ZF op-ed: Romanian investors’ dividends could boost the economy

The companies controlled by local shareholders in Romania have retained for investments only 24% of the profit generated during 2014-2018. Therefore "tens of billions of euros" left in the hands of Romanian entrepreneurs represent a "potential capital" that could help the economy weather a financial crisis such as the one prompted by the coronavirus pandemic.

The conclusion, included in an editorial published by Ziarul Financiar daily, is based on the fifth report on the state of Romanian private capital that the newspaper published earlier this year.

Out of the EUR 50 billion net profits generated by the companies held by local owners, only EUR 12 billion was re-invested. The remaining EUR 38 bln has been consumed or is somewhere out there ready to be invested - the daily infers. The ratio between consumption and saving can't be established, ZF admits.

But this is only one of the weak points of the theory of the idle "tens of billions of euros" waiting to be picked by local entrepreneurs. The capital of the Romanian-held companies increased by some EUR 35 bln over the reviewed period (2014-2018), out of which EUR 12 bln was formed by the retained earnings, the daily says - not explaining where the other EUR 23 bln came from.

It is common for local entrepreneurs to use the profits generated by one business to invest in other companies, sometimes in different sectors. This further diminishes the potential stock of idle capital to be invested, if any.

The column also details two features of the Romanian-held companies compared to the FDI companies in Romania: the former are more profitable, and they retain for investments a smaller share of the profit. While local companies retain only 24% of the profit for investments, the FDI companies keep nearly 60% of it. This is explained by the different behavior of the local versus foreign investors.

While Romania's first generation of entrepreneurs wants to enjoy the benefits of their new situation, foreign investors place in Romania extra resources that could have not been absorbed by the developed economies and have a long-term view.

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