The financial news these days is devoting quite a bit of attention to Japan. Of course, a recovery of Tokyo’s stock market to highs not seen since 1989 has been the catchy headline, but that would still seem an unusual prompt for this article’s focus on Romania. Indeed, at first glance, you might think the 1989 date has overlapping significance with the break-up of the Soviet Union and the fall of the Ceaucescu totalitarian regime. Again, not so much. In fact, the fortunes of both countries had very different starting points in 1989. Japan was the globally dominant industrial economy of the time while Romania was in a state of economic collapse. So, our interest in potential parallels is focused on more recent years and three macroeconomic factors which are grabbing Japan headlines, and  pointing to potential Romanian opportunities.

A recent chat with an Asian hedge fund manager revealed that almost 80% of his portfolio was currently invested in Japan. This did surprise given India’s rapid economic growth, China’s massive consumer market and South Korea’s embrace of technology. The fund manager’s investment thesis inevitably had a relative value argument as well as a catalyst presented by recent regulatory rules to force listed companies to put their huge cash piles to work or hand the cash back to investors. Clearly, these financial drivers have no real relevance for Romania watchers but additional observations on change in Japan really did resonate. What was particularly interesting was Japan’s embrace of perceived national-specific challenges and turning them into opportunities.

*Demographics: Japan’s ageing population and shrinking workforce has prompted a significant upsurge in female work participation rates to 74% in 2002. That percentage was just 63% a decade previously.

*Artificial Intelligence/Technology: Like demographics, the perception of AI has attracted its fair share of negativity. In Japan, reduced labour pools have accelerated the deployment of robotics, machine learning, AI assistants and even chatbot romance! This early forced adoption of tech-assisted work has placed Japan very much in the vanguard of AI revolution readiness.

*Friendshoring: No, not a dating innovation. The battering of the rules-based world order by Russia and the saber-rattling by Beijing on Taiwan has forced global companies to re-consider China-centric supply chains. One of the key beneficiaries of this move to more reliable friendly nations has been Japan as a steadfast Asia-Pacific ally of NATO countries. This has attracted a wave of investment in the manufacture of critical engineering and technology items.

Perhaps, the best way to capture the scale of Japan’s reversal of fortune is to watch what famed investor, Warren Buffett, is doing. In recent years, Buffett, has been buying ownership stakes in some of Japan’s biggest industrial trading houses, known as sogo shosha. He clearly is aware of Japan’s challenges but also sees how adapting quickly could give it a competitive edge in Asia.  Back in Romania, it is not difficult to recognise similar challenges. However, there could be related opportunities too.

First, on the economic front, Romania is delivering some excellent numbers. GDP per capita has jumped from 53% to 75% of the EU average since 2010 and could reach EU parity by 2030. This may seem paradoxical in the context of perceptions of poor governance and brain-drain demographics. And, it is true that Romania’s population has fallen from 23 million to 19 million since 1990; a staggering 16% decline exacerbated by the emigration of 5 million people. However, if we look to Japan for encouragement, then the current Romanian female workforce participation rate of just 42% looks like an opportunity for an economy which has ranked second to Ireland in the EU for post-pandemic GDP growth. This is not just catch-up growth. There is, like Japan, an interesting technology story happening behind the headlines.

Romania’s IT sector recently received favourable coverage in Forbes magazine. The thrust of the article was that “Romania can leverage its robust IT ecosystem to establish itself as a distinguished player on the global stage and, in turn, become the country’s defining brand.” Big words, big mission but do they stand up to data scrutiny? A bit of data digging would indicate very encouraging building blocks. Try a few of these for size:

*Romania has 17.8 million internet users, an 89% penetration rate which is one of the highest in Europe. Note recent progress in internet connectivity has been credited as one of India’s key growth drivers.

*Romania ranks third for internet speed and most affordable in the EU with broadband costs of just $7.5 per month.

*This broadband access appears to be paying dividends in embedding IT skills in the workforce. Romania has more IT specialists per 1,000 residents than the US, ranking highest in Europe and 6^th globally.

*A graduate pipeline of almost 10,000 ICT students every year (9,308 in 2021 from 40,000 students) augurs well for the future and foreign direct investment (FDI)….

Finally, given the destructive conflicts in Ukraine and the Middle East the strategic move to “friendshoring” will continue to be a consideration for global companies needing to de-risk their supply chains. Romania, as a member of both the EU and NATO, is well positioned to pitch its merits as an attractive home for capital investment. It also feels like perceptions are about to change. In fact, the Harvard Kennedy School of Government tracks the productive capabilities of national economies and ranked Romania in 2023 as the 19^th most complex and sophisticated in the world on its Economic Complexity Index (ECI). The ECI is a more nuanced measure (vs GDP per capita) of an economy’s structural potential, and is likely to catch the eye of supply chain risk manager types.

Closer to home, SilverBack can attest to Romanian growth from a different perspective. The percentage of Romanian workers in SilverBack projects, constructing new technologies and industries for the future, has tripled from 10% to 30% in just three years. This might appear like valuable skills being lost to other countries but, as an Irish company, we can look to history and know that the building of knowledge, standards, aspirations and leadership in foreign lands can ultimately be very positive for the home country. Right now, Japan’s re-invention of its economy should be an encouragement for those who look behind the challenging headlines for opportunity. As you can see above, Japan’s challenges are not unique and Romania could, in time, be Europe’s own eastern inspiration.