Home / POLITICS / US Department of State report on Romania: Potential investors should undertake due diligence when considering any investment

US Department of State report on Romania: Potential investors should undertake due diligence when considering any investment

The US Department of State has issued a report on the investment climate in Romania, reading that “potential investors should undertake due diligence when considering any investment.”

“The EU’s 2018 Country Report for Romania found that cumbersome administrative procedures, slow progress on the provision of e-government solutions, complex insolvency procedures and frequent regulatory changes with limited use of impact assessment and consultation procedures weigh on the business climate. Although the pace of economic reforms has slowed, Romania remains a regional leader in judicial efforts to combat high and medium-level corruption. However, efforts since January 2017 to undermine Romania’s anticorruption prosecutors and weaken judicial independence have shaken investor confidence in the government’s commitment to combat corruption. Some government leaders accused “multinational companies” of sponsoring large street protests against these moves, adding to occasional political rhetoric scapegoating foreign companies for domestic companies’ alleged dire circumstances,” the report reads.

“The Government of Romania’s (GOR) mandatory transfer of payroll taxes from employers to employees in January 2018 negatively impacted all companies through additional administrative costs resulting from negotiation and registration of new labor contracts. The GOR’s sale of minority stakes in several state-owned enterprises (SOEs) in key sectors, such as energy generation and exploitation, has stalled since 2014. The GOR has weakened enforcement of its SOE corporate governance code, exempting several SOEs from the code in December 2017.

Consultations with stakeholders and impact assessments are required before enactment of legislation. However, this requirement has been unevenly followed, and public entities generally do not conduct thorough impact assessments. Since 2017, frequent government changes have led to rapidly changing policies that serve to complicate the business climate. Romania has made significant strides to combat corruption to date, but it remains an ongoing challenge. Inconsistent enforcement of existing laws, including those related to the protection of intellectual property rights, also serves as a disincentive to investment. Continuing to attract and retain additional investment will require further progress on transparency, stability, and predictability in economic decision-making, and a reduction of non-transparent bureaucratic procedures,” the report reads.

It further says that “while private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the Government has rolled back corporate governance rules for SOEs. U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named. The European Commission Country Report and reports from companies point to concerns about corruption in the procurement of medical devices, and in the authorization and procurement of pharmaceuticals. In environmental projects, the use of obsolete feasibility studies has resulted in favoring existing businesses already operating locally. In some cases, demands for bribes by low- to mid-level officials reach the point of harassment. For example, companies report demands for bribes when local infrastructure improvements are needed to facilitate business operations, especially for roads which are funded from the local budget.”

About Victor Lupu