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May 9, 2021
COMPANIES ECONOMY

Coface study: Romania ranks second in region for lowest ratio of companies per 1000 inhabitants

Romania ranks second in Central and Eastern Europe for the lowest ratio of number of companies per 1000 inhabitants, according to a study carried out by Coface Romania regarding the maturity level of the Romanian business environment.

“After Serbia, Romania records the lowest ratio of companies per 1000 inhabitants in Central and European Europe, respectively 23. Still, that does not mean that the “entrepreneurship ratio” of Romania is only 2.3 pct. By “entrepreneurship ratio” we understand the number of individuals who have been shareholders at least one company, against the population of Romania. Thus, according to official records at the Registry of Commerce, approximately 3.22 million individuals have been direct shareholders of at least one company. Out of these, approximately 8 pct are individuals living abroad. That leaves us with 2,96 million Romanians who have owned at least a company in Romania, which implies a shareholding rate of almost 15 pct, one of the highest in Central and Eastern Europe. How can one explain this paradox: Romania records one of the highest rates of entrpreneurship, but, at the same time, the lowest proportion of the number of companies to the overall population,” reads the document.

According to Coface, the Romanian entrepreneur is one of the most “combinative” in the region, the average number of shareholders involved in a company being of 2.5 individuals.

“The number of people actually capable to be involved in a company has dropped significantly in the last 20 years. Thus, according to the figures published by the National Statistics Institute (INS), the overall population in the group range 20-60 years in Romania was of 12.3 million in 1990, while their number decreased to 11.6 million in 2011 (according to the latest census), but the real level of those that are in Romania is probably of maximum 9 million. 6 out of 10 companies that are newly registered are owned by shareholders who have previously owned other companies or are directly/indirectly involved in a group of companies that activate alongside the respective firm. Therefore, we are not talking about new companies but about the same people who are engaged in the same activity with a different company. Half of the companies newly registered close down 5 to 10 years from their registration,” mentions the cited source.

 

Number of companies to cease activity rises to 160,000 this year

 

The number of companies to go bankrupt during 2016 will increase to approximately 160,000, on the rise by 6.5 pct as compared to last year, reads a press release of Coface.

“During the boom, immediately after joining the EU, the Romanian business environment recorded an average of two companies newly registered for every company that closed down. There was a great impact of the financial crisis locally and it reversed the proportion, so that during 2009 – 2016, the Romanian business environment recorded 2.19 companies to end their activity for every newly registered company. According to Coface estimates, the number of companies to close down in 2016 will rise to approximately 160,000, on the rise by 6.5 pct as compared to last year, although the number of insolvent companies will drop by 23 pct,” the document shows.

According to the latter, although the number of companies newly registered in 2016 will rise by 15 percent, in comparison with last year, to 74,000 companies, these will only cover 46 percent of companies that go out of the system.

“Besides the quantitative ratio challenge, another pressure on the business milieu caused by the process of creative destruction is the difference in caliber: companies that close down have an average life span of 10 years, an average turnover of almost 4 million lei and 20 employees. Theoretically, a newly registered company starts from scratch. The process of creative destruction, coupled with the average life span of a company explains the structure of the business environment depending on the company age: just two out of ten active companies are set up before 2000, while four out of ten companies are set up after 2011,” the cited source mentions.

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