Romania is very competitive in terms of costs, and industrial production has increased significantly in recent years, qualities that can turn the country into a magnet for investments in the production area.
The CEE region has seen one of the highest rates of economic growth in the last decade, and industrial production has kept the pace. Probably the biggest advantage that countries in this region have is the labor market, with wages several times lower than in Western Europe and, in recent years, surprisingly similar to those in China, the report noted.
“Bulgaria remains well below the level of labor costs in China for production operations, Romania is comparable to China, and Poland and Hungary are not much higher. There are major differences from a decade and a half ago, when Eastern European countries were either preparing to join the EU or had just become members. Between 2004 and 2018, average manufacturing costs increased 5.6 times in China, while in the CEE region the advance was much lower. And all these at a productivity which has clearly kept up the pace,” said Laurentiu Duica, Partner & Head of Industrial Agency at Colliers International.
Specifically, the Czech Republic, Hungary, Poland, Slovakia saw an increase in labor costs of 1.6 to 2.6 times from 2004 to 2018, while Bulgaria and Romania recorded increases of just over 3 times in the same period. For comparison, labor costs in the German production sector are about 3 times higher than in the Czech Republic and Slovakia, about 4 times higher than in Hungary and Poland, almost 6 times higher than in Romania and almost 8 times higher than in Bulgaria.
“Moreover, the CEE region has overtaken Spain and the UK, as measured by the output of its factories, and is closing in on France. The CEE’s factories were initially focused on goods involving low-complexity manufacturing processes, but this has also changed gradually over time: goods with a higher added value and more technologically complex now make up a much higher share throughout the CEE than a decade ago,” said Silviu Pop, Head of Research at Colliers International.
The pace of productivity growth has remained above the pace of cost advances, and, in all Central and Eastern European countries, the gap between value added per employee and labor costs has widened significantly between 2004 and 2018.
In Romania, the gap between value added per employee and labor costs is slightly below that of China, with neighboring countries also following, with small differences, the report noted.