FDI to Romania shrink by 17% y/y in 12 months to July

The foreign direct investments (FDI) to Romania contracted by 16.8% y/y to EUR 5.7 billion (1.7% of GDP) in 12 months to July 2024, less than a quart of the EUR 26.5 bln current account (CA) deficit for the same period, according to data published by the central bank BNR.

Gross FDI (inflows) was roughly equal to net FDI for the period, as the investments made by local entities abroad accounted for only EUR 33 mln for the period, down from EUR 1.1 bln in the previous 12-month period (Romgaz taking over ExxonMobil’s share in Neptun Deep in August 2022).

Furthermore, out of the total FDI to Romania, only just over EUR 1 bln was new equity, while the vast majority of it (EUR 4.3 bln) was reinvested earnings – profits of FDI companies already operating in the country not repatriating its profit.

While trade (with goods and services) is the current account’s main element and the main cause for the external deficit widening, the rising dividends and interest paid to foreign investors become increasingly visible in the overall picture. Part of the dividends return as FDI (as retained earnings), but this is a volatile element.

Of EUR 12 bln (+9.2% y/y) dividends earned by the FDI companies in 12 months to July and counted as outflows in the CA balance, only EUR 4.3 bln (-14% y/y) were retained as FDI. They were still large enough to account for the largest part of the overall EUR 5.7 bln (-16.8% y/y) FDI to Romania for the period.

The new FDI (new equity) inflows halved to EUR 1 bln in 12 months to July.

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