Digital Challengers in the next normal – Romania in the CEE context

Shutdowns caused by COVID-19 speeded up the adoption of digital technologies in Romania and in the CEE region.

During the first five months of the COVID-19 pandemic, the digital economy in Central and Eastern Europe (CEE) grew almost twice as fast as it did in the prior two years. Romania experienced a slightly smaller boost during the same interval. We estimate that between January and May 2020 the digital economy in CEE grew at more than 14% and captured 78%, or EUR 5.3 billion, of the increase seen in the whole of 2019.

In 2018 McKinsey published a series of reports on the rise of “Digital Challengers” across CEE. The analysis examined ten countries: Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. Those countries can be considered “Digital Challengers” as they demonstrate strong digital growth potential and the ability to emulate the success of “Digital Frontrunners”—a group of countries in Northern Europe with high digitization rates. According to the research published 2 years ago, robust digitization in the region had a potential to contribute EUR 200 billion of additional GDP by 2025.

Our new analysis on the same groups of countries suggests that between 2017 and 2019, the digital economy in CEE grew by almost 8% per year, while in Romania the growth rate was even higher, namely 11% per year. In 2019, the size of the CEE digital economy surpassed by roughly 2% the previously forecasted “business-as-usual” scenario, reaching a value of around EUR 94 billion. In Romania’s case, the size of the digital economy was EUR 16.6 billion, up by EUR 473 million compared to our initial scenario. However, the “Digital Frontrunners” from Northern Europe managed to grow even faster, widening the gap to CEE.

The CEE region has an additional digital growth potential. As our recent survey shows, almost 12 million new users of online services appeared in CEE—more than the population of Slovakia, Croatia and Slovenia put together. Of them, 3.4 million, or roughly 30% of the new digital user pool, originate from Romania.

Additionally, the region has the foundations in place for further digitization in the next normal. They include strong macroeconomic performance: GDP per capita increase by 115% in the period 2004–2019, while Romania reported a GDP per capita growth by 147% during the same time interval. The CEE countries also benefit from a high-quality and affordable digital infrastructure, with 92% of populated areas covered by 4G. The region has a large talent pool with 216,000 graduates in STEM subjects (science, technology, engineering, mathematics) in 2018. Out of them, 35,500 are from Romania.

The considerable digital growth potential of CEE is also strongly supported by unicorns worth around EUR 31 billion. Moreover, Romania led the way in terms of total venture capital invested in the region, largely driven by financing rounds for UiPath.

Full report can be downloaded here.

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