Romania, along with Vietnam and India, forms the group of countries that have impressed globally over the last decade with their economic performance. They have risen spectacularly in the global rankings of economic complexity and have also recorded GDP growth of more than 80%. The conclusion comes from an analysis of the Index of Economic Complexity developed by Harvard University and teaches an important lesson: strong growth depends on economic complexity, i.e. an economy diversified into high-value areas, says Daniel Anghel, Country Managing Partner PwC Romania
Thus, the much-needed economic recovery that is being discussed these days can be achieved on the basis of these conclusions. The economic recovery plans implemented by Romania in recent years have often been general and without taking into account the major transformations that the world is going through, brought about in particular by technologies. For example, this year's PwC CEO Survey shows that most business leaders are asking themselves whether they can keep up with the pace of this advance to remain relevant in the future. Governments should ask themselves the same question.
What is a complex economy?
The Harvard Index of Economic Complexity measures the sophistication of economies based on the structure of exports. The more sophisticated product categories that few countries export, the more complex a country's economy is. The top examples are industrial metalworking equipment, electrical transformers or precision electronic components.
High complexity means higher value added and higher wages. According to the latest NSI data, average net earnings in industries such as computer manufacturing, motor vehicles or pharmaceuticals are 25-35% higher than the industry average.
Thus, in order to grow the economy and overall economic welfare, the development of complex industries must be stimulated. Statistics show a strong correlation between the growth of complexity and the rate of economic growth. In total, 50 countries that have increased their economic complexity over the last ten years have experienced an average economic growth of 501TPTP3T. At the other extreme, 50 countries that have reduced their complexity have had an average growth of only 29%, below the global average of 37%. Among the laggards are developed economies such as Germany, France and Japan, but also resource-dependent economies such as Norway, Brazil and Russia. France fell seven places in the complexity rankings and recorded economic growth of just 10%. Germany dropped two places, with GDP growth of 20%.
Romania climbed nine places. What's next?
In the case of Romania, the correlation between complexity growth and GDP growth is strong. Ranking 26th out of 145 countries analyzed, it has climbed nine positions in the last decade. In parallel, GDP grew by 83% between 2013 and 2023.
This development has occurred thanks to European funds and significant foreign investment. The foreign direct investment balance increased by 95% from €60 billion in 2013 to €118 billion in 2023. In manufacturing industry, the largest increases in investment were in complex sectors: the manufacture of means of transportation (+1351TPTP3T) and the manufacture of computers and electronic products (+1641TPTP3T).
But projections are that Romania's economy will grow by about 1-2% per year in the coming years. Exports have been growing more slowly than the economy, and dependence on declining partners and markets is a worrying sign. More than a quarter of our exports go to Germany and France, and links with German automotive value chains are strong.
Map to diversification
For Romania, the Harvard analysis points to ample opportunities. Unlike Germany, which needs technological leaps to find new areas of growth, Romania can move forward in incremental steps, capitalizing on existing capabilities.
The analysis identifies potential areas key to the energy transition and smart grids, such as electrical equipment and industrial machinery, electrical panels, electric motors and generators. Other promising segments are rail, agricultural machinery.
These sectors can sustain growth over the next 5-10 years. But for the 2035-2040 horizon, the seeds of even more complex industries such as integrated electronic circuits need to be planted now, as everything from artificial intelligence to electric cars relies on these components.
Romania will not become in the next 15 years a next-generation chip producer like Taiwan, but it can aim to become a relevant player in the European ecosystem, focusing on chip design and R&D or attracting investments in packaging, assembly and testing, segments where significant European funds are available.
Three levers to increase complexity
Diversification cannot be achieved without a mix of existing capabilities and public policies, and increasing economic sophistication rests on three pillars.
The first is attracting foreign investment that brings know-how, not just jobs. Romania has already experienced the effect of knowledge transfer through factories and research centers opened by foreign companies. This must continue, providing not only incentives but also a stable and predictable economic and fiscal environment.
The second pillar is the acquisition of know-how through investments by Romanian companies abroad. In this area, Romania lags far behind other European countries and even its neighbors. Supporting national economic champions in making strategic international acquisitions should become a priority.
The third is nurturing the entrepreneurial and startup ecosystem, which can generate the endogenous innovation we need in the long term.
All this must be accompanied by investment in education and training aligned with the needs of growing sectors.
Development is a choice, not a fluke
Romania is at an inflection point. Developments over the past decade show that it can climb the ladder of economic complexity, but future challenges, from the reshaping of the automotive industry to the energy transition and the advance of artificial intelligence, will test its resilience. Romania now has the capabilities, the opportunities and the timing, the question is whether it will have the vision and discipline to act in the right direction.
