economy of romania

Economy of Romania

Daniela HereaBusiness and TourismGroup 322

Romania has a developing, upper-middle income market economy, the 17th largest in the European Union by total nominal GDP and the 13th largest based on purchasing power parity. The collapse of the Communist regime in 1989, reforms in the late 1990s and early 2000s and its 2007 accession to the European Union have led to an improved economic outlook.Romania has experienced growth in foreign investment with a cumulative FDI totaling more than $170 billion since 1989.Up until the late 2000s financial crisis, the Romanian economy had been referred to as a "Tiger" due to its high growth rates and rapid development.Until 2009, Romanian economic growth was among the fastest in Europe (officially 8.4% in 2008 and more than three times the EU average). The country is a regional leader in multiple fields, such as IT and motor vehicle production. Bucharest, the capital city, is one of the largest financial and industrial centres in Eastern Europe.

Romania's GDP drop during the 1990s.

On 1 January 2007 Romania entered the EU. This led to some immediate international trade liberalization, but there was no shock to the economy. The government is running annual surpluses of above 2%.

The accession of Romania and Bulgaria to the European Union has given the Union access to the Black Sea.

Romania joined the European Union in 2007 and signed the Treaty of Lisbon.

EU membership (2007)

GDP growth reached 8.3% in 2006 according to the statistical office of the Romania (the year-to-year growth amounted to unexpected 9.8% in the 3rd quarter of 2006 and stayed high at 9.5% year-to-year change in the 4th quarter of 2006), and 8.0% in 2007. Table showing selected PPP GDPs and growth – 2007 to 2018 estimations, as of April 2015

YearGDP

in billions of USD PPP % GDP Growth

2007 326.324 +6.317

2008 360.870 +7.349

2009 337.915 −6.576

2010 339.312 −1.149

2011 349.975 +2.158

2012 358.542 +0.689

2013 376.219 +3.5

2014 392.773 +2.4

2015 (est.) 406.964 +3.5

2016 (est.) 425.039 +5.4

2017 (est.) 448.449 +6.5

2018 (est.) 474.120 +7.4

Economic growth

Romania's Nominal GDP per capita per county in 2012.

Romania's Net Salary per county in 2012.

Countries tend to benefit from sharing borders with developed markets as this facilitates trade and development. Below is a table of Romania's neighboring countries, their GDP per capita, and trade values between the pairs. In 2010, as little as 10.94pc of Romanian exports went to its neighbors; while 14.06pc of imports came from these five countries. For comparison, Germany alone accounted for 16.83pc of Romania's exports and 15.91pc of its imports.

Country

GDPUSD per

capita (2013)

Exports toUS billions

(2010)

Percentageof total exports

Imports from

US billions (2010)

Percentageof total imports

Hungary 13,480 1.984 4.04 5.113 8.47

Romania 9,499

Bulgaria 7,498 1.770 3.60 1.890 3.13

Serbia 6,353 0.473 0.96 0.536 0.89

Ukraine 3,900 0.711 1.45 0.725 1.20

Moldova 2,239 0.438 0.89 0.223 0.37

The neighbors

The leu is the currency of Romania. It is subdivided into 100 bani (singular: ban). On 1 July 2005, Romania underwent a currency reform, switching from the previous leu (ROL) to a new leu (RON). 1 RON is equal to 10,000 ROL. Romania joined the European Union on 1 January 2007 and initially hoped to adopt the euro in 2014, but with the deepening of the Euro crisis and with its own problems, such as a low workforce productivity, postponed its adoption plans indefinitely.

The fulfillment of the Maastricht criteriaRomania, as a member state of the European Union, is required to adopt the common European currency, the Euro. For this reason Romania must fulfil the 7 Maastricht criteria, of which it currently meets 4.

One new leu bank-note

Currency

Convergence criteria

Assessment month Country HICP

inflation rate

Excessive deficit procedure Exchange rateLong-

term interest rate

Compatibility of legislation

Budget deficitmto

GDP

Debt-to-GDP ratio

ERM II member

Change in rate

2012 ECB Report

Reference values

Max. 3.1%(as of 31 Mar

2012)

None open (as of 31 March 2012)

Min. 2 years(as of 31 Mar

2012)

Max. ±15%(for 2011)

Max. 5.80%(as of 31 Mar

2012)

Yes(as of 31 Mar

2012)Max. 3.0%(Fiscal year

2011)

Max. 60%(Fiscal year

2011)

Romania 4.6%Open

No -0.6% 7.25% No5.2% 33.3%

2013 ECB Report

Reference values

Max. 2.7%(as of 30 Apr

2013)

None open (as of 30 Apr 2013)

Min. 2 years(as of 30 Apr

2013)

Max. ±15%(for 2012)


2013)

Yes(as of 30 Apr


2012)


2012)

Romania 4.1%Open (Closed in June 2013)

No -5.2% 6.36% Unknown2.9% 37.8%

2014 ECB Report

Reference values


2014)

None open (as of 30 Apr 2014)

Min. 2 years(as of 30 Apr

2014)

Max. ±15%(for 2013)


2014)

Yes(as of 30 Apr


2013)


2013)

Romania 2.1%None

No 0.9% 5.26% No2.3% 38.4%

Romania is an oil producer, but the current level of production is not enough to make the country self-sufficient. Although at one time it was Europe's largest producer of oil, most of its reserves were used and squandered during the Nicolae Ceauşescu period. As a result, it is today a net oil and gas importer.

The pipeline network in Romania included 2,427 km for crude oil, 3,850 km for petroleum products, and 3,508 km for natural gas in 2006. Several major new pipelines are planned, especially the Nabucco Pipeline for Caspian oilfields, the longest one in the world. Romania could cash in four billion dollars from the Constanta-Trieste pipeline.

Romania has considerable natural resources for a country of its size, including coal, iron ore, copper, chromium, uranium, antimony, mercury, gold, barite, borate, celestine, emery, feldspar, limestone, magnesite, marble, perlite, pumice, pyrites, clay, arable land and hydropower.

The energy sector is dominated by state-owned companies such as Termoelectrica, Hidroelectrica and Nuclearelectrica. Fossil fuels are the country's primary source of energy, followed by hydroelectric power. Due to dependency on oil and gas imports from Russia, the country has placed an increasingly heavy emphasis on nuclear energy since the 1980s. The Cernavodă Nuclear Power Plant is currently the only one of its kind in Romania, although there are plans to build a second one in Transylvania, possibly after 2020.

The Iron Gate I Hydro Power Plant, a joint venture between Romania and Serbia.

Energy

Sectors of the economy AgricultureAgriculture employs about 29% of the population (one of the highest rates in Europe), and contributes about 8.1% of GDP. The Bărăgan is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region.Beef production is located in central Romania, while the production of fruits, vegetables, and wine ranges from central to southern Romania. Romania is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the reforms and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) have resulted in reforms in the agricultural sector of the economy.

FishingFishing is an economic mainstay in parts of the East of Romania and along the Black Sea coast, with important fish markets in places such as Constanta, Galati and Tulcea. Fish such as european anchovy, sprat, pontic shad, mullet, goby, whiting, garfish, Black-Sea Turbot or horse mackerel are landed at ports such as Constanta.There has been a large scale decrease in employment in the fishing industry within Romania due to the EU's Common Fisheries Policy, which places restrictions on the total tonnage of catch that can be landed, caused by overfishing in the Black Sea. In tandem with the decline of sea-fishing, commercial fish farms – especially in salmon, have increased in prominence in the rivers and lochs of the east of Romania. Inland waters are rich in fresh water fish such as salmon, trout, and in particular, carp which traditionally has been the most popular fish, including its eggs (icre), fresh or canned.

IndustryRomania has been successful in developing its industrial sector in recent years. Industry and construction accounted for 32% of gross domestic product (GDP) in 2003, a comparatively large share even without taking into account related services. The sector employed 26.4% of the workforce. Romania excels in the production of automobiles, machine tools, and chemicals. In 2013, some 410,997 automobiles were produced in Romania, up from 78,165 in 2000.In 2004 Romania enjoyed one of the largest world market share in machine tools (5.3%). Romanian-based companies such as Dacia, Petrom, Rompetrol, Bitdefender, Romstal and Mobexpert have expanded operations throughout the region. However, small- to medium-sized manufacturing firms form the bulk of Romania's industrial sector.

Regional variation

The strength of the Romanian economy varies from region to region. GDP, and GDP per capita is highest in Bucharest. The following table shows the GDP (2005) per capita of the 4 counties and 2 areas, with data supplied by Eurostat.

Rank Place GDP per capita(US$)

1 Bucharest 27,344

2 Cluj 26,934

3 Timiş 25,121

4 Braşov 24,788

5 Constanţa 24,696

The highest GDP per capita is found in Bucharest and surrounding Ilfov County. Values well above the national average are found in Timiș, Argeș, Brașov, Cluj, Constanța, Sibiu and Prahova. Values well below the national average are found in: Vaslui, Botoşani, Călăraşi, Neamţ, Vrancea, Suceava, Giurgiu, Mehedinţi, Olt and Teleorman.

Foreign trade of Romania

In 2012, Romania's largest trading partner was Germany, followed by Italy. Romania's main exports to Germany were insulated wire, cars and vehicle parts, whereas its main German imports are cars and vehicle parts. The principal Italian imports to Romania include hides, footwear parts, medicaments, telephones and vehicle parts. Romania's chief exports to Italy included leather footwear, cars, telephones, tobacco, men's suits, seats and iron pipes.

International trade

Exports US $45.0 billion f.o.b. (2007)

Imports US $63.0 billion f.o.b. (2007)

Current account US $18.0 billion (2007)

Export partners Italy 20.4%, Germany 17%, France 14% (2007)

Import partners Italy 23.4%, Germany 16%, France 12% (2007)

A chart of Romania's export products

Romania’s economic freedom score is 66.6, making its economy the 57th freest in the 2015 Index. Its score is 1.1 points better than last year, reflecting improvements in freedom from corruption, labor freedom, and the management of government spending that outweigh a decline in business freedom. Romania is ranked 27th out of 43 countries in the Europe region, and its overall score is higher than the world average.

With a steady five-year increase in economic freedom, Romania joins a growing trend in Eastern Europe. Since 2011, economic freedom in Romania has improved by nearly 2.0 points. Advances in six of the 10 economic freedoms include particularly impressive gains in reducing corruption and loosening labor regulations. In the 2015 Index, Romania has achieved its highest economic freedom score ever.

However, even with these improvements and membership in the European Union, Romania’s status as a transitional economy is still apparent. Judicial independence is precarious, and the government has struggled to meet EU anti-corruption requirements. Despite progress, the business environment remains inefficient, a remnant of the country’s Communist past.

Romania’s transition to a free-market economy began with the adoption of its new constitution in 1991. In the post–Cold War period, Romania developed closer ties with Western Europe and was accepted into NATO in 2004 and the EU in 2007. President Traian Basescu has served since 2004 and has survived multiple impeachment attempts. After years of growth, Romania experienced a deep recession as a result of the 2008 global financial crisis. Modest growth has resumed, and the government has made progress in reducing the public debt and budget deficit. Privatization of major state corporations has contributed materially to private-sector growth. In addition to its strategic position on the Black Sea, Romania has extensive natural resources, a productive agriculture sector, and the potential for strong growth in industry and tourism.

RULE OF LAW

Despite some improvement, corruption remains a serious problem. According to the European Commission, there is a lack of “best practices for public procurement,” and the “competent administrative bodies do not apply effective controls to detect conflict of interest and corruption.” The courts continue to suffer from such chronic problems as corruption, political influence, staffing shortages, and inefficient resource allocation.

GOVERNMENT SIZE

Romania’s top individual and corporate income tax rates are 16 percent. Other taxes include a value-added tax and environmental taxes. The overall tax burden is equal to 28.2 percent of gross domestic product, and government expenditures amount to 35.4 percent of domestic production. Public debt is equivalent to 39 percent of the domestic economy.

REGULATORY EFFICIENCY

Launching a business takes five procedures and slightly more than a week on average, but efficient bankruptcy procedures and rules have not been fully implemented. Labor regulations remain rigid, although there have been amendments to improve the labor code’s flexibility. The government listed privatization and market liberalization as major priorities for 2014 but took no action to end distorting subsidies.

OPEN MARKETS

EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Despite bureaucratic challenges, Romania does not generally discriminate against foreign investment. Overall, the financial sector has coped well with the effects of the economic downturn. Banking supervision has been enhanced, but the level of nonperforming loans remains high.

Long-Term Score Change (since 1995)

economy of romania

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