

Prof. Gabriela TIGU, PhDVive-Rector

Bucharest University of Economic Studies (ASE Bucharest)gabriela.tigu@ase.ro

GDP in 2010

5.700 EUR

4.600 EUR

3.300 EUR

2.661 EUR

9.800 EUR

10.400 EUR

3.192 EUR

4.720 EUR

4.220 EUR

Sursa: Eurostat

GDP in agriculture - % in total

6%

5,3%

9,8%

16,8%

2,9%

4,8%

7,51%

8%

8%

Sursa: I.N.S.

GDP in industry - % in total

26,4%

23,1%

24%

8,9%

22,5%

16,4%

17,16%

9,5%

19,2%

Sursa: I.N.S.Datele sunt pe anul 2009 pentru Muntenegru, Albania, Bosnia-Herţegovina, Macedonia, Serbia

GDP in tertiary sector / services - % in total

47,6%

63,5%

53,6%

51,2%

55,5%

59,3%

55,74%

59,1%

54,5%

Sursa: I.N.S. Datele sunt pe anul 2009 pentru Muntenegru, Albania, Bosnia-Herţegovina, Macedonia, Serbia

3940

5354

6119

8218

4446

3532

4313

5753

5080

5709

7625

4040 4168

36803292

2653

4054

3043

43084135

6412

4067

34603484 3032

35706709

380645373708

5950

4015

7712

69234048

3242 3938

23773924

3860

Bucureşti: 14289Ilfov: 9767Sursa: Comisia Naţională de Prognoză

6,1%

3%

1,6%

3,4%

4,7%

1,1%

2,1%

0,5%

6,5%

Sursa: Eurostat pentru România, Bulgaria, Ungaria, Croaţia. Oficiile Naţionale de Statistică pentru Macedonia, Albania, Serbia, Muntenegru, Bosnia Herţegovina.

7,3%

10,2%

32%

15%

11,2%

11,8%

27,2%

19,6%

19,2%

Sursa: Eurostat şi Vienna Institute for International Economic Studies, Country expertise

Sursa: I.N.S

6,0%

6,0%

6,3%

7,4%

6,3%

6,9%

11,4%

9,8%

7,8%

5,7%

8,5%

9,0%

9,6%

8,4%

10,8%

8,2%

9,8%

9,8%

8,6%

3,7%

5,2%

5,8%4,9%

8,2%

9,6%

8,1%5,8% 7,1%

9,6%

9,7%8,4%

8,5%

7,4%7,7%9,6%

7,5%

8,8%7,9%

7,8%

7,5%

Bucureşti: 2,3%Ilfov: 2,8%

449 EUR

328 EUR

491 EUR

246 EUR

735 EUR

1054 EUR

622 EUR

715 EUR

461 EUR

Sursa: Vienna Institute for International Economic Studies, Country expertise

Sursa: I.N.S.

255

243

289

340

255

303

306275

261 277233 328

284247

307

242

315

257

251

244

285

241

284

254

311

262

314277355

283352 331

243

245289339

276

251253

241

Bucureşti: 462Ilfov: 409

PROFIT 16%TVA 24%

PROFIT 10%TVA 20%

PROFIT 10%TVA 18%

PROFIT 10%TVA 20%

PROFIT 10% / 19%TVA 25%

PROFIT 20%TVA 23%

PROFIT 10%TVA 17%

PROFIT 9%TVA 17%

PROFIT 10%TVA 18%

Sursa: Agenţii naţionale de promovare a investiţiilor

Sursa: O.N.R.C.

* Societăţi comerciale cu participare străină la capital

Sursa: O.N.R.C.

2,69 mld. EUR

1,64 mld. EUR

0,22 mld. EUR

0,83 mld. EUR

1,20 mld. EUR

0,44 mld. EUR

0,05 mld. EUR

0,57 mld. EUR

1,00 mld. EUR

Sursa: Vienna Institute for International Economic Studies, Country expertise

Sursa: Banca Naţională a României (B.N.R.), date provizorii pentru anul 2010 şi pentru primele 5 luni din anul 2011

* După capitalul social subscris Sursa: O.N.R.C.

X. GRECIA

3,47%

IX. ELVEŢIA

4,9%

VIII. Marea BRITANIE

5%

VII. SPANIA

5,06%

VI. ITALIA

5,13%

V. FRANŢA

6,55%

IV. CIPRU

7,15%

III. GERMANIA

8,48%

II. AUSTRIA11,3%

I. OLANDA 27,03%

Sursa: O.N.R.C.* Dupa capitalul social subscris

COGEME SET RO 6,3 mil. euro

LAPP INSULATORS 11,3 mil. euro

MKB ROMEXTERRA BANK 44.3 mil. euroGEDEON RICHTER ROMANIA 27.3 mil euro

ROSIA MONTANA GOLD CORPORATION 123 mil. euroKRONOSPAN 21,1 mil. euro

LUFKIN

28,2 mil. euro

DELPHI DIESEL 15,0 mil. euro

EGGER 7,2 mil. euro

CONTINENTAL 12,2 mil. euroOBRIST EASTERN EUROPE 8,8 mil.euro

KOYO 8,9 mil. euro

ROMPETROL 184.7 mil. euro

PIRELLI 96.1 mil. euro

RAFO 43,4 mil. euro

BARLINEK 42,4 mil. euro

ENEL GREEN POWER 33,3 mil. euro

MEDIA INDUSTRIES 21,4 mil. euro

ARCELORMITTAL 89 mil. euro

INFOPRESS 10,9 mil. Euro

EUROPOLIS REAL ESTATE ASSET MANAGEMENT 235.2 mil euroUPC ROMANIA 233.4 mil euroGARANTI BANK 185.3 mil euroGRAN VIA ROMANIA 114 mil euroADEVARUL HOLDING 109.9 mil euroREAL - HYPERMARKET ROMANIA 89.2 mil euroALPHA BANK ROMANIA 73.7 mil euro

ADAMA MANAGEMENT 41,2 mil. euro

INTESA SANPAOLO 27,5 mil. euro

BUNGE ROMANIA 40,8 mil.euro

OLYMPUS DAIRY 20,7 mil. euro

FERAL 20 mil. euro

ARCELLORMITTAL 10,9 mil. euro

SHINHEUNG ELECTRONICS 9,8 mil. euro

ALTEX 8,7 mil. euro

Sursa: I.N.S.

* Absolvenţii de învăţământ superior public şi privat, an universitar 2009 – 2010 Sursa: I.N.S.

III. Cluj-Napoca11.918

VII. Sibiu5.500

VI. Timişoara8.897

V. Craiova9.241

X. Târgu-Mureş2.162

IV. Iaşi 11.069

II. Braşov22.796

VIII. Galaţi4.903

IX. Piteşti3.057

I. Bucureşti71.972

Romania has made significant progress over

the past 3 yearsStabilization of the Economy:– Improvement in the fiscal balance– Stabilization of the exchange rate– Lower risk premium and interest rates– Record low inflation– Stabilization of the banking system– Improvement of external imbalances

The Fiscal BalanceRomania: Cash Fiscal Balance

(% of GDP)

The Fiscal BalanceRomania: Structural Fiscal Balance

(% of GDP)

The Exchange RateNational currency against the euro

(index)

Interest Rates

Inflation

Banking Sector Stability

• Banks remain well-capitalized• Liquidity in the system is high• No banks in Romania have failed

External Imbalances

-20

-15

-10

-5

0

5

2007Q1 2008Q1 2009Q1 2010Q1 2011Q1

Current Account(Percent of GDP)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

-30

-25

-20

-15

-10

-5

0

5

2007M1 2008M1 2009M1 2010M1 2011M1 2012M1

Romania Trade(Billions of Euro)

Trade Balance (12 months, lhs)Exports (sa)Imports (sa)

So stabilization has been fairly successful, but what about growth?

Economic Growth

Romania: GDP Growth Comparative Growth

•But what about sustainable, long-term, high growth?

•How does Romania converge with richer EU countries?

•Sustained growth is different from economic recovery

Romania and Economic Institutions

• Is Romania’s economic structure well-adapted for stable, high economic growth?

• I would say not yet.• Difference between “policies”

and “institutions”

Romania’s growth challenge

• 0. Maintain macroeconomic stability• 1. Increase the quantity and quality of

capital in the economy • 2. Increase the quantity and quality of

labor• 3. Improve the physical infrastructure

that firms and workers use (roads, railways, electricity, water, etc.)

• 4. Improve the institutional infrastructure

1. How can Romania increase Capital?

Investment• Financial sector:

– Assure good functioning of the banking system

– Reduce country risk interest rates down, investors come

• Absorb EU investment funds!• Privatization, private participation

2. How can Romania increase Labor?

• Improve market functioning higher productivity

• Higher labor force participation• Reduce informal economy

formal economy• Human capital: Education and

training

3. Improving physical infrastructure

• EU funds absorption• Prioritizing public investment• Attract private capital/improve

efficiency of public enterprises in infrastructure

• Improve regulatory framework• Embedded technology vs.

innovation

3. Improving physical infrastructure

• EU funds absorption• Prioritizing public investment• Attract private capital/improve

efficiency of public enterprises in infrastructure

• Improve regulatory framework

4. Improving the “institutional” infrastructure

• The laws, norms, institutions (public and private) and customs that determine the economic environment.

• It is the rule of law, but also much more.– Examples: constitutions, the EU

acquis.

4. Improving the “institutional” infrastructure • Structural reforms under the IMF/EU

program have aimed at improving policies, sometimes with improvements in institutions.

• Examples:– Pension reform (policy and institutions)– Fiscal responsibility law vs. deficit

reduction– SOE reforms, privatization

4. Improving the “institutional” infrastructure • But much more is needed:

– Legal system reforms• Need to make the system more efficient,

more predictable, less costly (in money AND time)

– Public sector reforms to improve efficiency.• Functional reviews• Tax optimization• Simplify and reduce bureaucracy

• Improve regulatory framework

4. Improving the “institutional” infrastructure

• Legal system reforms• Public sector reforms to

improve efficiency• Improve regulatory framework• Attack corruption• “Simplicity, transparency,

accountability”

Conclusions

• Romania has many characteristics needed for sustained growth:– Macroeconomic stability has been

regained and may be more robust this time

– Geographic advantages– Natural resources– Large, educated population that is

underutilized

Conclusions

• Policies have improved, but institutions are a challenge– Legacy of communism– Imported institutions from the EU, but

not complete or ideal.– Rent-seeking behavior vs. wealth

creation.– Institutional stability and efficiency

needed for investment and innovation.

Destination Romania

Romania’s environment

• attractive, rich and various

• a diversity of relief forms – mountains, hills and plateaus, plains, coastal zones -, flora and fauna, thanks to it geographical position.

Romania - the country of the Carpathians,

the Danube and the Black Sea • The Carpathians make an

almost compact ring, with the Transylvania Plateau inside

• Forests cover over a quarter of the country and the fauna is one of the richest in Europe including wolves, bears, deer, lynx and chamois.

Romania - the country of the Carpathians, the Danube and the Black Sea

• Romania has the greatest surface of the hydrographic basin of the Danube, controlling 38% of the navigable course.

• The Danube forms the southern boundary of the country terminating in the Delta on the Black Sea, a heaven for countless native and migratory birds.

Romania - the country of the Carpathians, the Danube and the Black Sea

• And finally, the country is located on the western coast of the Black Sea with a marine opening of 245 km, which confers on it a special status.

At present, Romanian tourism industry is characterized by the following indicators:

• 7.5 million foreign visitors in 2010 (down from 8.9 million in 2008…); out of which, 7.1 million visitors are coming from Europe (the most important markets being Moldavia, Bulgaria, Germany, Italy, Turkey, France, Russia and Spain);

• 10.9 million outbound Romanian tourists (same year); the main destinations are Italy, Greece, Hungary, Bulgaria, Spain, Austria and Turkey;

• more than 1,000 million US Dollars revenue from international tourism, but this amount is quite low in comparison with other European countries;

• 3,405 millions US$ in GDP (or 2.04%) and• 270,000 jobs (3.2% of the total number of employees in

Romania), showing a quite low participation of the tourism in the total Romanian economy (WEF, 2011).

4938 4794

5595

66006972

6037

7700

8862

7575 7498

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

International tourist arrivals in Romania (thousands of tourists)

• all types of tourism programs offered by Romania meet a strong competition from the West-European markets;

• other countries have a large variety of offers for categories of tourists, but the Romanian offer is, in a way, limited, concentrated only in a few resorts, and there, only in a few hotels;

• by comparison with competitors from Bulgaria, Turkey, Greece or Cyprus, the quality of the service in Romania is lower;

• the entertainment is less diversified;• technical and transportation infrastructure is inadequate;• it is imperative to improve the comfort level in hotels in

large urban areas and in the resorts for foreign tourists;• concerning the quality/ price ratio or the value for money,

Romania is not anymore an attractive tourism market.

• the main destinations are Transylvania (Dracula’ tours, fortresses, landscapes), Bukovina (UNESCO monasteries with mural paintings, rural tourism, gastronomy and traditions), Maramures (UNESCO wood churches, landscapes, old villages with tradition and handicrafts), Bucharest (museums, Palace of Parliament, night life and casinos), the Delta of Danube (cruises, birdwatching, fishing and heritage), Carpathian Mountains (active holidays) and seaside;

• highly appreciated are the patience, hospitality, benevolence, and sociability of the people, great satisfaction with accommodation, information and business services;

• main negative aspects are related to infrastructure and the lack of professionalism of the employees around the tourism, the meals and leisure facilities, the non-competitive prices compared to neighbour destinations (Bulgaria, Turkey, Greece);

• the persistence of some problems about the image of Romania as a tourism destination (pocket lifters, taxi drivers which cheat the customers, stray dogs, lack of cleanliness, lack of parks and public toilets etc.);

• the marketing efforts abroad were inconsequent and/or insufficient.

Compared to its main competitors, Romania seems to be

not competitive:

Country The Travel & Tourism Competitiveness Index 2011

Greece 4.78

Croatia 4.61

Montenegro 4.56

Hungary 4.54

Bulgaria 4.39

Turkey 4.37

Romania 4.17

Thank you for attention!