A report by The Foreign Investors Council
May 2015, Bucharest - Romania
Quality infrastructure is critical for economic growth, and in Romania much still needs to be done to upgrade the country’s infrastructure to EU standards. FIC believes there are several priorities: the management of the implementation of infrastructure projects, a special program implementation unit, use of private sector expertise, use of financial instruments and public procurement.
The changes made to the Labour Code in 2011 made labour legislation more flexible and better adapted to the socio-economic realities and had a positive impact on the dynamics of the labour market. However, further steps need to be considered for the improvement of the social dialogue; better health and safety at work and working time and employment flexibility; flexibility of transnational relationships - secondment of employees in Romania and abroad and pensions & social security.
Over the past two years Romania has made significant progress in absorbing EU funds but continues to perform poorly compared with other countries. There are several reasons behind this situation: late launch of calls for proposals, fragmented structure of OPs and insufficient correlation with national strategies, difficulties in the preparation and implementation of projects financed from EU funds, delays in contracting technical assistance services, restrictions on filling vacancies, remuneration and fluctuations of staff responsible for management and administration of EU funds, delays in the submission and evaluation process of reimbursement claims.
The Government should transpose EU Law in a way the ensures that this transposition will not have significant impact on Romanian businesses and will not impact their international competitiveness. FIC believes there are several priority areas: environmental legal framework and institutional matters, climate change, remediation of contaminated sites, waste management, packaging and packaging waste, WEEE, EU funds for environmental projects, environmental fund allocations, regulatory & tax incentives, sustainability and corporate social responsibility.
Improving the management of public institutions has always been one the FIC’s primary goals. The smooth functioning of institutions such as the Parliament, Government, various state agencies as well as state-owned enterprises provides the necessary framework for the healthy development of the business environment. In this respect transparency, predictability, the stability of the legislative process and good corporate governance are fundamental.
Several positive developments have taken place in Romania’s energy sector in the past two years. However, a series of outstanding unsolved issues has hindered the growth of the energy sector and has decreased its attractiveness to investors in a context where the need for investments is massive both in the short and long term. Consequently, it is of utmost importance for the authorities to give a clear signal to the market with a well thought-through and stable energy strategy, as well as to improve the following areas: regulation and investments in energy infrastructure, renewable energy, integration into the European market, taxation of energy companies and energy efficiency.
In the last few years, the Romanian fiscal environment has generally improved. FIC welcomes the authorities’ positive initiatives especially the rewriting of the Fiscal Code and Fiscal Procedure Code however, we would welcome more steps in certain key areas like: the legislative consultation process and abuses against legitimate business, national jurisprudence and tax courts, combating tax evasion, voluntary disclosure, constructions tax, tax refunds, corporate tax consolidation and vat groups, VAT global representative or the deductibility of inventory write-offs and reinvested profit.
In 2014, according to the Innovation Union Scoreboard, Romania was still positioned among the last in the EU-27 countries. But this is very likely to change as the Romanian IT hubs become serious competitors to London’s Silicon Roundabout, Berlin or even Silicon Valley. FIC considers the following areas as priorities: broadband connectivity, cyber security & pre-paid registration, transparency on data analytics and on implementing data protection rules, net neutrality and research & development.
The Ministry of Agriculture and Rural Development (MADR) has published a draft medium and long-term strategy for the development of the Agribusiness sector for the period 2020-2030 which was developed with the support of the World Bank. The business environment continues to consider the following areas for improvement as priorities: financing agriculture activities, the alignment of VAT of agricultural products products to European level, investments in infrastructure, the consolidation of agricultural lands, transatlantic trade and investment partnership (TTIP) and a pact for Romanian agriculture.
Despite the strong need for reform of the healthcare system and many public commitments from the Government to do so, advances on many issues has been limited and progress is needed in some key areas like funding the healthcare system, clawback tax, adequate access to drugs, modern IT systems for healthcare, adequate number of healthcare professionals within the Romanian healthcare system and prevention, health literacy and health promotion – key pillars for a healthy society.
For both the business sector and academia it is important to realize the opportunities and challenges of the current macroeconomic, political, social and cultural situation in Romania, to identify and take advantage of them in order to establish the foundation of a modern country, where its human resources are developed to their maximum potential. We cannot accomplish this without developing an economic and educational system based on knowledge exchange and social engagement of all stakeholders. There needs to be a better connection between academia and the business environment.
Small and medium-sized enterprises (SMEs) play a key role in shaping Europe's economy, providing more than two thirds of private sector employment and representing an important factor for economic growth. In Romania, the SME sector represents 99.7% of the total number of enterprises, contributing approximately 55-56% to GDP. FIC advocates government policy and regulation to support the development of Romanian SMEs through the provision of regulatory, legal and financial frameworks conducive to entrepreneurship and small firm start-up and growth.