For rapid and inclusive recovery in Romania, embrace digital innovation

As with many countries, Romania has been hit hard by COVID-19. According to the World Bank’s Business Pulse Survey, sales in the private sector fell by more than a quarter during the second wave of the pandemic, with smaller firms suffering twice the losses as larger ones. Incongruities also persist in Romania’s steep economic divide between the capital city of Bucharest and its more rural regions, risking an unequal and slow recovery.

Both these dynamics threaten to stagnate Romania’s GDP while worsening inequality – but could a single investment bolster small businesses, improve local economies, and help Romania bounce back inclusively?

Findings from World Bank research point at a potential option. According to the flagship report Europe 4.0 – Addressing Europe’s Digital Dilemma, one investment area can simultaneously improve national competitiveness, small-firm inclusion, and territorial cohesion: transactional technologies.

So, what are these? Transactional technologies are innovations that strengthen markets by better matching supply and demand by reducing information asymmetries. To put it another way, they grease the gears of the economy – especially so for small businesses, which often lack the market oversight or consumer data that often enables the success of larger players. For Romania, this is doubly important, as small firms provide more than 65% of all jobs in the country.

Through applications like ecommerce platforms and blockchains, transactional technologies also buoy rural areas by allowing workers and businesses to thrive even when staying local, keeping their cash local as well. With lower prices for housing and office space, as well as more affordable goods and services, smaller regions can compete for talent and firms if digital infrastructure enables a flatter, frictionless market. With the mean rural income being 1.5 times lower than in the urban areas, much progress could be unlocked by enabling transactional technologies access going forward. 

The use of transactional technologies also helps small firms throughout the country to upgrade their business models to boost long-term growth and promote resilience against future shocks. While COVID-19 did accelerate the adoption of some digital technologies, it did not lay adequate foundations for core business transformations. By helping firms collect, track, and better understand their customers and sales data, the intelligence from innovations in transactional tech could help Romania ready its small businesses for the next wave of economic transformation.

Of course, there is also the potential benefit for the many firms that do not exist yet. A bird’s eye view of consumer data would highlight the low-hanging fruit for hungry start-ups, and simplifying registration or tax processes would also help encourage entrepreneurs to bring their idea to market. E-Governance, for example, has a clear path to improvement as demonstrated by the low adoption of its services by Romanian citizens (hovering around 16% of all internet users). By modernizing public services and lowering barriers to entry, investments in foundational transactional tech could drive innovation throughout Romania’s economy.

Today, Romania has a once-in-a-generation opportunity to rapidly scale its digital infrastructure and unlock the potential of modern commerce. Of the nearly 6 billion euros of European Union funding dedicated specifically for digitalization efforts via the Recovery and Facility Plan, rough estimates suggest that the Romanian government has already allocated nearly third to transactional technologies. This trend should continue alongside two additional yet critical efforts:

1. Build basic digital skills for all Romanians: today, only 28% of Romanians aged 16-74 have basic digital skills like sending/receiving emails, connecting to social media, or participating in ecommerce. Romanian rural citizens currently have the second lowest level of basic digital skills in the EU. A robust public program that helps young and old, as well as rural populations better prepare for a digital future would improve social and economic resilience in an ever-changing world.
2. Encourage digital and managerial training for employees: studies show that better managed firms adopt digitalization more quickly and more thoroughly, yet only 6% of firms provided ICT training to their employees during the COVID-19 pandemic.

The data illustrates that a renewed focus on digital innovation, specifically around the cohesion and inclusivity of transactional technologies, would help Romania tackle its double-sided challenge of shrinking the rural-urban divide while growing small businesses. Public investment in critical digital infrastructure and tech education would also lay the groundwork for a rapid and resilient recovery from the ongoing pandemic, and help future-proof the economy against similar shocks to come. Romania’s tech revolution has only just begun.