Romania finally has a shot at foreign investments

Once Hungary, the Czech Republic and Poland join the European Union, Romania may become one of the few Central European countries where Western companies will produce for low costs, benefiting from cheap labour force.

After the fall of the Iron Curtain, investors pumped billions of dollars into Eastern Europe, where skilled and cheap labour force was easy to find.

“Investments in this area of Europe emerged as a counterbalance to the Asian economic expansion,” Cristina Estrada, Analysys main analyst, maintained.

Total value of foreign investments in the Czech Republic last year stood at four billion dollars, while in Poland the level reached ten billion dollars. Hungary, a regional leader as for the rate of investments per capita, now has almost 15,000 companies held by foreign investors.

However, analysts say there are general suspicions according to which, the evolution of EU candidate countries (Hungary, Poland and the Czech Republic), which are now accustomed to prosperity, will most surely bring an increase in all costs involved by a foreign investment.

Consequently, companies such as Continental, Mannesmann, Samsung Electro Machines and Michelin could entirely transfer production from Hungary, the Czech Republic or Poland to Romania, Ukraine or Bulgaria.

“Many investors in industry sectors that need a significant labour force have withdrawn their investments from Hungary, as they found a much cheaper labour force in Romania or Ukraine,” says Istvan Zsoldos, an analyst with Concorde Securities in Budapest.

Chan Wah Kong, Solectron Romania general manager, feels that the next four-five years will be witnessing a significant exodus of foreign investments from Central Europe to the south-eastern area.

“If Romania offers financial incentives, it could become a regional centre for the IT and telecoms industry,” Kong says.

After they join the European Union, Hungary, the Czech Republic and Poland will no longer be able to provide foreign investors with fiscal incentives. Under these circumstances, foreign investments in these countries will be rather grounded on the perspective of cheap labour force, and not on the incentives granted by authorities.

“Under these circumstances, Romania must bet on fiscal incentives, while it still can,” says the representative of a consulting company.

Moreover, foreign investments in areas with a low degree of economic development but with a high unemployment rate no longer seem to represent the key to success, even for Romania.

“It is true that investments make way for economic development and give new life to the community, whose living standard is sensibly improved.

People’s income, high as compared with the national average salary, but much lower than Western salaries, lead to an unprecedented increase in the costs of life, eventually posing a threat even to the fate of the investment from the respective area, which was previously seen as depressed,” Mathias Brandt, senior adviser for a German business consulting firm, told Ziarul Financiar.