Small and Medium Sized Enterprises

Positive Developments

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. 

Romania also has significant socio-political potential in the long-term, for the development of the entrepreneurial and SME sector, which will be supported and stimulated to create current and future business opportunities. The SME sector represents an important source of innovation and makes a crucial contribution to the development of the Romanian economy.

Romania, as a member of the EU, applies European policies to encourage SMEs, as set out in the 2008 Small Business Act. Since the country has a high rural population (46%), there is particular potential for the development of SMEs in the agricultural sector and related industries.

The Government’s SME Strategy for 2014-2020

Several positive developments have occurred in the SME sector in the past two years. In October 2014, the Governmental Strategy for SME development in Romania and improvement of the business environment until 2020 was approved.  

This strategy is focused mainly on two directions: 

  1. Creating appropriate local market economy operations.
  2. Developing conditions for Romanian SMEs to successfully approach external markets.

The Romanian Government is focused on the continuous development of the SME sector in the period 2014-2020 by adopting strategic measures, allocating important public resources, through its institutions and performing systematic activities to encourage the entrepreneurial spirit. The strategy aims to encourage the setting up of new small and medium sized entities, and to stimulate existing ones to increase their competitiveness on local and international markets.

The strategy establishes Government policy for the next 7 years, which aims to increase the total number of SMEs nationwide, as well as to improve their distribution across the country, with a particular focus on those counties where the total is below the European average.

Areas for Improvement

The SME environment

Romanian SMEs have specific strengths and weaknesses that require special policy and strategy actions. Many of the traditional problems facing Romanian SMEs – lack of financing, difficulties in taking advantage of technology, constrained managerial capabilities, low productivity, and regulatory burdens – have become more acute in a globalised, technology-driven environment. 

Small Romanian firms need to upgrade their management skills, their capacity to gather information and their technology base. The GOR needs to improve SME access to financing, information infrastructures and international markets.

The 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.

In this context, the GOR approved the National Strategy for Developing the SME sector in October 2014. 

Recognising the National Strategy as an important step for SME growth in Romania, the FIC is keen to support the relevant Government bodies in implementing the following measures in the Strategy.

FIC Recommendations

FIC Recommendations

FIC recommends the creation of new local and regional business structures to support new SMEs, as well as to help existing ones to operate successfully. The Government should support with expertise existing business structures or facilitate the setting up of new ones (incubators, clusters) that should adequately correlate with the Competitiveness Poles.

FIC encourages the establishment, development and operation of business support structures networks that would improve the capabilities of SMEs to seize business opportunities (i.e. clusters networks, incubators networks, competitiveness poles).

Integration of entrepreneurship as a key part of the curriculum at higher education level is important couple with the provision of support for the public to educate itself and to understand financial terminology. An appropriate curriculum should be developed to support an entrepreneurial culture among students and financial training should be provided for university professors.

Absorption of European Funds for 2014-2020

SMEs represent a substantial part of the Romanian economy and consequently they should benefit from considerable allocations from EU Funds. Along with this allocation certain steps should be taken to make sure that SMEs will have a higher absorption rate than in the past. In the period 2007-2013 the absorption rate was poor, and this needs to improve.

FIC Recommendations

FIC Recommendations

The Government should make sure that the various strategies affecting SMEs are harmonised, and do not contradict each other. The National Competitiveness Strategy, the SMEs Competitiveness Strategy and Regional Development plans should all follow the same national strategic lines.

Certain activities performed by Management Authorities and Intermediary bodies should be externalised towards banks, consulting firms or other private entities which can offer integrated grant management schemes. SMEs could thus find it easier to access EU funding.

 

A multi annual timetable for all programs designed for SMEs (European or national) should be developed and calls for proposals should be opened in the last months of the previous year. There should be clear terms for the evaluation of projects and for signing financing agreements. This will allow SMEs enough visibility to plan future investments.

The portfolio of financial instruments available for SMEs should be further diversified to support traditional instruments like subsidies, loans, guarantees and capital investments. Innovative financial instruments could increase the absorption rate because they could provide the needed flexibility for SMEs to use financial instruments properly designed for their specific needs.

EU funds applications for SMEs should benefit from simplified bureaucratic procedures. All documentation should be standardised and SMEs should not be required to provide exhaustive documentation before knowing that financing will be approved.

Private equity fund for SMEs

In terms of financing, Romanian SMEs have a high debt profile, blocking access to additional leverage (in relations with banks or other financial players) even when their businesses are sound, and they have development opportunities. They need capital to consolidate running their businesses and for expansion.

There is a market opportunity for a private equity mechanism which would help SMEs add value to their businesses. The opportunity is attractive since there are a large number of target companies (SMEs have not implemented profit and value improvement programs to the degree that large companies have).

FIC Recommendations

A private equity fund dedicated to SMEs would have a positive impact on job creation and knowledge transfers and would also increase the value of companies.

The fund’s purpose should be the following:

  • New business development for the expansion or restructuring of existing companies.
  • Technical and financial support for SMEs to help them develop their businesses.  
  • Provision of sustainable direct capitalisation, to increase scale and eventually facilitate further access to financing.

FIC Recommendations

FIC Recommendations

The FIC recommends the setting up of a private equity-like entity, with public-private capitalisation. Two entities need to be created: the fund itself and the management body to run the fund’s business. The management of the fund should have a private investment approach focused on operational changes and a value creation plan (incentivised management, efficient board of directors, detailed planning process, restructuring, revenue & profitability growth initiatives, IT platforms, and acquisitions). The fund should also have an exit focus and should not plan to invest for a time horizon longer than three to five years.

Returns from investments should be reinvested in the fund. The fund could develop partnerships with recognised International Financial Institutions (EBRD, IFC, EIB) to support the sustainable development of emerging markets. Even though the fund could be capitalised with public money its management should be private with a clear mandate (similar to Fondul Proprietatea).