Romania and the Evolving European Supply Chain Landscape
Romania is making significant strides in its transition to green energy, with the country on track to source 71% of its electricity from clean sources in 2023. This achievement can be attributed to a substantial increase in hydropower generation, accounting for over 36% of electricity supplies during the first eight months of 2023, compared to around 26% during the same period in 2022, as per data from Ember.
This green energy push positions Romania as a promising location for clean energy investment. As the world shifts towards sustainable energy sources, Romania’s focus on hydro, wind, and solar power makes it an attractive option for multinational corporations looking to establish or expand their presence in the clean energy sector. With the potential to become a key player in the European renewable energy landscape, Romania may see an uptick in inquiries from international businesses seeking to capitalize on its green energy potential.
Simultaneously, Romania’s shifting foreign direct investment (FDI) landscape indicates an exciting development. In 2022, Romania attracted levels of FDI similar to economic powerhouse Germany. This fact raises questions about whether businesses are pivoting away from traditional manufacturing and sourcing hubs like China and steering their investments toward European suppliers to safeguard their value chains.
The National Bank of Romania’s data shows that net inflows of FDI to the country increased by 9% year-on-year to EUR 9.6 billion in 2022. Germany, Austria, and France were the top ultimate investors, indicating solid European interest in Romania. On the flip side, the top immediate investors included The Netherlands, Germany, and Austria, showcasing the role of European countries in contributing to Romania’s FDI influx.
Despite uncertainties caused by global events, including the Ukraine war outbreak, Romania witnessed a positive trend in FDI flows. Notably, the third quarter of 2022 recorded a remarkable 152.9% increase in net FDI flows compared to the previous quarter, indicating growing investor confidence. However, FDI flows declined in the fourth quarter due to winter energy supply uncertainties and accelerated inflation growth.
A closer look at the FDI position breakdown by economic activity reveals a trend toward the industry, with 80% of net FDI flows directed into this sector in 2022. Manufacturing emerged as the primary recipient of foreign investment within the industry, with sub-sectors such as computer electronics, food and beverages, transport equipment, and machinery benefiting significantly. This shift towards manufacturing and industry was a response to the post-pandemic global economic rebound and increased capital mobilization.
On the other hand, the financial intermediation and insurance sector saw a decrease of 47.4% in FDI flows. This was primarily due to the relaxation of restrictions imposed during the pandemic, such as dividend distribution constraints, which aimed to secure capital resources essential for managing the pandemic’s impact on the balance sheets of financial institutions.
The FDI position was predominantly concentrated in the BUCHAREST – ILFOV development region at the end of 2022, further highlighting Romania’s appeal to investors. This concentration reflects investor confidence in the country’s economic stability, growth potential, and strategic location within the European market.
As Romania’s green energy sector expands and FDI remains strong, the country’s role in the evolving European supply chain landscape is one to watch. The focus on sustainability and the desire to reduce dependencies on countries like China align with the broader European strategy for supply chain resilience. Romania’s economic transformation is not only making it an attractive destination for clean energy investment. Still, it also influences how multinational businesses view their value chains in an ever-changing global context.
EU Actions to Enhance Supply Chain Resilience
The EU is intensifying efforts to bolster supply chain resilience in response to its strategic dependence on foreign inputs. The COVID-19 pandemic accelerated these initiatives. The EU’s strategy includes increasing domestic capacity, diversifying suppliers, and supporting multilateral trade rules. Other countries with similar goals are also promoting reshoring or nearshoring.
Before the pandemic, discussions around supply chain resilience were prevalent, particularly with the EU’s green and digital transitions. The European Parliament, in November 2020, called for actions to strengthen, shorten, and diversify supply chains to enhance sustainability and reduce overreliance on specific markets while boosting resilience. In July 2021, the Parliament urged incentives for EU businesses to make their value chains more sustainable and efficient.
The EU’s open strategic autonomy (OSA) approach promotes multilateralism while enhancing its independent capacity. The European Commission’s report on strategic dependencies suggests that strengthening and diversifying external trade is vital. Diversifying import sources and active involvement in multilateral cooperation are recommended. Trade policy tools, partnerships with like-minded countries, and regulation on distortive foreign subsidies play vital roles.
The EU can expand domestic production and stockpile essential goods to enhance supply chain resilience. Industrial alliances and projects of common European interest (IPCEI) can address industrial weaknesses. Public procurement, funding for strategic priorities, and research investment also contribute to resilience.
The EU is examining the specific needs of SMEs to support supply chain diversification. Initiatives like the European Cluster Collaboration Platform and the Enterprise Europe Network aim to help SMEs find new partners and develop essential skills. Additionally, the EU is moving towards mandatory due diligence for supply chains to combat human rights and environmental abuses.
Successful international expansion requires patience, persistence, and a long-term commitment. Expanding an international business into Romania in 2024 can be a promising endeavor, but successful international expansion requires patience, persistence, and a long-term commitment.
Here are some general pieces of advice to consider:
- Market Research:
– Conduct thorough market research to understand the local consumer preferences, economic conditions, and competitive landscape. Romania has a growing consumer market with evolving tastes and preferences.
- Legal and Regulatory Compliance:
– Familiarize yourself with Romanian business laws and regulations. Seek legal counsel to ensure your business operations comply with local requirements, including registration, permits, and tax regulations.
- Local Partnerships:
– Consider forming partnerships with local businesses or individuals who strongly understand the Romanian market. This can help you navigate local customs and business practices.
- Location:
– Choose the right location for your business operations. Major cities like Bucharest, Cluj-Napoca, and Timisoara offer a range of advantages, including access to a skilled workforce and infrastructure.
- Supply Chain Management:
– Develop a reliable and efficient supply chain strategy. Romania’s strategic location in Europe makes it a hub for logistics and distribution, and you can take advantage of this for your operations.
- Taxation and Financial Planning:
– Work with financial experts to optimize your Romania tax structure and financial planning. Be aware of any incentives or tax benefits available to foreign investors.
- Adaptation and Flexibility:
– Be prepared to adapt to the local market’s changing dynamics and economic conditions. Flexibility is vital when navigating a foreign market.
- Networking:
– Build a strong network in the local business community. Attending trade fairs and conferences and joining local business associations can help you establish valuable connections.
- Sustainability:
– Be mindful of sustainability and environmental concerns, as these are becoming increasingly important to consumers and regulators in Romania and worldwide.
Romania’s green energy revolution and FDI dynamics position the country as a significant player in the evolving European business landscape. As the world continues to prioritize sustainability and adapt to shifting economic conditions, Romania’s strategic location, strong FDI flows, and commitment to green energy make it a prime destination for international businesses looking to secure their future in the European market.
If you are interested in learning more about the ways to invest in Romania and searching for a reliable local partner, we are here to assist you.
