A strong private sector is key to Romania’s economic growth

Improving the business environment remains a priority for the country, while improving productivity and global competitiveness will require urgent investments in infrastructure.

Romania has made impressive strides in its economic performance over the last decades, but the country is still facing a large convergence gap with EU living standards, and wide regional and social disparities.

To address this, Romania needs to harness its private sector to re-ignite sustainable, inclusive growth and create jobs, according to a new International Finance Corporation (IFC)-World Bank report.

The Romania Country Private Sector Diagnostic (CPSD) says the private sector remains the engine of the country’s economic development and can help create new, better-quality jobs, and drive connectivity, productivity, and competitiveness.

The report also highlights concrete examples to boost economic opportunities through green and digital transitions, including through new green value chains, where the private sector could capitalise on recent global trends toward reshoring.

In addition, Romania could build on the success of its booming IT sector and further boost its services sector by improving digital skills, increasing enrolment in tertiary education, and enhancing management practices at firm level. There is also room to improve agricultural productivity and value addition, and advance climate-smart agricultural production.

Untapped human capital

But the CPSD also highlights five cross-cutting constraints currently hampering development that could create a more dynamic and agile private sector and spur growth if addressed.

These include skills shortages and mismatches; governance and institutional shortcomings in the business environment; barriers to competition; limited innovation due to chronic under-investment; and infrastructure and connectivity issues.

Within the EU, Romania has the lowest shares of people with at least basic digital skills and tertiary education graduates, but also some of the highest rates of penetration of high-speed internet and an above-average number of ICT graduates. This points to a large potential for growth through digitalisation and human capital development, which however remains largely untapped.

Disparities in living standards between urban and rural areas are also highlighted in the report. The urban-rural income gap is the second highest in the EU, with the mean urban income almost 50 per cent higher than the mean rural income.

Many communities throughout the country (including a disproportionate share of the Roma) have limited-to-no access to basic services such as piped water, sanitation, internet, or electricity. The uneven quality of education risks perpetuating these divides and undermining Romania’s future competitiveness.

Rural development strategies to modernise agriculture are critical to boost resilience, the report says.

Three critical sectors

Improving the business environment remains a priority for the country, while improving productivity and global competitiveness will require urgent investments in infrastructure.

According to the report, the private sector can help close gaps in three crucial sectors that impact the whole economy, identifying short- to medium-term opportunities for private sector growth and enhanced service provision across the country.

These three critical sectors are the energy sector, with a focus on renewables; the transport sector, across multiple modalities; and the financial sector, with an analysis focusing on inclusion through digitalisation on the one hand and the sector’s readiness for the green transition on the other.

“Romania’s private sector holds the key to accelerating growth, greening its economy, and creating better jobs. But it needs the public sector to continue investing in better labour skills, improving institutional foundations, and creating better infrastructure,” says Anna Akhalkatsi, World Bank Country Manager for Romania and Hungary. 

“Creating a truly competitive environment can ensure the private sector steps up in key sectors, like green energy and transport networks, for the benefit of all.”

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