The lack of continuity and fiscal predictability and precarious consultations with the business environment are just some of the obstacles that investors face and to which Sorin Mandrutescu, president of AmCham Romania, drew attention in a Nine O’Clock interview.
How are the American investors looking at the Romanian market in these moments that are still unclear because of the crisis that has received a lot of media attention? Is there trust in the Romanian economy and openness from the local authorities to the investors?
I would like to start by pointing out that despite the name of our organization the member companies are not only American, they are international and Romanian too, so I will express the point of view of AmCham Romania members, not that of American investors alone. In Romania has had and continues to have a negative impact on the business developments and consequently I believe that many decisions on new investments have been postponed. In this context, in its relation with the authorities AmCham Romania has repeatedly underlined the importance of maintaining the current investments and of avoiding relocating the operations in other areas that offer lower costs.
There is the need for a greater opening towards investors at central level first of all and AmCham has asked for the reformation of the Romanian Agency for Foreign Investments in the sense of setting up a single office for ‘one stop shop’ investors, an office endowed with the role to inform and advise. The renunciation of the old structure has to be correlated with the setting up of a complex body geared to support and attract investments in order to capitalize on the competitive advantages that Romania has in the region and that are limited in time. In the context of a fierce competition for drawing in capital both at regional and international levels, the Romanian authorities have to make a priority out of attracting investments. In our dialogue with the authorities we underlined that need as being one of the ‘Priorities for Romania’ identified by AmCham members. Local authorities cannot make up for the lack of such measures, measures that fall within central authorities’ prerogatives.
The investors have often blamed certain obstacles they face in the local business environment. Did you notice improvements in this sense?
I confess I find it hard to identify major improvements, but I can easily refer to obstacles. Most of them have to do with red tape, with the lack of transparency but also with the precarious consultation of the business environment in the decision-making and legislative process. Through our workgroups we have constantly demanded changes and improvements and we will continue to do that. As an organization involved in the dialogue with the authorities we are facing a lack of continuity at the level of technical personnel within the institutions because of the politicization of those structures. The legislative changes that take place without real consultations and impact studies, correlated with the general lack of fiscal and budgetary predictability, has a significant negative impact on the business environment in Romania. Unfortunately I do not know to what measure the authorities realize this is at the same time a negative signal for potential investors.
Another aspect that affects the business environment consists of the way in which the state-financed projects are implemented in various domains. The tenders for public acquisitions are launched, postponed and canceled based on various criteria that are not always transparent, thus affecting the business plans of companies engaged in such projects.
A significant part of the foreign-capital companies registered within the Commerce Registry consists of SMEs. What do you think their outlook will be considering that starting this year they will be taxed like any other companies through the application of the 16 per cent profit tax or of the minimum tax, without them being ale to opt for the 3 per cent income tax?
I am not in the position to make a prognosis. We will possibly witness a new ‘cleansing’ as the authorities have labeled the shutting down of more than 100,000 SMEs following the introduction of the minimum tax. What is certain is that the SMEs represent an important part of the structure of this economy and any measure of this kind that burdens their activity, especially in a time of crisis, has to be preceded by a serious impact analysis. The hiking of the fiscal burden may lead to higher budget revenues on the short term, however at the same time the shutting down of a large number of SMEs means losing jobs and taxes even if the latter have a lower level. We should not forget that in all powerful economies the SME sector represents the main engine of growth and economic development.
A lot of investors are interested in public-private partnerships. Are there projects currently run by American businessmen or are there plans for this year? And what domains are we referring to?
The investors are interested in public-private partnerships (PPP) and consequently within AmCham we have a workgroup specially set up in order to improve the legislative framework that regulates the public-private partnerships. We welcome the clarification of the legislative aspects that are relevant for concessions; however we need the expansion of the legislative framework in order to allow the launching of PPP projects in domains other than infrastructure too. Following the study conducted by our workgroup, the most advanced legislative framework that regulates the PPPs – in the sense of efficiency, volume and results – is the one in UK, so we are currently analyzing the measures that can be adapted and implemented in our country too. I cannot offer details on palpable projects but I believe that the domains for which there is an elevated interest are the following: health, education, utilities, energy and environment.
2003 and 2004 were the most prolific years in what concerns foreign investments in Romania. From the data you have at this moment, what was the volume of American investments in Romania in 2009 and what were and continue to be the domains of interest for them?
One of the frequent questions we receive concerns the volume of American investments and even the number of American companies in Romania, but these are complex data considering that the types of investments vary and not all American companies that have operations in Romania are automatically members of AmCham. This is the reason why when it comes to these estimates AmCham uses the data offered by the US Embassy’s Commercial Service as part of its ‘Doing Business in Romania’ report and taken from the Commerce Registry and the National Statistics Institute.
According to the 2009 edition of that report, a report that deals with the data for 2008, the US was 7th among the countries of origin for investments volume-wise, with total investments of USD 1.05 bln (3.6 per cent) in domains such as ICT, car manufacturing industry, banking sector, insurances, hotels, production and consumer goods. These percentages concern only the FDI, however the real volume of American investments is larger considering that a part of the American investments are done through businesses registered in EU states.
What are the geographical regions in which American investors focus in Romania?
AmCham is not an investments agency and we do not centralize this kind of statistics; however I can tell you that most of our members are located in Bucharest, but cities such as Cluj-Napoca, Iasi, Timisoara, Sibiu and Brasov are becoming attractive destinations for investments too. It is wished for these and other Romanian cities, particularly university centers, to attract key investments that can contribute to the economic development of the respective regions. The most recent examples are undoubtedly Cluj-Napoca, following the Nokia investment, and Craiova, following the arrival of Ford.
I would like to add that the responsibility of attracting investments in various regions of the country is increasingly falling on the shoulders of the local administration that has to have initiative, vision and openness. For that purpose one can use the available European funds in order to develop the needed infrastructure and can explore the public-private partnership possibilities in order to fulfill the adequate conditions for the investors. We should not consider that Romania’s investment attractiveness will return naturally after the economic crisis is overcome. That is why the authorities have to initiate concrete actions as early as now in order to present and position Romania as a preferred destination for investors. The companies already present in our country can support the authorities in this initiative by becoming ‘ambassadors’ and by sharing the experience they have had within the Romanian business environment.