The Foreign Investors Council (FIC) publishes twice a year the results of a business sentiment index survey conducted among its members. FIC member companies represent a significant share of foreign direct investment in Romania, summing up about two-thirds of the total, with an important contribution to Romania’s GDP, a release issued by the council reads.
Two main conclusions can be drawn from the FIC’s business sentiment survey carried out during September 2016:
– “Good news”: on the one hand, FIC members are expecting at least a moderate growth of their businesses next year. More than half (60%) of those that answered the questionnaire are expecting their business to grow. They are expecting growth, both from the local market and from the export market, which is a good sign. Again, roughly 65% of respondents expect their revenues to grow in 2017. A majority consider that Romania is still competitive when it comes to the availability of adequate workforce but a quarter find it uncompetitive. The number of respondents who find the workforce uncompetitive has unfortunately been increasing.
– “Bad news”: on the other hand, 50% of respondents believe that the legislative process affecting business planning has moderately or significantly worsened. 70% of respondents believe that the lack of transparency and consistency of policies makes Romania moderately or significantly uncompetitive with other locations where they are doing business. Despite tax cuts, 50% find the fiscal burden uncompetitive while only 38% rate it as competitive.
FIC members are expecting business growth next year because the Romanian economy is growing itself substantially. They are probably expecting this growth to continue, even though some are estimating it to be moderate. The fact that they are anticipating growth both on the local and export market is a good sign, which means this trend has several drivers. However, policy makers have to be cautious. Growth rates of 5-6% are only sustainable in the long run, with consistent investments from both public and private sources. Policies aimed at economic growth should not rely solely on stimulating consumption.
A significant number of FIC members still report that they expect Romania to remain competitive on the labour market, however the number of companies that believe the availability of adequate workforce is becoming a problem has reached 25% and has been constantly increasing in the past 2 years. This can be explained by the modest results of the Romanian vocational education system, by emigration or lack of mobility within Romania. FIC believes policy makers should treat this area as a priority. Romania’s excellent labour force has helped it attract investments, both foreign and local. Losing labour market competitiveness will be a big drag on future economic growth.
Regulatory burden and the legislative process
Many FIC members have reported an increased administrative and regulatory burden in the fiscal area. We believe this has mostly to do with the ANAF forms D088 and D394 regarding VAT registration and reporting. In this respect, we believe ANAF’s efforts to modernize and digitalize with the help of the World Bank are very welcome. There is a marked increase in the number of FIC members who believe the legislative process is negatively impacting their business planning. In 2016, Romania has adopted a number of laws without a proper impact assessment and consideration of market principles. As a consequence, their implementation distorted certain markets or risks to do so in the future. Darea in plata and the Swiss francs conversion law have brought the prospects of thousands of lawsuits, have raised issues regarding the retroactive application of laws in Romania and, last but not least, will likely have a lasting impact on the banking sector. Price controls and state interventions in the insurance market have also sent negative signals to investors. The confidence of investors in the predictability of a market is easy to lose in the wake of such laws and difficult to win back in a short time span.
One could hastily draw the conclusion that all is fine because economic growth is solid. This would be a mistake. High growth rates are not sustainable in the long run if there is a lack of predictability, laws are adopted without careful consideration of their impact and there are insufficient investments in key areas like infrastructure and education, the FIC release concludes.