With around 20m inhabitants, Romania is the second largest of the ex-communist countries that have joined the European Union since 2004. Though, comparing to other Eastern European states, Romania fell behind in the reform process in the 1990s, nowadays it is one of the fastest developing economies in the EU. Since 2007, the yearly GDP has averaged 2.5% (3rd best growth rate among the Eastern European EU countries), while disposable incomes have increased by 8.8% y-o-y. Based on Berenberg‘s calculations, Romania will remain the fastest-growing European economy over the next two years. According to the latest estimate of the National Statistics Institute (INS), the GDP growth accelerated to 8.8% in Q3 2017, which was the fastest rate in the EU.
The Bucharest Stock Exchange (BVB)
The Bucharest Stock Exchange was launched in 1995 and has been growing dynamically with 386 companies currently quoted in the main and AeRO segments. BVB is also close to meet the criteria of an Emerging Market in the FTSE Russell ranking.
As of the end of October 2017, the market capitalization of the Romanian companies was EUR 19.5bn, while the capitalization of all the companies listed on the BVB’s Main Market (currently 88) accounted for EUR 35.5bn. (EUR 36.7bn together with AeRO segment). In 2016, Romania’s main stock market index, BET, was paying a dividend yield of 7.9%. All of the companies in the BET index have dividend yields of more than 6%, thereof some >10% (i.e. Transgaz -15.5% , Romgaz – 18%, Transelectrica – 16%).
A good place to invest
The Romanian government is creating a pro-investment environment. Since 2007 (EU accession date), several major global companies (Siemens, Ford, Bosch) have set up or expanded operations in Romania. In 2016, the VAT rate was reduced from 24% to 20% and to 19% in 2017, which was a very strong stimulus for consumption. However, it caused the rise of government deficit from 0.8% in 2015 up to 3% in 2016. From a capital gains perspective, Romania also has a relatively small dividend tax – 5% (i.e. in Poland – 19%).
Due to the communist legacy of excellence in science, Romanians are founders of successful tech companies – they can boast about domestic companies taken over by international giants (RAV Antivirus sold to Microsoft in 2003; Clever Taxi accquired by Daimler in 2016). Though the Venture Capital environment is improving, it’s still in its infancy: overall VC investments equal 0.001% of GDP, compared to the EU’s average of 0.027% (data for 2016). We believe that the Romanian’s under-developed and fragmented funding environment should change due to the new EU budget 2014-20 (EUR 40bn in total for Romania, thereof >3 bn for innovative projects).
Overall, from a political and economical perspective, Romania is a safe country to invest. Considering the stable macroeconomic situation (inflation c. 2%, public debt c. 38% GDP, basic interest rate at 1.75% and a relatively stable exchange rate), Romanian economy is an interesting and profitable place to allocate assets.