de Radu Magdin

As a share of GDP, Romanian exports are a both relatively recent phenomenon and below the regional average. At 40.8%, the level is similar to Ukraine and a fair bit away from Hungary’s 81%, Poland’s 57%, and Germany’s 47%.

Furthermore, having spent most of the 1990s and 2000s at about 23%, it was only after 2009 and Romania’s joining the European Union that figures started converging with the regional average, which includes countries that are not yet EU members.

In other words, Romanian exports don’t show a significant correlation with the Third Wave of Globalization that enabled so much of the world to achieve prosperity by pro-actively integrating into global supply chains – China’s GDP per capita in 1990 was USD 310, 6% of the global average at the point – but the acceptance of expanding West European supply chains. In other words, for Romanian business internationalization often equals (and we should always acknowledge the economic and strategic importance of such a step) only Europeanisation. 

It could have been worse. For much of the 1990s and early 2000s, not only was Romanian GDP per capita actually stagnant but this reflected a grim reality that Total Factor Productivity (TFP) across the economy had been declining for 22 years since the early 1980s, with the end of Communism being almost unnoticeable from a statistical point of view. Quite simply, the Romanian business world of the 1990s was as productive as late Communist-era management and Ukraine offers a reminder of what could have happened without that external anchor: while GDP per capita in PPP terms was higher in Ukraine than in Romania in 1989, it has actually declined both in absolute terms and in relative terms to just 42% of Romanian levels in 2021.

The prospect of EU membership and EU integration did seem to help end this mire and per capita GDP began a sustained increase, particularly after 2008.  

The downside

Unfortunately, the underlying domestic dynamic remained the same: domestic. Final consumption as a proportion of GDPhovers near 80%, near Bulgaria’s 77%, but ultimately closer to Ukraine’s 87% than Germany’s 71%.  

This isn’t unique to Romania: the McKinsey Global Institute estimates that about 80% of CEE growth in the 2000s was consumption-driven. However, that still leaves the problem of too much economic growth being driven by a domestic population’s consumption while domestic businesses only rarely attempt to innovate, develop, research, and compete in global markets. That population is rapidly aging, has significantly underfunded healthcare and pension liabilities, and may not be able to sustain the same level of growth in expenditure in the future. 

Meanwhile, the main market of Romanian exports, the European Union, is facing the same underlying factors and may be seen as one of the most saturated in the world. So, it may not be the case that German pensioners get converted to the benefits of Dacia in large enough numbers to offset any decline in domestic expenditures.

A Really Global, Big Time, Internationalisation

None of this is new. What West European businesses have been doing, quite successfully, is to internationalize globally and away from the European market – VW has more sales in China rather than Europe, for example. While that also means many of the usual suspects when it comes to emerging markets have long since been saturated as far as European exports go,  there are others: Indonesia is a rising giant in consumer spending; Pakistan’s population might double by 2050; ASEAN as a whole might be as important an export market as Western Europe one day. This is not an argument for the Romanian businesses to ignore the European market, but rather to build on their European lessons and expand to Asia, to benefit from what will likely be an “Asian century”.

Romanian businesses can still seize these opportunities, switching from the 30-year track record of passive accommodation to pro-active expansion and using the former reforming boost from EU integration to reach competitiveness on international markets and offset natural declines in the domestic market.  The alternative is fairly bleak but we need not focus on that: 8 billion potential customers are waiting. Time to go global and go big: Romanian entrepreneurs need a really strong push for internationalization to thrive in the next decade and beyond.

www.forbes.ro