Companies are putting investments on hold according to the latest edition of the survey conducted by the Foreign Investors Council (FIC) – Business Sentiment Index (BSI).
Fewer companies, only 36% of respondents (6% less than in the spring edition), have planned investment increases for the next 12 months (this being the lowest level recorded since 2020), while 43% of companies will maintain investments at the same rate as the previous year and 22% will reduce it. At the same time, 71% of companies will continue to reduce costs over the next period.
The attractiveness of projects in Romania compared to similar locations has decreased since the last edition of BSI (44%, compared to 53% in March of 2024), and 24% of respondents consider Romania less attractive than other locations in the region. Romania remains uncompetitive in terms of bureaucracy and its consistency in policy implementation (80%), regulatory burden (64%), taxation, and infrastructure (50%). The availability of an adequate workforce is the only aspect considered competitive (62%).
The leading causes for this deterioration of investors’ perception remain the legislative ambiguities/uncertainties (80%) and taxation (70%). The latest results of the BSI editions are confirmed by the latest data published by the NBR regarding the net flow of FDI in 2023 was 6.7 billion euros, 36.3% lower than in 2022. In the first seven months of 2024, foreign investment was also 23% lower than in the same period of the previous year.
However, most respondents (65%) expect business revenues in Romania to increase next year compared to the previous year and 66% expect growth in the domestic market. At the same time 50% expect growth in the export market, and 44% expect stagnation (values similar to the spring edition). The business environment identified EU funds and PNRR reforms, the energy transition, and tax incentives for investments in research and development as advantages for business and trade relations.
The respondent companies are part of different sectors of activity defined broadly – manufacturing, retail, services, and construction. At the same time, 55% registered a turnover of over 1 billion lei, and 59% have employees exceeding 1000 people. The turnover of all FIC member companies represented approximately 22% of the nominal GDP in 2023, respectively, almost 348 billion lei.
Long-term development will not be able to rely only on public sources and it will depend significantly on attracting new foreign direct investments and maintaining and stimulating those already present in the country. FIC draws attention to the requirement for a long-term vision to ensure the economy’s constant and sustainable development. Romania must outline a budget deficit adjustment plan with clear and sound principles to reduce the pressure of the twin deficits and to ensure the predictability necessary for large private investments. The FIC has published a series of documents and analyses that outline the main directions for Romania’s long-term development and is ready to work with the authorities to identify the best measures to stimulate investment in Romania.
FIC analyzes the key areas for the economy from a strategic perspective, on the medium-long term, in accordance with good practices from other countries, but also updated to the specificities of Romania in order to help the authorities in setting a long termn vision for Romania. In this regard, we have carried out several projects and analyses – Va urma, White Book, Study on foreign direct investments – in order to identify the current bottlenecks, the opportunities, and challenges that Romania has, as well as the measures that could accelerate the economic development and competitiveness of the country in the region. At the same time, we analyzed the recommendations and reports of the international institutions for Romania (Organization for Economic Cooperation and Development – OECD, World Bank, European Commission, International Monetary Fund – IMF), IMF, but also the targets and reforms undertaken by the National Recovery and Resilience Programme (PNRR).
The detailed document can be accessed at the following link. The summary of the strategic priorities recommended by FIC for economic development is:
I Budget, taxation & reform of the tax system
- Fiscal consolidation: reducing the budget deficit by increasing revenue collection and controlling expenditure.
- Reform of the tax system
II Human Capital
- Labour deficit: reforms are needed in two vital sectors: public health and education systems.
III Energy transition, environment & sustainability
- Regulation and funding: stronger collaboration between industries, government, and other institutions to better structure the regulatory framework and financing options.
- The preparation and implementation of new technologies (CCUS, biomethane, batteries / flexibility assets, hydrogen etc.) would foster innovation and knowledge sharing and enable the most cost-effective solutions to be found in all economic sectors, but also in the public sector.
IV Business environment & investment
- Removing regulatory constraints (administrative barriers): hampering the economic growth of productive firms and streamlining administrative procedures.
- Institutional construction for attracting investments
V Digitalization & innovation
- Investing in the digitalization of public institutions
- Research-development, innovation
VI Governance & state-owned companies
- Efficiency of state-owned companies and reduction of their overdue liabilities
FIC is ready to work with the authorities to identify the best measures to stimulate investments in Romania, but also for the long-term sustainable development of the economy.
About FIC companies
FIC member companies have been registered and paying taxes in Romania for more than 25 years. Also, most of the investments made started at the end of the 1990s, which indicates the willingness to invest in Romania on a long-term basis. The turnover of FIC member companies (110 companies) represented approximately 22% of nominal GDP in 2023. In the same year, the investments of FIC companies were over 17 billion RON, representing 43% of capital expenditures according to the execution of the consolidated budget. Based on a survey of taxes paid by members, by extrapolation and controlling a set of variables (including turnover, the number of employees and profit tax), as well as attributes related to the object of activity, the contribution of all FIC member companies to the consolidated general budget was estimated at 82 billion RON, which represents 18% of the current revenues collected by the state in 2023.
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