Strong Private Sector Key to Drive Romania’s Economic Growth, Says New IFC-World Bank Report

Source: 12/7/2023, Location: Europe

Report identifies renewable energy, transportation, and finance as key sectors to accelerate private sector-led growth.
Romania can build on the success of its booming IT sector and further boost its services sector by improving digital skills.
Private sector can capitalize on recent global trends toward reshoring in evolving green value chains.

Romania has made impressive strides in its economic performance over the last decades, but the country is still facing a large convergence gap with EU living standards, and wide regional and social disparities. To address this, Romania needs to harness its private sector to re-ignite sustainable, inclusive growth and create jobs, according to a new IFC-World Bank report.

The Romania Country Private Sector Diagnostic (CPSD) says the private sector remains the engine of the country's economic development and can help create new, better-quality jobs, and drive connectivity, productivity, and competitiveness. The report also highlights concrete examples to boost economic opportunities through green and digital transitions, including through new green value chains, where the private sector could capitalize on recent global trends toward reshoring.

In addition, Romania could build on the success of its booming IT sector and further boost its services sector by improving digital skills, increasing enrolment in tertiary education, and enhancing management practices at firm level. There is also room to improve agricultural productivity and value addition, and advance climate-smart agricultural production.

But the CPSD also highlights five cross-cutting constraints currently hampering development that could create a more dynamic and agile private sector and spur growth if addressed. These include skills shortages and mismatches; governance and institutional shortcomings in the business environment; barriers to competition; limited innovation due to chronic under-investment; and infrastructure and connectivity issues.

"The CPSD outlines concrete recommendations for Romania to harness the power of its private sector and move to the next stage of sustainable and inclusive growth," said Rana Karadsheh, IFC's Regional Director for Europe. "We are committed to continuing to strengthen our relationship with the Romanian government and contributing our global knowledge, expertise, and capital to help the country leverage these opportunities and create the quality jobs of tomorrow."

Improving the business environment remains a priority for the country, while improving productivity and global competitiveness will require urgent investments in infrastructure. According to the report, Romania could harness private investment in three critical sectors: energy—particularly renewables; transport at national and city levels; and finance, through digitalization, to boost financial inclusion and the green transition. It outlines detailed diagnostics to achieve this and drive productive, sustainable, inclusive growth.

"Romania's private sector holds the key to accelerating growth, greening its economy, and creating better jobs. But it needs the public sector to continue investing in better labor skills, improving institutional foundations, and creating better infrastructure", said Anna Akhalkatsi, World Bank Country Manager for Romania and Hungary. "Creating a truly competitive environment can ensure the private sector steps up in key sectors, like green energy and transport networks, for the benefit of all."

The World Bank Group's CPSDs provide in-depth economic analyses identifying opportunities to unlock private sector investment and create opportunities for more people. The World Bank Group will channel its private sector development lending, investment, and advisory operations in Romania to target the sectors and areas of reform highlighted in the report and help the government prioritize recommended actions.

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