Romania’s digital economy could grow 3.5 times to around 52 billion euros in 2030 compared to 14.8 billion euros last year, with the main drivers of growth being investments in IT&C and digital commerce, according to the report Digital Challengers on the Next Frontier by McKinsey&Company. Thus, Romania’s digital economy could reach around 9.6% of GDP in 2030, compared to approximately 6% of GDP in 2021.
The report Digital Challengers on the Next Frontier analyzes the opportunities presented by the digital economy in ten Central and Eastern European economies – small and medium-sized countries with strong potential for rapid digitization. The three components of the digital economy considered in the report are: digital commerce (online spending on goods and services), IT&C budgets (the value of spending by governments and companies across all sectors on hardware, software, infrastructure and related services) and offline spending on digital equipment (eg for PCs, smartphones, IT infrastructure, cloud, etc.).
Romania, the third digital economy in CEE and the second digital trade market
The digital economy of these ten CEE countries was €124 billion in 2021, with digital commerce accounting for €68 billion, IT&C €49 billion and offline spending on digital products €8 billion. On the other hand, the digital economy of these ten countries could reach 330 billion euros in 2030 as digital commerce – the main driver of growth to date – continues to develop, and the launch of new businesses and digitization of the public sector can accelerate the growth of the IT&C segment.
Romania’s digital economy was estimated at 14.8 billion euros in 2021 – approximately 6% of GDP, according to the McKinsey&Company report. If in 2030 it reaches the estimated value of 52 billion euros, Romania’s digital economy could represent almost 9.6% of GDP. Currently, Romania is the third largest digital economy market among the ten Digital Challengers countries, after Poland (44 billion euros) and the Czech Republic (18 billion euros). The value is split between digital commerce (€9.8 billion), IT&C spending (€3.5 billion) and offline spending on digital products – €1.6 billion.
In Romania, investments in IT&C registered an annual growth of 8% between 2017-2021, reaching 3.5 billion euros. However, the budgets allocated to this sector are still small compared to countries such as Poland (€14 billion), the Czech Republic (€9 billion) or Lithuania (€7 billion). The development of IT&C infrastructure in Romania is developing, which can lead to greater digital literacy among the population. Thus, investments in IT&C can become the main growth driver for the digital economy by 2030.
Digital, 14% of the total retail market in Romania
Digital commerce represents approximately 66% of Romania’s digital economy – this segment registered an annual growth of 17% between 2017-2021, almost doubling its value from 5.2 billion euros to 9.8 billion euros. The large-scale development of this sector can also be seen from the perspective of SMEs selling online, their percentage increasing from 7% in 2017 to 17% in 2021.
Romania is the second largest digital commerce market in CEE, after Poland (26.7 billion euros) and ahead of the Czech Republic (9.1 billion euros). However, the average spend per capita for ecommerce and its penetration rate are among the lowest in the region.
So, a Romanian spent on average around 506 euros for online purchases last year – while the Digital Challengers average was 673 euros. Among the Digital Challengers, the countries with the highest average values per capita for e-commerce are Lithuania (€1,064 in 2021), Slovenia (€866) and the Czech Republic (€849)
In terms of penetration rate, in Romania, the digital segment represents only 14% of the total retail market (68.9 billion euros)the rest being represented by offline trade (59.1
billion euros). With a percentage of 14%, Romania has one of the lowest penetration rates of digital commerce in total retail at regional level, the average for Digital Challengers being 16%.
See also: Online grocery shopping will double its share of European markets by 2030
“Romania is the second largest digital commerce market in Central and Eastern Europe after Poland, with Romanians spending on average around 500 euros per capita, around 25% less compared to similar countries. The COVID-19 pandemic has greatly accelerated the development of digital commerce and led to a significant shift from cash-on-delivery to online card payments. Thus, we observed an increase of over 60% in the volume of card transactions between 2019-2021, with Bucharest being exceptionally different with 45% of transactions. The penetration rate of digital commerce in Romania (14%) must increase by more than half to reach the level of Digital Frontrunners (23%) and double to reach the level of world leaders such as Great Britain or China (~30%)” , says Ovidiu Tișler, Associate Partner McKinsey&Company Bucharest.
Use of innovations that provide additional convenience (payments, omnichannel, fast delivery&returns and data-driven personalization) could help Romania double the size of its digital commerce market, reaching 19.6 billion euros in 2030.
The largest e-commerce categories in Romania are: home and electronic products (39% of digital commerce), transport services (31%) and the fashion segment (14%). During the pandemic, however, the category with the highest growth was that of food products, its value increasing from 123 million euros (2% of digital commerce) in 2019 to 389 million euros in 2021 (4% of digital commerce). Digital records the highest usage rates in the fields of entertainment and tourism.
The role of exports in the growth of digital trade
Exports through digital channels of the Digital Challengers countries reached over €12 billion in 2021, equivalent to around 10% of total domestic consumption. Among the ten countries, Romania and the Czech Republic have the largest share of exports in the total sales of goods through digital commerce. This is mainly driven by two players that have a presence in other countries: eMag (Romania) due to its operations in Hungary and Bulgaria and Alza (Czech Republic) which operates in Germany, Austria, Slovakia, and Hungary.
“Romania stands out in Digital Challengers as the country with the largest share of exports in digital trade – 24% – and with a positive trade balance. These results are significantly due to eMAG’s operations in Bulgaria and Hungary. If we also include digitally marketed services, Digital Challengers’ exports reach approximately 12 billion euros. Therefore, access to the export of digital services such as games, media, aggregators and tourism could help Romania to further increase the value of its exports”, says Ovidiu Tișler, Associate Partner McKinsey&Company Bucharest.
Although the digitization of the public sector is progressing, the countries of Central and Eastern Europe lag behind those of the Digital Frontrunners and the Big 5 in terms of penetration of e-government services (59% vs. 63% vs. 81% of individuals use e-government services). The penetration rate of e-government services is 15% in Romania, which is the lowest among all European countries.
The analysis shows that more digitized countries experienced a less severe economic slowdown on average during the first waves of the COVID-19 pandemic: a 2.3% decline in GDP growth for Digital Frontrunners, compared to a 3.9% decline GDP dynamics for Digital Challengers. By investing in the digitization of companies and state institutions, countries can better respond to crises and mitigate the economic impact.
“A clear lesson of the pandemic is that digitization enables economic growth and provides better resilience in times of crisis. Countries with a strong digital economy adapt more quickly to changes and new requirements, thus responding better to emerging opportunities”, adds Ovidiu Tișler.