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The economy is growing, investor confidence is deteriorating

The Foreign Investors Council (FIC) publishes twice a year the results of the Business sentiment index survey conducted among its members. FIC member companies represent a significant share of foreign direct investment in Romania. They have more than 180,000 employees and a total turnover that is approximately 25% of GDP.

The results of the September 2017 survey tell that more than 60% of respondents expect their revenues and business to grow in the next year, which is not surprising considering the economic growth recorded this year and the prognoses for next year. At the same time, the sentiment of FIC members regarding the business environment in Romania, especially on the predictability of the legislative framework, and the stability of fiscal and regulatory frameworks is deteriorating considerably.

  • 90% of respondents, a significant increase from only 25% in 2015, say the constant changing legislation is affecting their business planning;
  • 65% report that the fiscal burden has increased, up from 35% in 2015;
  • 75% report that the business environment in Romania has worsened recently and that current developments have lowered their trust.

On another topic, the number of FIC members reporting that infrastructure, bureaucracy or availability of workforce are an increasing problem has been constantly growing in the past two years:

  • 42% companies report that Romania is losing its competitiveness in term of labour force, up from only 6% in 2015. This is one of the most severe deteriorating indices.
  • 90% of respondents say that infrastructure and bureaucracy have a negative impact on their competitiveness, which is truly worrying.

Two main conclusions can be drawn from the FIC’s Business sentiment survey carried out during September 2017. These conclusions are only strengthened by the results of similar surveys we have seen in the last months[1]

  • “Good news”: the high growth rates the country is experiencing are being translated into increased revenues, business and employment growth;
  • “Bad news”: these high growth rates will not be sustainable on the current path. Continued lack of infrastructure, increased shortage of adequate workforce, regulatory and fiscal uncertainty and a sentiment that the business environment is deteriorating will lead to less investments, local or foreign and this in turn will lower growth and take the economy below its potential.

According to NBR figures, the FDI flow in the first eight months of 2017 was 2.5 billion euro, with 600 million euro less than the same period last year.  

To talk about this difference as a result of a diminishing trust of foreign investors in Romania would be premature, because an investment decision is usually made after two years. However, some recent public policies tend to worry the current foreign investors, as the sentiment index shows and to possibly "intimidate" the new ones.

The authorities should develop a coherent policy of attracting FDIs, because greenfield projects[2] represented only EUR 78 million (only 2.4% out of the total foreign equity) in 2016, which means few companies are entering the market.

Romania has an opportunity to build on the current economic growth and become one of the top 10 economies in the European Union in the next 20 years, but it has to do so wisely ensuring the sustainability of long-term investments and reforms. Constantly changing fiscal policy with measures being announced and then dropped has had a powerful negative effect on the trust of investors. Equally, perceived or real dangers for the rule of law in Romania, translate into less trust on behalf of investors. Last but not least some of the public discourse that tries to play foreign against local, large against small investors has lowered trust and increased uncertainty.  Equally worrying are the increased number of instances when officials are using misleading or false information in order to slander certain industries or economic sectors.

The FIC believes that the necessary adjustments could be made on time if the Government and political parties open a constructive dialogue with the business community. Ultimately everyone shares the same goal of economic growth and increased wellbeing.

Download the report

 


[1] Similar studies:  

AHK Romania, Barometrul de conjunctură România, March 2017;

CFA Romania, Macroeconomic Confidence Index, August 2017;

CCIFER, Barometrul de conjunctură economică, June 2017;

CCIR, Percepțiile mediului de afaceri asupra economiei, May 2017.

 

[2] NBR, Investițiile străine directe în România în anul 2016.