Cristian Popa (BNR): Attracting foreign investment must remain a priority; there is no prosperity in isolationism or autarchy

 A stable economic climate, less bureaucracy, no unnecessary barriers and easy access to foreign markets are essential factors for a free and prosperous economy, argues Cristian Popa, member of the Board of Directors of the National Bank of Romania (BNR), in an opinion article posted on LinkedIn.He specified that the present opinion belongs to the author and does not represent the position of the National Bank of Romania."Foreign investment is a vote of confidence from your international partners, and they always vote with their wallets. Attracting foreign investment must remain a priority, and Romania still has a lot to gain from maintaining a pro-foreign investment attitude. A stable economic climate, less bureaucracy, no unnecessary barriers and easy access to foreign markets are essential factors for a free and prosperous economy. It is not for nothing that business representatives always demand stability and predictability. Protectionism is not a solution, it is a problem," writes Cristian Popa, in the article titled "How does Romania become more prosperous?"At the same time, he emphasized that a direct comparison between companies with foreign direct investment (FDI over 10% of the capital) and those without foreign investment (including both private and state-owned) shows a pronounced discrepancy between companies with and without foreign capital in terms of the turnover generated annually, on average, by an employee. Thus, companies with FDI register 960,000 RON/employee, and non-FDI companies (including state-owned ones) 485,000 RON/employee.He also states that one employee in a company supported by foreign investment produced approximately as much as two employees in a firm without foreign capital. Part of the explanation is that FDI firms capitalize on economies of scale, benefit from superior access to capital, advanced technologies, more efficient management practices, and foreign markets, all of which ultimately translate into higher productivity."It is no coincidence that FDI companies pay significantly higher salaries, on average, by 80% (average gross monthly salary costs of RON 9,500 compared to RON 5,200 for non-FDI). In addition, foreign companies often benefit from intangible assets (trademarks, patents, high-performance IT systems, know-how) from the parent company, which increase efficiency and competitiveness, and probably also have easier access to export markets. In contrast, many local micro-enterprises operate with reduced capital and without state-of-the-art equipment, which limits productivity," Popa pointed out.According to him, the productivity gap between foreign direct investment (FDI) and non-FDI firms should not be seen as impossible to recover."There are Romanian success stories, companies that have managed to grow strongly through innovation, digitalization and integration into international economic chains. We also have Romanian companies that thrive outside the country, managing to successfully internationalize their activity. Economic openness must also be seen as an opportunity for local companies to learn, adapt and become more competitive. As local companies mature, our entire society benefits. To love your country means to want it to prosper. There is no prosperity in isolationism or autarky. Sovereignty without liberalism can only bring regression, the over 1.1 million Romanians working in multinationals should know better. For prosperity, efficiency, productivity, international cooperation and integration into European and global markets, capital and "Foreign investments also make Romania more prosperous," the BNR Board of Directors representative noted.In his opinion, another essential aspect is the workforce."FDI companies attract, but also train better-trained employees, which directly contributes to high productivity. It is a spiral: high salaries attract specialists, specialists support high performance and income, which allows for continued salary increases. In contrast, non-FDI companies, especially domestic SMEs, encounter difficulties in recruiting and retaining specialists. Although FDI companies are few in number (approximately 5% of all companies with non-zero turnover), they contribute over 40% to the total turnover of the economy and set a high standard of efficiency. Regardless of contrary opinions expressed in the public space, the reality is that the Romanian economy is driven mainly by the "engine" of large companies and/or with foreign capital. They make Romania more prosperous. Another major contrast "The data highlights a difference between the two categories: turnover per employee is almost double in FDI firms compared to non-FDI firms, but profit per employee is only marginally higher in non-FDI firms," the BNR Board of Directors representative emphasized.A possible explanation is that multinationals often work in industries with low margins and high volumes (retail, automotive, etc.). Moreover, multinationals frequently reinvest earnings in modernization and expansion, a fact highlighted even in the annual FDI reports of the NBR, a large part of the new FDI being, in fact, reinvested profits, argues Cristian Popa."To further develop Romania, economic openness must continue: foreign investments not only stimulate the productivity of the companies in which they are made, but also create spillover effects (the diffusion of knowledge and technologies to local companies), either through partnerships or direct competition," the BNR representative added.According to him, large companies and those with foreign capital do not obtain huge profits, as we often hear, but share the benefits of operational efficiency with employees, through higher salaries, with consumers, through competitive prices, but also with the state, by paying taxes."These companies stand out through high productivity, while microenterprises, exclusively Romanian companies and especially state-owned ones lag behind. These disparities are not accidental and indicate the existence of structural factors that influence the efficiency of companies. First of all, economies of scale, easier access to capital markets and the ability to invest in technology make the difference. Investments are essential for increasing productivity in the long term. Best management practices and efficient corporate governance are other key factors that differentiate high-performing companies. Their lack can lead to inefficient allocation of resources and delays in the adoption of innovations. In this sense, it seems that the presence of foreign capital is not only a source of financing, but also a vector of technological transfer," pointed out Cristian Popa.In his opinion, human capital is another fundamental determinant of productivity."A well-trained, educated, healthy and skilled workforce can use technology more efficiently and generate more added value. Innovation and digitalization also separate efficient companies from the less efficient ones. Romania is at the bottom of the ranking when it comes to innovation in the EU, mainly due to low investment in research and development (R&D), both in the public and private sectors. But innovation does not necessarily mean inventing a revolutionary product, we do not have to reinvent the wheel, it can also be process innovation (finding better methods of organizing production or the logistics chain)," the quoted source specified.Unfortunately, too much regulation and bureaucracy particularly affect small businesses. A dense and unpredictable legislative framework means unnecessary administrative costs, which disproportionately burden SMEs. Large and foreign companies have the resources to more easily overcome these challenges (dedicated teams or the ability to delegate the cost of compliance with bureaucracy), but small businesses waste valuable time and resources interacting with the state. An environment with more flexible regulations, debureaucratized, digitalized and with efficient institutions would allow businesses to realize their full potential, argues Cristian Popa."A strong education system remains essential for a productive and competitive workforce. Just as an efficient health system contributes to a longer working life and maximizing life expectancy, a quality education ensures well-trained human capital. Long-term productivity growth depends on the quality of the workforce, and here the education system can offer more," noted Cristian Popa.In conclusion, there are productivity differences between companies in Romania that can be explained by a combination of internal factors (size, management, invested capital, employee skills) and external factors (access to financing, regulations, investment climate), emphasizes the representative of the BNR Board of Directors."What cannot be explained is the perception of some that the refusal of foreign capital, economic isolation and the return to an idealized past would be a solution. That past never existed as it is glorified today, it was just a mirage, a convenient illusion that ignores the failures of the centralized economy. In the real, modern world, prosperity does not come from isolation, but from integration, cooperation and scaling. To love your country means to want it to be prosperous," explained Cristian Popa.According to him, the analysis presented reflects the economic value generated, on average, by each employee in an active company, providing an overview of the efficiency of different types of companies."The current analysis is based on official data for 2023 and tracks labor productivity in Romania through a simple, but, I believe, relevant indicator: turnover per employee (turnover/employee). This ratio reflects the economic value generated, on average, by each employee in an active company, providing an overview of the efficiency of different types of companies. And the differences are large and hard to ignore. To ensure a relevant comparison, only companies that achieved non-zero turnover were included, excluding inactive companies or those that did not report income," added Popa.He also mentioned that the report does not include PFAs or other similar forms of organization, nor public administration workers or those working for foreign companies outside the country."In the analysis, we also included salary costs, which reflect the total effort of companies to remunerate employees, including gross salaries, vouchers, bonuses and other benefits, reported to the number of employees. Of course, each company is different, and the average hides wide variations between sectors and individual companies. We know the example of Moisil, we know that the average hides a lot, but the purpose of this analysis is to provide a general perspective on how different types of companies contribute to the well-being of society. Another relevant detail is that, out of all companies in Romania, approximately 170,000 companies declared a turnover of 0. The current analysis focuses strictly on companies that generated income in 2023 and is based on the official figures declared to the tax authority, without including the possible gray economy," Cristian Popa explained.