Foreign direct investment (FDI) in Romania

FDI in Figures

According to UNCTAD's 2022 World Investment Report, FDI flows to Romania totalled USD 8.6 billion in 2021, 150% more than the level recorded a year earlier. In the same year, the total stock of FDI stood at USD 108.7 billion, around 38.4% of the country’s GDP. According to data from the National Bank of Romania, the main sectors attracting FDI are manufacturing, construction and real estate transactions, trade, financial intermediation and insurance. The main investing countries are the Netherlands, Germany, Austria, Italy and Cyprus. Bucharest is the region that attracts the most foreign capital in the whole country. Figures from the National Bank show that the overall net inflows of foreign direct investments to Romania increased by 9% y-o-y to EUR 9.6 billion in 2022. However, the share of the year’s GDP contracted to 3.1%, from 3.3% one year earlier. The inflow of equity FDI turned from EUR 2 billion inflows in 2021 to EUR 390 million outflows in 2022, mostly due to the EUR 883 million outflows related to the fact that the state-controlled company Romgaz took over a 50% stake in Neptun Deep offshore perimeter from a foreign-registered subsidiary of ExxonMobil.

In terms of FDI, Romania has numerous advantages: in addition to a large domestic market, the country has a strong industrial tradition, coupled with a cost of labour among the lowest in the EU and a well-educated workforce. This has been the reason for the development of a significant industrial sector, particularly car making, but also services. Furthermore, Romania has one of the lowest tax rates in the EU. The tax regime favours industrial investment and start-up initiatives equally. A gradual pick up of projects co-financed by EU funds brings further support for investment. On the other hand, corruption is still a problem, so as legislative instability and weak judicial independence. Romania introduced new legislation which tightens the FDI screening rules, in line with EU Regulation 2019/452: the National Council for Country's Defence (CSAT), an executive body chaired by the President of Romania and having the Prime Minister as its co-chair, may stop an investment if it is deemed to pose a threat to national security. The sectors involved include security, energy, transportation, infrastructure, weapons, etc. The country ranks 49th out of 132 in the 2022 Global Innovation Index and 63rd out of 180 in the Corruption Perception Index. Furthermore, Romania ranks 39th out of 82 countries in the Economist Business Environment ranking.

What to consider if you invest in Romania

Strong Points

The main assets of the country for attracting foreign investment are:

• The country's accession to the EU since 2005 has allowed it to improve the country's international relations and put an end to its relative isolation
• The introduction since its accession to the EU of prudent monetary measures that have enabled the country to gain the confidence of foreign investors
• A relatively low level of public debt and a favourable growth rate: 6% in 2021 (IMF)
• A relatively large domestic market with around 21.2 million inhabitants in 2021 (CIA World Factbook)
• A qualified and low-cost workforce
• A strong agro-food industry (wheat, barley, rapeseed, etc.)
• Low energy dependence on coal, oil, gas and uranium
• A total of 96 industrial park infrastructures offering companies access to utilities and special benefits according to their field of activity, as well as exemptions from property, building and planning taxes

Weak Points

The main weaknesses of the country are:

• Persistent political instability
• Poor infrastructure
• High risks of corruption
• A large informal economy
• Judicial, legislative, fiscal and regulatory unpredictability weakening the confidence of the business community
• A relatively poor population with limited purchasing power and affected by a demographic decline (low birth rate and emigration of qualified young people) and
• Fragility in the banking sector, which does not discourage investment and entrepreneurial risk-taking
• High debt in foreign currencies the private sector
• High external debt of the country

Government Measures to Motivate or Restrict FDI

Romania is actively seeking to attract foreign direct investment and has taken steps to strengthen tax administration, improve transparency and create legal means to resolve contractual disputes quickly. Similarly, since 2009, various governments have been able to reduce the budget deficit from 9.1% of GDP in 2009 to 4.4% in 2019 (according to the Romanian government).

The rise in wages, and in particular the minimum wage at RON 2,300 (about EUR 458), makes it possible to boost growth through sustained household consumption. Finally, the application of a new tax code, adopted in September 2015, allowed the introduction of numerous tax adjustments in favour of the liberalisation of the economy, including a reduction of the VAT rate from 24% to 19% in 2017 and a dividend tax reduction of 16 to 5% in 2017.

Investors can benefit from customs and tax incentives in six free zones (mainly located on the Danube or near the Black Sea). Investments in free zones can be subsidised by the state under EU rules on regional development aid.

Bilateral investment conventions signed by Romania

Romania has signed bilateral agreements on investments with 96 countries.
To see the list of countries, consult the UNCTAD Investment Policy Hub.