Opinion of the Deputy Governor of the National Bank of Romania (BNR), Leonardo Badea
Beyond the obvious negative effects, the Covid-19 pandemic has highlighted several opportunities for Romania, not only to rebuild the economy, but also to enhance our national production potential and the existing capacity towards a sustainable recovery. We must take advantage of the opportunity to develop a new industrial policy based on the understanding of modern technology, sustainability and social cohesion, as solutions to climate change, economic crisis and post-pandemic recovery.
A national strategy centered on industrial policy must be based on the identification of specific local resources (material, but also human) and government tools that would revitalize internal production capacities. The government can direct industrial policy towards industries identified as strategic and generating competitive advantages, with the aim of stimulating investments towards sustainable industrialization. At the regional level, more cities can become poles of economic growth, increasing the number of development poles already in place, reducing the economic and social disparities between the different zones and decreasing the concentration of the creation of added value only around the centers economic devoted.
The sectors will continue to represent an essential axis for the implementation of the industrial strategy, but, at the same time, each region should be particularly encouraged to identify its specific comparative advantages and subsequently be supported to promote and develop them.
The State (through the central administration) is in a privileged position (having an overview, overview and the capacity to act) to make an important difference in the development of national development potential by reorienting resources to support new activities at the regional level, rather than trying to revitalize declining sectors. This is more likely to support long term growth.
In this perspective, industrial policy must not only be calibrated multisectoral, but must respond to the need for balance in regional development, reducing existing disparities and increasing social cohesion.
Two-way communication must be achieved both from government to local administration and the regional business sector, emphasizing the priorities and opportunities of the global environment (developments in foreign trade, access to European and international funding , interest of strategic investors, etc.), as well as the reverse, based on the identification of local investment opportunities, local comparative advantages and effective and competitive means of encouraging business environment solutions.
In this context, alongside existing funding programs from the State or from European and international institutions, I think it would be a good opportunity to allocate funds (perhaps from public-private partnerships) to cover the needs investment at the national level. This can focus, for example, on the financing of manufacturing companies as well as on the development of (new) regional industrial poles.
An important challenge facing us today is that the economic recovery is uneven not only with regard to business sectors but also regionally reflecting pre-existing disparities. We risk that pre-crisis development delays will worsen if concrete measures targeting these vulnerabilities are not implemented. Public investment projects can contribute to the economic development of backward areas because there is a potential for increasing added value if local specificity is better valued.
Entrepreneurs will most certainly be interested in starting and developing new businesses in these areas which would narrow the gaps if there was an impulse-generating opportunity, as could for example be the development of infrastructure in these areas. I’m not just talking about transport and communication, but also about public health, access to education and lifelong learning, as well as electricity, water , plumbing and other utilities, where the state is involved, directly or indirectly. Numerous studies show that the multiplier effect of public investment is particularly important in times of recession or at the start of the recovery phase. At the same time, studies also show a positive effect on the creation of new jobs. Therefore, investments not only improve living conditions but also generate an economic boost that will most certainly determine which private sector to follow. This has been the case on several occasions, the last time proven by the decisive contribution of the private sector to economic resilience and recovery which exceeded expectations.
It is the moment of a national effort which must be at the center of public concerns, in order to develop Romania through an adequate industrial policy, based on the following criteria:
1. Use solutions involving modern technology as a driving force and innovative ideas generated by intellectual capital within society;
2. Identify industrial sectors with high growth and development potential (eg agriculture and food industry, computer industry, pharmaceutical industry, manufacturing of goods for the use of new ecological technologies, etc.);
3. Set industrial development objectives at both sectoral and local administrative level, with the help of dedicated funding;
4. Identification of partners within the private sector;
5. Establish clear, simple and precise rules for the interaction between the State and private companies.
The crisis that we hope to emerge has shown once again that many developments within the economy and society are interconnected and mutually conditioned. Likewise, the development opportunities brought about by the end of the pandemic are interdependent and linked to the existing vulnerabilities that they should address. Romania’s industrial strategy can only be closely linked to the top priority of reducing disparities in regional development and increasing social cohesion.