Page 8 Business Review | November 4 - 10, 2013


Romania ‘needs new investment success stories’ With Romania suffering from a 36 percent fall in FDI in the first eight months of this year to around EUR 1.1 billion, Mihai Bogza, president of the Foreign Investors’ Council (FIC), the advocacy group, says the country needs to work diligently in preparing the privatization of state-owned companies in order to attract high profile bidders from abroad. ∫ OVIDIU POSIRCA

CV Mihai Bogza

Why has FDI in Romania dropped this year? Over the last few years during the crisis, and in particular in 2013, we have seen a significant drop in the volume of foreign direct investments (FDI) in Romania. And the trend seems to be going from bad to worse, with the amount of FDI for the first eight months of 2013 falling by about 36 percent to EUR 1.1 billion against the same period of last year. Overall, it seems that 2013 may be a comparable year to 2003, a year in which Romania was not yet even sure whether it would actually join the EU. I think that apart from the crisis, Romania has failed to meet expectations in a number of areas in comparison with its main competitors, which are basically countries in CEE.

What are the operational challenges faced by foreign investors? Romania is marginal to the EU from a geographical point of view and unfortunately we have done little so far to ensure better connections with the rest of the continent. We have a very limited network of motorways and the pace of building new ones is very slow. Also, the railway infrastructure is near obsolete. The local market itself is not growing as it should. Romania has yet to return to the GDP level of 2008 (pre-crisis level) and the pace of the recovery is very slow. On the relationship between the pri-

Courtesy of BancPost

What are the issues facing investors seeking to start businesses locally? On the entry point, I think the main channel for big investments coming into a country such as Romania is still major privatizations. Unfortunately, Romania has failed in three major privatizations during the last year: Oltchim, Posta Romana and CFR Marfa. All three privatizations were prepared in a hurry, failed to attract interest from major investors and in the end the process will have to be restarted from a much worse departure point, given the negative publicity surrounding the initial failure. Also, in the greenfield area, Romania is not performing as it should. A good example is the Rosia Montana gold project, a decision about which has been pending for 15 years and we still don’t know whether or when it will be made one way or the other (e.n. approval or rejection). I am afraid the recent events regarding shale gas are not very encouraging for investors either.

June 2013 to present FIC president 2005 to present chairman of the board of directors at Bancpost 2009-2010 CEO of Bancpost 1998-2004 vice-governor of the National Bank of Romania 1998-2003 chairman of the Board of the Deposit Insurance Fund of the Banking System Holds a PhD in Finance from the Romanian Academy of Economic Studies

vate and public sector, I think Romania’s public sector should do much better. Take the arrears run up by the state in comparison with private companies. While private players are penalized if they run up debts to the state, public sector bodies, including the central budget, local budgets and state-owned companies, record significant delays in paying their duties and the volume of arrears has been a major issue in the agreements concluded with international lenders over the last four years. What are the fiscal and legal shortfalls? On the fiscal side too there is a lot of uncertainty. This year, for instance, the Fiscal Code has already been changed twice with more changes to come. On top of this, there is huge tax evasion, which puts additional pressure on honest taxpayers, as the state needs to increase the overall sum it collects from the good payers to compensate what it fails to cash in from the bad ones. I think there is still a lot of concern about how the legal system is working. If you look at the way in which insolvency cases are being handled by a number of judges, the perception is that there is a lot of corruption involving the judiciary. The recent actions taken by the DNA have tackled mostly high-profile cases, with little influence on what is happening in the lower courts. How is the dialogue between the FIC and the authorities going?

The picture is mixed but tends to the negative side in the sense that rather few of the proposals made by the business community in the past have been accepted by the authorities. One of the rather positive examples is the Labor Code, which was changed not to our full satisfaction, because it was the result of a dialogue between several stakeholders, and the trade unions, for instance, had a different opinion than ours on some points; still, we believe the new one represents a significant step ahead versus the old one, as it was brought closer to the best EU practices than it was in the past. One other area in which we were partially successful was the issuance of the Government Ordinance no 109/2011 concerning the professional management of state-owned companies. As a result, some professional managers were put in place at a number of companies. Unfortunately, we have recently witnessed some significant backward steps in implementing this Ordinance. Can you give me any examples of failures? For the Insolvency Code, we prepared a very detailed position paper with concrete proposals on the draft law put forward by the authorities. Actually, very few of our proposals were taken into consideration. It is a pity because insolvency legislation plays a key role in im-

proving how the economy functions in Romania. I think the way in which the insolvency legislation was applied over the last few years does not protect neither creditors, nor debtors. It just helps the interests of a number of people that stand to gain from the liquidation of companies that enter insolvency – in some cases the shareholders of these companies and in other cases those involved in the insolvency, such as probably some of the judges, administrators and so on. They are making money on the back of the creditors. What initiatives are you currently working on? We have been trying to engage the authorities on the Fiscal Code because there have been recent changes, and more are set to follow. Also, we understand that there are significant shortfalls in the projected budget revenues and made concrete proposals about how to address this without resorting to new taxes. We have been very active on the Insolvency Code, as I mentioned before; unfortunately we do not yet have a result, but we will continue the dialogue at the level of Parliament. We are active concerning renewable energy, because we have recently seen a major shift in the government’s position. We understand the government can change its opinion but this should not happen at the expense of companies that have made major investments in a certain area, as this would set a very negative example for any potential new investors. And, overall, we remain alert to any initiative which could contribute to improving the business climate in Romania.

Business Review Issue 35/2013 November 4 - 10  

Starting 2014 local farmers should see more predictability, said minister Daniel Constantin at the INDAGRA international agri-business trade...

Business Review Issue 35/2013 November 4 - 10  

Starting 2014 local farmers should see more predictability, said minister Daniel Constantin at the INDAGRA international agri-business trade...