Romanian FinMin praises robust FDI despite paltry “genuine” foreign investments

Romanian Government officials take credit for what they picture as buoyant FDI these days, but the figures show that the “genuine” FDI - namely new investment in equity - stood at a mere EUR 173 mln in the first seven months of the year (and indeed nearly EUR 1 bln in the 12 months to July) compared to a GDP of about EUR 260 bln in the 12 months to June.

The vast majority of the FDI (EUR 5.5 bln in January-July and nearly EUR 9 bln in 12 months to July) is made up by profits made by FDI companies and credit from parent groups.

“Romania remains an important destination for foreign investors. [...] data shows that our wise decisions keep us on the right path. Foreign direct investment increased by 43.7% in the first seven months of this year, reaching EUR 5.5 bln,” finance minister Adrian Caciu commented on September 13 after the central bank (BNR) released elements of the balance of payment (BoP), Wall-street.ro reported.

In perspective, however, the January-July FDI accounted for just over one-third of Romania’s rampant current account (CA) deficit of EUR 14.9 bln in the same period.

More detailed data show that both the FDI and the CA deficit are partly caused by the unusually high profits posted by some of the foreign companies operating in Romania (such as OMV Petrom).

The “reinvested profits”, namely the profits of the FDI companies that were not yet distributed as dividends, accounted for EUR 5.4 bln out of the EUR 9 bln FDI reported by BNR for the 12 months to July. The loans contracted by the FDI companies accounted for another EUR 2.5 bln.

The genuine FDI was under EUR 1 bln for the 12-month period.

(Photo source: Inquam Photos/Octav Ganea)