Romanian industry has moved up the ladder

12 Nov

…at least when it comes to the export industry controlled by the multinationals. As both the state and domestic capital have lost major opportunities to assert themselves, largely due to a deep periphery mindset and self-imposed disabling conditions, foreign controlled firms have been firing away, tripling the value of exports and making them more complex. Ironically, the socialist planner and the foreign investor seem to have agreed that it is in old school engineering skills that Romania’s best potential lies. And this image runs counter to the popular international discourse that sees Romania largely as a place for assembling shoes and clothes. The country is clearly sitting on a great potential in industrial development and that has to be the assumption for devising future economic policies by the new social-liberal government.

The thing is that since two thirds of all of this is accounted for by FDI and since FDI flows have stalled, the country needs a new development model to keep the pace of industrial development going.

What did Romania export in 20000?

What did Romania export in 2010?

A good measure of the importance of foreign capital is the share of foreign capital in exports and the banking sector. The first is a good proxy for external competitiveness while the second affects the availability of capital to small and medium firms in the economy. On the first measure, throughout the 2000s Romania followed the DME attempt to convert the economy in an assembly platform for MNCs. By the end of the 2000s Dutch, Austrian, German, French and Italian firms (in this order) accounted for about two thirds of Romania’s exports during the decade. And the exports boomed, especially to the EU, where they were twice as big in 2010 than in 2000. Compared to the 1990s, exports in 2010 were 600 percent bigger. Basically, although the share of exports in the Romanian economy is less than a third of GDP, IMF projections tie its growth prospects to export dynamics. According to IMF staff, this ties Romania’s growth potential to the fate of the Euro area (Canagarajah et al 2012).

Contrary to conventional wisdom that paints Romania as a low-end industrial hub, manufacturing attracted most FDI (44 percent), followed by the financial sector, retail and real estate. Unsurprisingly, the socialist planner and the foreign investor had the same preferences: heavy industry and electric equipment. The bulk of FDI was invested in energy, chemicals, means of transportation, mining and steels. Electronics and equipment, two up-and-coming export sectors, accounted for 2 percent of FDI, outdone by IT with 5.5 percent. Textiles and footwear, the erstwhile export niche of the Romanian economy, received only 1.4 percent of FDI.
Indeed, by 2010 Romania lagged behind DME countries in terms of the sophistication of its exports but it did not leg behind very far. It ranked 27th in 128 economies in this regard. Granted, only Slovenia and the Czech Republic are in the top ten of the most sophisticated exporters. Also, Hungary and Slovakia are in the same league with capitalist countries with old industrial traditions such as Italy, the US or France. But Romania ranks in the same league with Poland and Spain and does not lag far behind the Netherlands. In contrast, the Baltic states and Bulgaria have export profiles that put them in the company of commodity exporters (Brazil, Canada), traditional low end manufacturing economies (Portugal) or war-ravaged economies
(Lebanon, Serbia, Bosnia).

The result of all this was the slowdown of the deindustrialization process and even the beginning of a movement up the technological ladder in the export sector. Like in DMEs, in 2010 Romania’s main export markets were demanding (German, Italy, France) and its main exports were middle rather than low-level products. It’s cars, car parts and electronic components, not textiles and footwear, as it was the case in the 2000s. Moreover, in the midst of the crisis, a wide survey on hundreds of investors found that IT, telecom, energy and pharmaceuticals were expected to be the substantial contributors to future growth and that Romania was perceived in investor circles as a country whose emerging competitiveness clusters signaled a high likelihood of more high-tech development.

But is this improvement of the country’s export profile a solid piece of evidence for the case of disembedded neoliberalism? More on that in a future post.

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