Foreign investors in Romania are expecting lower incomes and investments shows FIC study

The most recent results of the Foreign Investors Council’s (FIC) Business Sentiment Index raise some important worries and leave open a big question mark which can be answered with the next survey in the second half of 2019. For several years now, with each edition of the sentiment survey FIC noted an important dichotomy: companies were expecting strong growth but were increasingly concerned about the predictability of regulatory, legislative and fiscal environment. What is different in the March 2019 edition is that companies continue to be worried about the quality of regulations and lack of predictability but on top, a number of FIC members are more skeptical about the further growth in their business: 

• • 24% of respondents expect their revenues to contract compare to 14% one year ago; 

• • 20% expect their business to contract compared to 12% in March 2018; 

• • Roughly 20% see both their export and domestic markets contracting, double than 6 months ago; 

• • 30% expect their results for the next 12 months to be worse than the previous, up from 15% in 2018; 

• • 35% see a decline in their investments compared to 19% in 2018; 

• • 37% expect to hire less workers compared to 17% one year ago; 

For this edition of the survey 47 out of 125 FIC members responded.

"We are still seeing a consistent number of respondents who are expecting their business to grow and who will continue to invest but there are signs that this trend is likely to inverse. It is too early to know if it is a short-term swing or something more structural. We will have a better view when we run the survey again in September 2019" reads the press release.

By looking at these results the FIC believe we need to sound an early warning that clouds may be gathering on the horizon and the complete lack of predictability we have seen in past years is starting to take its toll.

Fully 85% of respondents say the business environment in Romania has worsened, the highest number on record yet. Following the OUG 79 at end of last year, the OuG 114/2018 has been a heavy hit to important sectors of the Romanian economy and lead to a big plunge in the stock market both because of its provisions but also because of the absolute lack of dialogue and transparency that characterized it. Businesses now operate in an environment where they expect at any moment an emergency ordinance that can impact their operations and profitability.

On top of this the business environment is currently confronted with new concerns about proposed changes to the social dialogue law, uncertainties regarding the Pillar 2 system and the Romanian capital market, labor force shortages or weakening demand in the Eurozone. The heavy focus of policy makers on judicial reform that is being criticized by the European Commission is also sapping sentiment as it leads to the impression that a good business environment is not a top priority.

Although we do not know yet how persistent the decline of sentiment among the investors is, we believe the window for easy reforms and fiscal stimulus is closing. If Romania is to keep growing at the current rate, there needs to be a serious change in the legislative process and comprehensive dialogue with the business environment is needed. Important legislation must not be passed without dialogue and impact assessments, infrastructure needs to be built, the administration digitalized and reformed and businesses need to move higher up the global value chain.

None of this will be easy and it is not likely to happen if policy makers do not properly consult with the business sector. We do believe that open dialogue with policy makers could address some of the issues that risk affecting long term growth and development declares the FIC.