The rise of digital challengers: Perspective on Romania

Digitization could become the next economic growth engine for Romania

Over the past 20 years, Romania has experienced rapid development (GDP per capita grew by 136 percent between 1996 and 2017), fueled by dynamic exports, investments from abroad, a growing workforce with labor-cost advantages, as well as funding from the European Union. Lately, however, many of these drivers are beginning to lose their momentum. Significantly undercapitalized compared with more advanced European economies, Romania is also experiencing a shrinking and increasingly more expensive workforce, with unemployment at record low levels (4.9 percent in 2017). There is a need for unlocking new sources of productivity growth in the country. To continue on its path to increased general societal prosperity, Romania needs to redefine its growth strategy.

This video summarizes key insights from our report on the opportunities of accelerated digitization in Romania, “The Rise of Digital Challengers: Perspective on Romania.” (Video is in Romanian language)

We consider Romania to be one of ten digital challenger markets based in Central and Eastern Europe, with strong foundations on which to accelerate its digitization. The size of the digital economy in Romania (at 6.9 percent of GDP in 2016) is above the CEE average of 6.5 percent, however, there is a clear gap with digital frontrunner markets such as Sweden (9.0 percent). Additionally, high-quality digital infrastructure as well as a legacy technology lock-in that is milder than in Western and Northern European countries, lend support to Romania’s digital challenger status. Relative to other CEE markets, the country exhibits higher digitization rates in the manufacturing as well as utilities and trade sectors. In many digitization-enabling areas, however, Romania performs close to or even below the CEE average, indicating room for improvement. Accelerating digitization in the country to close the gap with Northern European economies could see this base expand by up to €42 billion by 2025. In this aspirational scenario, the digital economy in Romania would grow to represent 20 percent by 2025. This could mean an extra percentage point on GDP growth each year over the period, a 25 percent uplift on the projected baseline growth for the country.

This report constitutes a perspective on Romania as part of a wider research analyzing the opportunities presented by the digital economy in Central and Eastern Europe (CEE). Using new research of our own and an examination of published sources, we define the economic potential from accelerated digitization in the country. We consider Romania, alongside nine other markets in the region (Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia), as a digital challenger demonstrating strong potential for growth in the digital economy, emulating the group of relatively small, highly digitized countries we refer to as digital frontrunners, namely Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway, and Sweden.

We believe that for Romania to benefit fully from the digital transformation, the time to act is now. The sustained economic growth and tight labor market indicates that it is the time to identify future productivity drivers and take necessary actions. Romania along with other digital challengers could work together on digital projects and policy solutions across the region—all with the aim of facilitating digital transformation. To materialize Romania’s digital potential, public-private as well as at intra- and inter-sectorial collaboration becomes even more crucial.