Romania is the third-largest digital economy in CEE and the second-largest digital commerce market

Romania’s digital economy could grow 3.5 times to around €52 billion by 2030, compared to €14.8 billion last year, with ICT and digital commerce being the main growth drivers, according to the new McKinsey&Company report titled Digital challengers at the next frontier.

Thus, Romania’s digital economy could account for almost 9.6% of GDP in 2030, compared to around 6% of GDP in 2021.

The report is the third in a series on the digital economy, following The Rise of Digital Challengers in 2018 and Digital Challengers in the Next Normal in 2020, comparing the potential of Digital challengers (Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) with two other clusters in Europe: Digital leaders (Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, Netherlands, Norway and Sweden) and The big 5 European economies (France, Germany, Italy, Spain and UK).

Romania – the third largest digital economy in CEE and the second largest digital commerce market

The report analyzes the opportunities of the digital economy in ten economies of Central and Eastern Europe – small and medium-sized countries with strong potential for rapid digitization. The three main components of the digital economy considered in the report are: digital trade (online retail spending on goods and services), ICT (the value of spending by governments and businesses across all sectors on hardware, software, infrastructure and related services) and Offline editions for digital devices (e.g. PC, smartphones, IT infrastructure, cloud, etc.).

The digital economy of these ten countries in CEE is estimated at 124 billion euros in 2021, with digital commerce accounting for 68 billion euros, ICT – 49 billion euros and offline digital media spending – 8 billion euros. The digital economy of these ten countries in CEE could reach 330 billion euros in 2030 as digital commerce, the main growth driver so far, will continue to develop, while the development of new businesses and the digitization of the public sector will boost information and communication technologies (ICT) can accelerate. Growth.

Romania’s digital economy was estimated at €14.8 billion in 2021 – about 6% of GDP, according to McKinsey research. If it reaches the estimated value of 52 billion euros by 2030, Romania’s digital economy could account for almost 9.6% of GDP in 2030.

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Romania is currently the third largest digital economy in the Digital Challengers cluster after Poland (44 billion euros) and the Czech Republic (18 billion euros). The value is broken down into digital trade (9.8 billion euros), spending on ICT (3.5 billion euros) and 1.6 billion euros offline spending on digital products (e.g. PCs, smartphones, IT infrastructure, cloud).

Digital commerce accounts for 66% of Romania’s digital economy. ICT could be the most important growth driver until 2030

In Romania, ICT grew by around 8% annually from 2017 to 2021 to 3.5 billion euros. However, investments in this sector are still low compared to countries such as Poland (EUR 14 billion), the Czech Republic (EUR 9 billion) or Lithuania (EUR 7 billion). Romania is showing signs of developing ICT infrastructure that can lead to higher digital literacy among the population. As a result, ICT could be the main growth driver of the digital economy by 2030.

With that, digital commerce represents around 66% of the total digital economy – this segment grew by 17% annually and almost doubled from 5.2 billion, which more than doubled from 7 percent in 2017 to 17 percent in 2021.

Romania is the second largest digital trade market in CEE after Poland (EUR 26.7 billion) and ahead of the Czech Republic (EUR 9.1 billion).

However, the average per capita digital commerce spending and digital commerce penetration rate are among the lowest in the region.

Romania’s digital trade per capita was around 506 euros in 2021 – while the average of the Digital Challengers was 673. The highest level of digital commerce per capita is recorded in Lithuania (€1,064 in 2021), followed by Slovenia (€866) and the Czech Republic (€849). Euro)

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In Romania, digital accounts for only 14% of the total retail segment (EUR 68.9 billion), the rest is offline (EUR 59.1 billion). With a penetration of 14%, Romania has one of the lowest rates of digital commerce in all retail in CEE, with the average for digital challengers being 16%.

“Romania is the second largest digital retail market in CEE after Poland, with Romanians spending on average ~500 euros per capita (~25% less digital spending compared to peer countries). The COVID-19 pandemic has significantly accelerated the adoption of digital commerce. It also led to a significant shift from pay-on-delivery to online card payments. From 2019 to 2021, we’ve seen a 60 percent increase in the volume of card transactions. Bucharest remains the national outlier, accounting for 45% of these transactions. Digital commerce penetration in Romania has yet to increase by more than half to reach today’s levels of digital leaders (23%) and double to reach the levels of global leaders like the UK or China (~30%)” , says Ovidiu TislerAssociate Partner McKinsey&Company Bucharest.

Leveraging innovations that offer ultra-convenience (payments, omnichannel, fast delivery and returns, and data-driven personalization) could help Romania double its digital commerce market size, reaching €19.6 billion in 2030.

The report shows that the top categories for e-commerce in Romania are household goods and electronics (39% share of e-commerce), transport services (31%) and clothing (14%). However, during the pandemic years, the fastest growth was in the grocery category, which went from €123 million (2% share of digital commerce) in 2019 to €389 million in 2021 (4% share of digital commerce).

The highest rate of digital usage is found in entertainment, followed by travel.

Export as a contribution to the growth of digital trade

Retail export sales for digital challengers via digital channels were worth more than EUR 12 billion in 2021, accounting for about 10% of total domestic consumption.

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Within the cluster, Romania and the Czech Republic have the highest export share of total goods turnover in digital trade. This is mainly driven by two marketplaces from these countries that have a presence in other countries: eMag (operating in Hungary and Bulgaria) and Alza (operating in Germany, Austria, Slovakia and Hungary).

“Romania stands out in the Digital Challengers cluster as the country with the largest share of digital trade exports (24% based on our analysis) and a positive trade balance. This is largely due to eMAG’s activities in Bulgaria and Hungary. If the services sold through digital commerce are included, the estimated total export market for digital challengers is around EUR 12 billion (goods and services combined). As a result, opening up the export of digital services such as games, media, aggregators and tourism could help Romania further increase export value.” says Ovidiu Tisler, Associated partner McKinsey&Company Bucharest.

Advancing digitization creates more economic resilience

As the digitization of the public sector progresses, CEE still lags behind digital frontrunners and the big five European countries in e-government penetration (59% vs. 63% vs. 81% of individuals). Romania’s e-government penetration is 15%, the lowest among all European countries.

The analysis shows that countries with higher levels of digitization experienced, on average, a less severe economic slowdown during the first waves of the COVID-19 pandemic: 2.3% GDP decline for digital frontrunners compared to 3.9% GDP decline for Digital challengers. By investing in the digitization of companies and governments, countries can better respond to crises and mitigate the impact on their economies.

“A clear lesson from the pandemic is that digitization enables economic growth and offers resilience in times of crisis. Countries with a strong digital economy can adapt more quickly to changes and new requirements and thus take advantage of the opportunities that arise,” adds Ovidiu Tisler.

The full report can be found here.

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