Romania Opens Cluj-Napoca IT Cluster
Our Market Reports section analyses the Romanian economic context from Q1 and Q2 2012, highlighting Romania’s GDP performance this year. Furthermore, we summarized adjusted Romanian GDP growth projections of international institutions for 2012, took a look on inflation rates and observed the rank of Romania on the scale of economic freedom. Our focus from the report turns to Cluj-Napoca, with a greater impetus on the Cluj IT Cluster.
Gross Domestic Product output in the EU followed a contraction line in the second quarter of 2012 both among member states of the Union and the euro zone countries. Romania’s GDP growth, however, is remarkably outperforming the figures of its CEE peers: Romania was one of the nine EU states to achieve both quarter on quarter (QoQ) and year on year (YoY) growth and registered the 4th highest economic growth rate in EU in Q2 2012.
Figure 1: Romanian GDP Evolution in 2012. Source: National Statistics Institute (INS).
While in the previous quarter GDP in both the euro zone and the EU27 was down 0.2%, Romania scored 0.5% higher in Q2 2012 against Q1 2012, preceeded by Sweden (1.4%), Latvia (1%) and Slovakia (0.7%). Comparing Q2 2012 to the same period last year, the euro zone’s GDP fell by 0.4%, while the decrease for the EU27 was 0.2%. Meanwhile, Romania’s GDP was up by 1.7% in Q2 2012 than in Q2 2011. Romania’s GDP performance was among the best in Europe.
Figure 2: Romanian GDP Evolution in 2012. Source: National Institute of Statistics.
Neighbouring Bulgaria recorded a more modest growth with 0.5% improvement on a YoY basis. Latvia occupied the pole position based on the YoY GDP increase in the EU with 4.3% GDP growth, followed by Slovakia with 2.9% and Lithuania with 2.7% GDP expansion. Flash estimates published by Eurostat, the statistical office of the European Union, reveal that CEE countries generally had a better GDP performance than the Western European countries.
Table 1: Growth Rates in GDP in Volume, Based on Seasonally Adjusted Data. Source: Eurostat.
Romania’s estimated H1 2012 GDP is put at EUR 56.590 billion gross series, according to data released by the National Statistics Institute (INS). The IT&C industry contribution to the national GDP is 3.6%. Inflation is expected to remain lower in 2012 and 2013 compared to previous years, within the upper margin of the BNR’s 3%±1 point target band. On this basis, the EC services’ Spring 2012 Forecast projects annual HICP inflation to average 3.1% in 2012 and 3.4% in 2013.
The Fraser Institute ranks Romania 36 in the world with a score of 7.41 out of 10 for economic freedom. Data from 2010, the most recent available stays at the basis of the report and the number of countries assessed has increased to 144. Romania has made major improvements since the last report, as it was ranked 48th out of 141 countries put under scrutiny last time.
The Fraser Institute places Romania in the top quartile, way ahead of its CEE neighbours, being preceded only by the Slovak Republic who occupies the 33rd place with 7.45 points. Other neighbouring countries from the region received a least favourable ranking in comparison to Romania: Bulgaria 45th (7.33), Poland 48th (7.31), Czech Republic 58th (7.16), Hungary 64th (7.08), Moldova 85th (6.75), Ukraine 122th (5.94). The Fraser Institute assesses five main areas to establish an overall economic freedom score. The five areas – Size of Government, Legal System and Property Rights, Sound Money, Freedom to Trade Internationally and Regulation – are further split into various subsections.
Table 2: Adjusted GDP Growth Projections for 2012
CLUJ-NAPOCA IT CLUSTER
In response to such favourable economic conditions, Romania has become a highly attractive sourcing destination for companies looking for offshore/near shore software engineering and business process outsourcing. Strong governmental and institutional support, increasing investments by international and local IT companies, stabilizing socio-economic conditions and solid academic background are the key drivers that are pushing Cluj-Napoca, the second largest city in Romania, after the capital, to the forefront of outsourcing software service destinations.
Table 3: Top Outsourcing Destinations from Eastern Europe. Source: Tholons Top 100 Outsourcing Cities 2012.
KPMG Advisory places Cluj-Napoca amongst the first 31 word destinations for investments in the field of information technology, pointing out the key aspects that make the city a location of choice: professional labour pool, attractive costs and geographic proximity.
In 2012 Cluj-Napoca appears for the first time on Tholons’ list of leading locations for outsourcing services. Global service and outsourcing consultancy firm Tholons included in his Top 100 Outsourcing Cities 2012 report Cluj-Napoca as a new entry and positioned the city on the 96th place on the global map of top outsourcing destinations. The report classifies outsourcing locations into three groups: Established, Emerging and Aspiring. There are also locations “On Tholons Radar” which aspire to be included in future reports.
The Ministry of Economy (MECMA) wants to create a new growth pole in Cluj-Napoca, focused on research, innovation and IT services made up of IT companies following the Silicon Valley model.
“The first growth factor are the small and medium IT companies in the area. Their activity brought Cluj -Napoca among the top three cities in Romania in terms of revenues coming from IT and on the first place in terms of revenues brought from export. This opening to export and especially to the markets in the European Union and the US, the fact that the companies in Cluj-Napoca cover a large range of IT services, the fact that there is both Romanian and foreign capital within these companies’ shareholder structure indicate the possibility to reach high capacities of growth within this cluster-type of organisation,” reads in the release.
The second growth factor is the proximity of some of the major universities in Romania, (Technical University and Babeș-Bolyai University) whose large number of students can provide the human resources necessary to develop this cluster.
The third growth factor will be the support provided by the Romanian Government. Inherent advantages of such public-private partnerships are foreign investment-conducive ecosystems for software development and software outsourcing services.
In response to global challenges, service providers are tapping into alternative markets and diversify the potential risks of being highly reliant on the top client markets. As geographical niches are carved out, Cluj-Napoca is poised to emerge as one of the key software outsourcing destinations in CEE.(T.Sz.)