This year Romania celebrates 25 years since the fall of communist leader Nicolae Ceaușescu, and 10 years since the country joined the North Atlantic Treaty Organisation. The year has started off well, with multinationals such as Deutsche Bank and Continental announcing upcoming expansion projects in the country. This good news is long overdue, as FDI into Romania has fallen significantly since its pre-financial crisis heydays. Investors are hoping that these announcements represent genuine signs that FDI in the country will pick up again.

As one of the world's largest banks, Deutsche Bank’s investment is a prestigious win for Romania and in-keeping with its ‘tech hub’ reputation. The investment is in a new IT centre and the bank will hire “up to 500 technology employees” according to Mihai Ionescu, director and head of the bank's representative office in Romania (the bank currently has about 50 employees on the ground). He tells fDi Magazine: “This is the first technology centre in Romania [for Deutsche Bank] and it will develop software applications to be used within the Deutsche Bank group.”

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From the car industry, German tyremaker and automotive manufacturing company Continental has forecast the creation of another 1000 jobs in different centres in Romania, including Timiosara, Brasov and Iasi. This will take the automotive supplier's tally up to 13,000 employees in the country. Continental’s total investment since first landing in the country as far back as 1998 is €800m and it is involved in both production and research and development there.

Alongside these two examples, there have been 17 other investment projects announced in Romania in the first month of 2014 alone, according to greenfield investment monitor fDi Markets. These are across a range of sectors, including real estate, which has been the lead sector for greenfield projects into Romania, as well as software and IT, and automotive parts (both key sectors, as the investments by Deutsche Bank and Continental show).

If this level of investment is sustained, then 2014 could see investment into Romania rising to levels not seen since before the global financial crisis. However, having endured such hardship in recent years, no one in the country will be taking anything for granted.

Ahead of the game

Before the global financial crisis, Romania was considered a highly attractive destination, with FDI inflows peaking in 2008, according to Unctad statistics, at $13.91bn. This is compared with about $9.85bn in neighbouring Bulgaria. M&A levels were also high: the total value of crossborder M&A deals in 2007 was $1.93bn, more than Bulgaria and Poland put together.

Romania garnered interest from almost the moment its communist regime collapsed. A lot of its original attraction was in the high-tech and IT sectors, with the country attracting firms including Microsoft, Adobe, Intel, Electronic Arts and Amazon.

As a result, Romania quickly developed a thriving games industry. Ubisoft, the French games company behind Assassin’s Creed, first invested in the country in 1992, and now employs 1000 people. Sebastien Delen, the managing director of Ubisoft Romania, tells fDi Magazine how the company became established in the country. “In 1992, Yves Guillemot, the CEO and founder of Ubisoft, was travelling in Romania on vacation and was impressed by the talent. At the time it was difficult to recruit programmers in France, but it was different in Romania. There were these fantastic universities, such as the University Politehnica in Bucharest, with excellent students,” he says.

Romania now has its own games association, and games companies employ both testers and developers through it. It is no surprise, then, that between 2003 and 2013 the sector created 7478 jobs in Romania, according to fDi Markets.

Talent pool

Mr Delen says that the impressive standards of education and universities in Romania have been instrumental in attracting foreign investment. “First, the standard of maths in high schools is higher than in other parts of Europe, so when they reach university they already have a head start. The universities continue that good work," he says.

As a result, software, IT and games companies have forged strong links with specific universities, offering internships to access that talent. Indeed, this is the case in other industries too, such as the automotive and manufacturing sectors. Continental has built relationships with technical universities in all the locations in which it operates, as Dr Christian Von Albrichsfeld, head of R&D in Continental Automotive Romania, explains. “All our locations are in university cities and we had the chance to meet the students," he says. "We have done this from day one and these [relationships] have developed over the years, [leading to] partnerships for developing curricula, internship programmes, diploma master theses and so on.”

Investors and commentators consistently refer to the quality of talent that exists in Romania. Alex Ash, director of business and location consulting at professional services firm Jones Lang LaSalle in London, says: “Romania has much to recommend it in terms of availability and scalability of talent, including specialist pools of software developers and programmers. There are some really good universities turning out bright, ambitious graduates.”

Of course, this is relative to the cost of labour, and with salaries lower than in much of the rest of Europe (on average €500 per month), the combination of high quality and low cost has been critical. Language skills are evident too, with French often spoken (in its more distant past Romania had strong historic links with France and had adopted much of French administration, law and language until the communist era) as well as English and German.

Credit crisis

Since its promising start to post-communist life, however, there has been the small matter of a global financial crisis and the subsequent crisis in the eurozone, from which Romania has not recovered in the way that some of its central and eastern European neighbours have. FDI inflows plummeted across the region in 2009 and 2010, but in 2011 and 2012 they started to recover in the Czech Republic, Bulgaria, Hungary and Slovakia, according to Unctad statistics. Only Poland and Romania continued a downward trend.

In Romania, FDI inflows were down to $2.24bn in 2012. Data from fDi Markets shows the same trend in project numbers: in 2008, there were 309 projects recorded in the country, this figure was down to 138 and 122 in 2012 and 2013, respectively.

The effect of the downturn is not surprising, of course. Growth before the crisis was stimulated by foreign investment, which created employment, boosted consumer confidence and increased consumption. With the global financial crisis and then the eurozone crisis, all that changed. Established foreign investment in Romania has kept up the country’s exports, but recovery in the domestic space has been sluggish.

Gefco is a transport and logistics company, originally established in France and with operations internationally. It has its closest links with the automotive industry and, particularly, finished cars. Gefco’s operations in Romania started in 2005. Its general manager, Christophe de Korver, believes that the recovery has been slow in the domestic market in Romania because of the credit crisis – when too many loans were granted. He notes that credit is now much more difficult to get. “The real problem is now that the banks are very cautious. Romanians are spending less and they want to keep their money, they can’t consume so much,” he says.

Turbulent environment

Perhaps another part of the answer to the conundrum of slow recovery is that Romania has experienced considerable turbulence over the course of 2012. There were political protests across the country as a backlash against austerity measures from the time of the crisis (such as cutting public sector wages by 25%), higher taxes and cronyism among the political elite. Thousands of demonstrators took to the streets at various times in that period with particular ire shown towards the president, Traian Basescu. There were also two changes in government, one as a result of a vote of no confidence and then later an election. To add to the upheaval, corruption charges were brought against Adrian Nastase, the country’s prime minister between 2000 and 2004.

Potential instability may be an issue again as there are still serious concerns about the rule of law. For instance, there was widespread criticism when parliamentarians changed the criminal code earlier this year to shield themselves from corruption investigations when they are linked to public office. There is also a presidential election in November, which may cause further political upheaval.

Added to which, Romania does have some inherent problems for investors such as lagging infrastructure in some areas, unnecessary bureaucracy and a complex taxation system. Mr Ash says: “While the fundamentals for direct investment are sound, on the downside, the government could do more to improve the investment climate by offering greater support to prospective investors. For instance, there is no functioning investment promotion agency and government departments are often difficult to reach.”

Positive note

There are those that believe that these problems are outweighed by the many factors that made Romania a popular investment choice before 2008, however. Mihai Pop is manager of M&A at professional services firm Ernst & Young in Romania, and he gives several reasons for optimism. He quotes recent GDP growth, which for 2013 was at 3.5%. He says that though “the main growth drivers are coming from exports in automotive and agriculture”, consumption growth and a recovery in the domestic market “are predicted for 2014”.

Mr Pop argues that investment interest will continue. In the automotive sector he says that the country has reached a point of “critical mass” where “international majors are looking to invest directly in Romania, and their gravitation is bringing the suppliers with them”. The arrival of French car manufacturer Renault and others, before the crisis, is testimony to that possibility. He also makes the point that Romania’s geographical position could be important for investors engaged in “logistical chains” because of its Black Sea port of Constanta, which he refers to as “the feeding end of central and eastern Europe from the Black Sea".

Mr de Korver, whose Gefco business is one of logistics, agrees. He says: “This port gives us very good access to and from Asia; during the Soviet era it was one of the strongest ports in the region. Even though there has been significant investment to improve congestion, the north European ports are sometimes saturated so it can be a real advantage to ship goods through the Black Sea. If you look at it this way, Constanta is the EU’s biggest port into the Black Sea.”

However, Constanta is still poorly linked by road and is hemmed in by the huge mountain range of the Carpathians.

Russian influence

In terms of its geography, Romania has a powerful near neighbour in Russia. Mr de Korver says that Romania acts as a good entry point to Russia: “Along with Bulgaria and Poland, we are the last countries before Russia. And so some international companies prepare their goods here, such as what are known as ‘knocked-down cars’ [unfinished cars], and then they are delivered into Russia for assembly there.”

But the Russian connection only goes so far. Though Russia and countries in the Commonwealth of Independent States could become important targets for Romanian trade, commentators do not see this as part of a broader trend towards Russian markets – Romania’s relationship with the EU has become too embedded for that to happen. And, of course, Romania continues to receive significant financial assistance from the EU and the International Monetary Fund (its third aid package was agreed in late 2013).

As Bogdan Belciu, a partner at management consultancy PricewaterhouseCoopers in Romania, explains: “More than 70% of Romania’s foreign trade is with EU countries, especially as we are becoming an increasingly important target for nearshoring.”

With an auspicious start recorded for its FDI numbers, and with its natural and human resources still intact after the financial crisis, Romania may have many causes to celebrate in 2014.