Romanian paradox: Investor confidence is deteriorating while the economy is growing

The high growth rates Romania is experiencing are being translated into increased revenues, business and employment growth. Sounds great, but actually, the investor confidence is deteriorating. And the explanation is quite simple: These high growth rates will not be sustainable on the current path. Continued lack of infrastructure, increased shortage of adequate workforce, regulatory and fiscal uncertainty and a sentiment that the business environment is declining will lead to less investments, local or foreign and this in turn will lower growth and take the economy below its potential.

These are the conclusions that can be drawn from the The Foreign Investors Council's (FIC) Business sentiment survey, carried out during September 2017. 

FIC publishes twice a year the results of the Business sentiment index survey conducted among its members. FIC member companies represent a significant share of foreign direct investment in Romania, with more than 180,000 employees and a total turnover of approximately 25% of GDP.

According to the results of the latest survey, more than 60% of respondents expect their revenues and business to grow in the next year, a natural forecast considering the economic growth recorded this year and the prognoses for next year. 

But NBR figures show that the FDI flow in the first eight months of 2017 was 2.5 billion euro, with 600 million euro less than the same period last year.  

So, at the same time, 90% of respondents, a significant increase from only 25% in 2015, say the constant changing legislation is affecting their business planning. Also, 65% report that the fiscal burden has increased, up from 35% in 2015 and 75% account that the business environment in Romania has worsened recently and that current developments have lowered their trust.

On other important topics, 90% of respondents say that infrastructure has a negative impact on their competitiveness, up from only 15% in 2015, 42% companies report that Romania is losing its competitiveness in term of labour force, up from only 6% in 2015, and almost 100% agree that bureaucracy pulls down their businesses.

“The authorities should develop a coherent policy of attracting FDIs, because greenfield projects represented only EUR 78 million (only 2.4% out of the total foreign equity) in 2016, which means few companies are entering the market.Romania has an opportunity to build on the current economic growth and become one of the top 10 economies in the European Union in the next 20 years, but it has to do so wisely ensuring the sustainability of long-term investments and reforms," the FIC believes.

"Constantly changing fiscal policy with measures being announced and then dropped has had a powerful negative effect on the trust of investors. Equally, perceived or real dangers for the rule of law in Romania, translate into less trust on behalf of investors. Last but not least some of the public discourse that tries to play foreign against local, large against small investors has lowered trust and increased uncertainty.  Equally worrying are the increased number of instances when officials are using misleading or false information in order to slander certain industries or economic sectors." the Council points out.