Tuesday, April 15, 2008

Romania's growth is double-edged sword

By Drew Wilson
Courtesy of EE Times Europe

BERLIN — Romania tells two stories. On the one hand, foreign investors consider the country the most attractive destination for investment in Central and Eastern Europe. According to a survey by the Center for European Economic Research (ZEW), 37 percent of foreign investors polled consider Romania the most attractive site, ahead of Poland at 34 percent and the Czech Republic and Hungary at 6 percent each.

Nokia even uprooted its mobile phone plant in Germany and sent it to the Romanian city of Cluj Napoca.

FDI is expected to reach $7B this year, about the same as last year, according to ARIS, the government investment promotion unit.

The figure represents nearly 20 percent of total FDI in the 10 new EU members, which totaled $62B (39.3 billion Euros) last year.

On the other hand, wages haven't kept pace with the country's fast economic growth. Low wages " in many sectors the lowest in the EU " effectively threaten the country's competitive advantage. The average monthly net wage increased to $527 (333 Euros) today from $196 (124 Euros) in 2002.

Workers at Renault's Romania plant have gone on strike for a 50 percent wage increase, which, if approved, would bring salaries to one-sixth the level of a French Renault worker, according to a report by Bloomberg. If workers win the increase, officials fear labor unrest will ripple across the country.

The low wages have also caused a worker migration to other countries in search of higher paying jobs, resulting in a labor shortage in some sectors.

Romania's GDP growth slowed to 6 percent last year from 7.7% in 2006, according to the World Bank. Medium-term growth could remain robust if the country manages to tame inflation, increase productivity and reform labor markets, the Bank said.

No comments: