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U.S. Drive Study on the Economic Relations between the U.S. and Romania

Study on the Economic Relations between the U.S. and Romania

This study was commissioned by AmCham Romania and conducted by the Romanian Economic Monitor, a research lab of the Babeș-Bolyai Univeristy in Cluj-Napoca, Romania. The study was conducted during the second half of 2022 and submitted in January 2023 to AmCham Romania. All data reffers to 2021, unless otherwise stated.

Authors: Dénes Csala, Ottó Csíki, Bálint Zsolt Nagy, Kende-Ferenc Pastor, Béla-Gergely Rácz, Levente Szász

(c) the American Chamber of Commerce in Romania 2023

Explore the interactive charts in this study.

This study focuses on the economic relations between the United States of America and Romania and is structured in two main parts:

1. The first part investigates the current status of these relations in terms of foreign direct investment (FDI), job creation and trade.

2. The second part identifies several relevant parameters for the further development of these relations in terms of market opportunities and challenges, trade barriers, and policy recommendations. It concludes with an assessment of the potential economic impact of recent major global developments, such as the pandemic, the U.S.-China trade conflict, and the war between in Ukraine.

U.S. FDI in Romania

Romania, as a NATO and EU member state with a continuously improving, reliable business context has witnessed a dynamic growth trend in U.S. FDI since 1997, the year the Strategic Partnership between the United States and Romania was launched. The last ten years, however, have brought a slight and oscillatory decrease in the U.S. FDI stock in Romania, mainly due to the market exit or non-U.S. company takeovers of some important U.S.-origin companies active on the Romanian market.

The U.S. is still the fifth largest investor in Romania with a significant 7.8% share of the total inbound FDI. This, coupled with the strong rebound of U.S.-FDI growth in the last three years gives us a cautiously optimistic perspective.

U.S. FDI is geographically concentrated in Romania with a few counties producing a large share of yearly revenues achieved by U.S. companies, mainly due to the presence of a single major manufacturer per county: Dolj (Ford Motor), Brașov (Autoliv) and Buzău (Bunge). Bucharest and the surrounding Ilfov county are also in the top, many subsidiaries of U.S. companies being headquartered in the capital or in its close vicinity.

The geographical concentration is also a characteristic of the U.S. states where these investor companies originate from, Michigan (Ford Motor Company), Minnesota (Cargill, CHS Agritrade), New York (IBM, Colgate-Palmolive, Pfizer, Citibank, etc.) and Virginia (Philip Morris, Mars, etc.) being in the top in terms of the most recent revenue figures earned by these companies on the Romanian market.

In terms of the number of employees and the number of U.S. companies in Romania, the capital Bucharest and Cluj county stand out, mostly due to the large number of IT&C companies that are characterized by high aggregated workforce, but a lower aggregate revenue than manufacturers. In parallel, the largest number of U.S. companies investing in Romania are headquartered in California.

Comparing the presence of U.S. FDI in Romania to benchmark countries from the Central-Eastern European (CEE) region, Poland, Hungary and Czechia are clearly above Romania, while Slovakia and Bulgaria are far behind. However, in terms of the growth rate in the last decade, Romania is in the top, indicating that there is clearly room and potential for improvement in the near future, to attract more FDI from the U.S.

Less than 40% of the top 200 companies with U.S. origin are directly held by U.S. entities, while the remainder of more than 60% of the companies are indirectly controlled by U.S. companies through joint ventures or through regional subsidiaries of U.S. companies located in other countries (mostly in Western-Europe).

U.S. FDI companies are mostly present in Romania in traditional industries such as manufacturing (Ford, Autoliv, Philip Morris, etc.), FMCG (Coca-Cola, Pepsico, P&G, etc.), but also in innovative sectors such as IT&C (IBM, Amazon, Microsoft, etc.).

Currently, an approximate number of 900 U.S.-controlled companies are present on the Romanian market. Manufacturing companies have historically made an important contribution to the long-term growth of American FDI in Romania, while the entrance of non-manufacturing companies, such as IT&C and financial service companies happened generally later, in the last 10-20 years, reaching a significant presence on the Romanian market as of today.

With the 900 U.S.-origin companies present in the country, Romania is in the regional top, being overtaken only by Hungary (1280) and Czechia (1020), but clearly overtaking, for example, the much larger Poland (710) or Bulgaria (460) and Slovakia (270). The number of U.S. controlled companies is expected to grow in Romania in the future.

Romanian FDI in the U.S.

The presence of Romanian companies in the U.S. with registered equity or local subsidiaries is approx. 100 times smaller than the U.S. FDI in Romania. Most of these companies operate in the IT&C industry (UiPath being the most well-known recent example), where barriers of entry are lower.

Benchmark countries in the CEE region have similarly low levels of outbound FDI to the U.S., Romania not being an exception in this sense. The five benchmark CEE countries (Romania, Bulgaria, Czechia, Hungary, and Poland) together account for less than 1% of total inbound FDI to the U.S.

Job Creation by U.S. Companies in Romania

Currently, more than 100,000 employees work at U.S.-controlled companies in Romania, which accounts for over 2% of the total Romanian workforce. During the last decade the number of employees working for U.S.-controlled companies showed an overall increase of 51%, while the number of U.S.-controlled companies in Romania remained relatively constant, indicating a dynamic development of these companies.

The percentage of employees working for U.S.-controlled companies from the total number of full-time employees is similar to other countries in the region, where the same figure ranges from 1.18% (Bulgaria) to 2.61% (Czechia).

Trade between the U.S. and Romania

Foreign trade in the U.S. is 24 times larger than in Romania, although its relative value to the GDP in the U.S. is lower than in Romania (foreign trade accounts for 26% of the country’s GDP in the U.S. versus 87% in Romania).

Trade relations between the U.S. and Romania remained stable throughout the years, including a strong recovery after the pandemic, with a general growth trend between 2010 (2.9 billion USD) and 2021 (5.6 billion USD).

Trade between the two countries represents 2.23% of Romania’s total trade, and 0.09% of the total trade of the U.S.

In terms of product types, the trade between the U.S. and Romania relies mostly on manufactured goods, especially machinery and transport equipment in both export and import relations. In terms of services travel, IT&C and financial services represent a significant part of trade between Romania and the U.S.

In terms of goods, the value of foreign trade between the two countries reached almost 4.5 billion USD by 2021 representing more than 80% of the total value of trade between the U.S. and Romania. This value showed a dynamic growth since 2010 (+149%).

Geographical proximity plays a key role in the trade. Romania mostly trades with European partners (80%), and the U.S. is not among the 10 largest trade partners, being on the 20th place in terms of imports, and on the 14th place in terms of exports of goods. The U.S. accounts for 1.3% of total Romanian imports and 3.6% of total Romanian exports of goods (2021).

On the other hand, the top trade partners of the U.S. are located on the American and Asian continent (accounting altogether for 75% of total U.S. foreign trade in goods), Canada, Mexico and China being the most significant countries in this sense. Romania has a lower share in U.S. foreign trade in goods, being the 59th largest import partner, and the 69th largest export partner of the U.S. Romania accounts for 0.1% of total U.S. imports and 0.08% of total U.S. exports of goods (2021).

Examining the products that are important U.S. export categories and important Romanian import categories, it can be seen that there is an overlap between the two, meaning that future expansion of the trade relations between the two countries can be based on these categories: electronic equipment, vehicles, mineral fuels and oil.

In terms of services, the value of foreign trade between the U.S. and Romania equals 1.1 billion USD in 2021. This value has stagnated since 2010 (+1% compared to the 149% growth in the trade of goods over the same period). The 1.1 billion USD service trade accounts for 2.04% of Romania’s total service trade, and 0.08% of the total service trade of the U.S.

Despite the stagnating values, trade in services between the two countries could further be extended, the IT&C sector showing a good potential in this sense as both countries have a strong IT&C base.

In a regional benchmark, the 2.23% U.S. share from total trade volume in Romania is on a par with the benchmark CEE countries where the same ratio ranges from 1.71% (Bulgaria) to 3.59% (Hungary).

Economic Relations by Sector (for selected industries)

The agri-food industry attracts significant U.S. FDI to Romania, being the second largest sector in terms of revenues achieved by these companies. Trade values, on the other hand, are rather small and heterogeneous in terms of the type of goods imported and exported. Irrigation technology modernization in Romania, supported by EU funds, represents a promising field for future U.S. investments.

In the energy sector U.S. FDI is rather small, expected to increase through the cooperation to extract natural gas from the Neptun Deep field in the Black Sea. Romanian imports of energy products from the U.S. include both petroleum and coal, compared to which Romanian exports are much smaller, consisting mainly of oil.

The IT&C industry hosts a high number of U.S.-origin companies in Romania, employing a considerable amount of workforce, achieving at the same time a much lower aggregate revenue than U.S. companies in other Romanian industries. While still below 1 million USD, Romanian IT&C export started to increase sharply since 2012, with an important future development potential.

In the defense sector a few important U.S.-origin companies are present on the Romanian market with signed partnerships to extend manufacturing activities. In terms of trade in weaponry, Romania clearly stands out in the region, together with Poland, as the largest buyers of combat equipment from the U.S. during the last decade.

The manufacturing industry in Romania is the largest from the perspective of U.S. FDI, generating a little less than 60% of the aggregate turnover reached by all U.S.-origin companies present on the Romanian market. Trade in this sector is also fundamental for the U.S.-Romanian economic relations. Sectoral trade is dominated by machinery and transport equipment, with Romanian exports in 2021 clearly exceeding    imports from the U.S. (2.7 billion USD versus 0.9 billion USD).

The service sector (excluding IT&C) is dominated by the presence of large U.S.-origin companies that provide accounting, consulting and outsourced business processes. In terms of revenues achieved by companies with U.S. origin in Romania, the combined size of the service sector (excluding IT&C) is roughly equal to the IT&C industry alone. Trade in services (including IT&C) between Romania and the U.S. reached 1.1 billion USD in 2021, with Romania importing more than exporting to the U.S., imports being dominated by financial services, while exports by business services.

Opportunities and Challenges on the Romanian Market

General opportunities for U.S. companies seeking a presence on the Romanian market include the highly skilled and talented workforce, strong university partnerships for R&D, the favorable geographic location of Romania as a potential relocation option, relatively large market size in the CEE region, but also the strengthening U.S. dollar against the national currency, the Romanian leu (RON).

Government related opportunities include state aid schemes, competitive tax rates and subsidies. Expected infrastructural development funds are another area where further foreign investors can be attracted. The NextGen EU funds will certainly stimulate further investments in the country in the 2022-2026 period, especially in sustainability and digitalization.

Sector-specific opportunities include the further increasing presence of U.S. companies in an expanding Romanian IT&C industry, the increasing significance of Romania in global food supply chains, the crucial role of Romanian energy reserves (especially natural gas) with already existing relations with U.S. actors, the high technology investment needs in several sectors with strong digitalization trends where U.S. technologies are in  the global forefront, or the defense industry where U.S. investments and trade are required in light of the growing geostrategic importance of Romania.

Main challenges on the Romanian market include the shortage and increasing costs of skilled workforce, low levels of digitalization, perceived corruption, underdeveloped infrastructure and high inflation.

Regulatory challenges are related to the costs of compliance with EU and national legislation, the general political and regulatory lack of predictability, lack of a clearly defined fiscal stimulus package and bureaucracy.

Opportunities and Challenges on the U.S. Market

Main opportunities for Romanian companies on the U.S. market are related to the IT&C sector, where entry barriers are lower. There is already an outgoing trend from Romania to the U.S. in the sector, which could see further Romanian companies active in this industry entering the U.S. market.

General opportunities on the U.S. market include the wider spectrum of financing opportunities, the reputational consequences of being present in a highly competitive market, and the reorientation of U.S. companies towards alternative suppliers and business partners, as a result of the U.S.-China trade rivalry.

General challenges related to the U.S. market include the very low experience of Romanian companies in the U.S., the costs of compliance with U.S. standards and regulations, and the generally high competitiveness of the U.S. market.

Barriers to U.S.-Romanian trade

The United States Trade Representative reports trade barriers by 14 categories, out of which 7 apply to Romania as well.

These barriers include (1) Romania’s compliance with EU import policies, (2) differences in technical regulations, (3) stricter sanitary and phytosanitary measures in the EU, (4) lack of transparency in the governmental procurement processes in Romania, (5) insufficiency of intellectual property protection, (6) non-permissive digital and e-commerce regulations, and (7) difficulties of investing into entities to facilitate trade between the two countries.

Furthermore, representatives of Romanian companies face visa restrictions, products are frequently less attractive for U.S. customers, and the lack of a U.S.-EU free trade agreement further complicates the already high trade bureaucracy.

Crisis Outlook

Three ongoing crises and their potential consequences for the economic relations between the U.S. and Romania are analyzed in this study.

(1) The Covid-crisis had a significant impact on U.S.-origin companies active in Romania, especially in the manufacturing sector during lockdown. These effects were successfully overcome, but some global trend shifting effects (e.g., new safety measures, work-from-home policies) and decreased FDI flows still persist.

(2) The Russia-Ukraine war seems to have a lower economic impact in Romania than the pandemic, and a serious recession still seems avoidable. Nevertheless, the economic uncertainties caused by the war will almost surely slow down economic growth in Romania.

Besides the negative effects, this period can represent an opportunity for U.S.-origin companies to relocate businesses from the proximity of the war zone to Romania.

(3) The U.S.-China trade rivalry has primarily global consequences, Romania having small economic exposure to both countries. Nevertheless, global price increases can be felt in the Romanian market as well and can pose a challenge to the further development of bilateral economic relations.


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