November 2 (SeeNews) - Romania could be among the European Union's (EU) top ten economies by 2035 but needs economic growth based on investments, rather than on consumption, as well as a general alignment to this ambition, the president of the Foreign Investors Council, an association of multinational companies operating in the country, said.
"Today Romania is the seventeen largest economy in the EU, we do believe it is possible for it to become one of the top ten, but it is going to take twenty years to get there. For this we need growth rates of around 5% on a continuous bases," Eric Stab told SeeNews in an interview on the sidelines of the Foreign Investors Summit in Bucharest on Tuesday.
Romania's annual economic growth accelerated to 6.0% in the second quarter of 2016 from 4.3% the quarter before, due to a strong performance of the agricultural sector and rising consumption, latest data from the country's statistics board, INS, showed.
In September, the National Prognosis Commission, an analyst unit within the finance ministry, revised its forecast for the country's GDP growth this year to 4.8% from a previous 4.2% based on expectations for more robust performance across sectors than originally projected.
However, FIC president sees potential for higher than 4.8% growth this year, provided that it is driven by investments and less so by consumption.
"FDI can be improved and has increased a lot lately, but we are pretty far from the levels we had in 2007-2008. In order to improve it we need progress in the general investment climate," Stab said, adding that more public incentives for investors are needed.
FDI into Romania peaked at 9.49 billion euro ($10.4 billion) at the end of 2008, just a year after Romania joined the EU, data from central bank, BNR, showed. In the first eight months of 2016, it increased 17.4% on the year to 2.741 billion euro. Last year, FDI into Romania grew 25.3% to 3.03 billion euro.
In Stab's view, to draw investors, the authorities should focus on upgrading the infrastructure, raising public and private efficiency and developing the human capital, including through efforts to bring part of the diaspora back.
At the end of 2012, over 2.3 million Romanians were living abroad, mostly in other EU states, according to latest available INS data. Romania had a population of 20.1 million people at the end of 2011, the latest census showed.
One factor that makes Romania's attractive to investors are the low labour costs but they should not be taken for granted, according to Stab, who is also CEO of French multinational electric utility company Engie unit in Romania.
Romania hiked the gross bottom wage by 19% to 1,250 lei ($303/ 277 euro) in May.
"It is not a bad thing to be competitive in terms of labour costs, but you will always find somebody who is cheaper than you are. In the end, it will be more important how competitive the economy is overall, so Romania needs to focus more on added value in services and industry," he commented, adding that it is equally important is to have a skilled labour force and a flexible labour legislation.
To be successful, Romania should abandon the "stop&go" strategy and the authorities should act together with the civil society and political parties, Stab stressed.
"The plan for 2035 is feasible, we do have the potential to do so, we just have to ensure that we all get our act together, that we focus a bit more, that we have people really aligned behind this ambition. Romania needs to recover the ambition it once had to enter the EU, which it has lost in time," FIC president said.
The Foreign Investors Council, constituted in 1997, brings together over 130 multinational companies. Its main objective is to promote sustainable economic growth by improving Romania's investment landscape.
(1 euro =4.5056 Romanian lei)