Earlier, I mentioned how bad the economy of Ukraine has been in recent years. In fact, when it comes to case studies on the economic hardships of former eastern bloc countries, academics would often cite Romania as an example.
Today Romania is no longer a by-word for poverty and sluggish economy. Instead, it has become one of the fastest growing and most promising economies not only in Eastern Europe but also in the European Union.
Like many other former Soviet satellite states, Romania was in deep water during the 1990s after the disintegration of the Soviet Union, with its GDP down nearly 30 percent, not to mention that the entire country was plagued by organized crime and corruption. Many also relied on prostitution and drug trafficking to support themselves.
However, Romania managed to pull itself together and turn things around quickly, thanks to its massive and decisive “lean-to-one-side” foreign policy towards the West and the economic aid provided by the International Monetary Fund (IMF).
As a result, western companies and investors have been flocking to Romania since 1993, the year the country and the EU made a free trade agreement. Western capital has proven instrumental in rebuilding the country’s economy.
Last year, Romania’s GDP growth was an impressive 6 percent, while the overall unemployment rate remained at a steady 5.4 percent, making it one of the best performing economies in the EU.
In the meantime, Romania’s economic miracle can also be attributed to the government’s foresight to ride the global tech wave since the beginning of the millennium and its sustained policy support for the research and development (R&D) sector.
The concerted efforts of the Romanian government in promoting R&D and the development of high value-added industries have obviously paid off: today Romania is the undisputed tech and innovation hub of Eastern Europe.
It is estimated that in 10 years’ time, the information technology industry will account for 12 percent of the country’s GDP. To put that in perspective, the tech industry accounted for just 7.1 percent of the overall GDP of the United States in 2014.
However, there are still uncertainties as to whether Romania can continue to remain a bright spot amid cloudy global economic outlook in the days ahead, given the looming challenge posed by its rapidly aging population and the simmering public anger over government corruption and power abuse, which in the long run could threaten the country’s political stability.
This article appeared in the Hong Kong Economic Journal on Sept. 20
Translation by Alan Lee
[Chinese version 中文版]
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