FIC study shows drop of trust in the local business environment

The most recent results of the FIC Business Sentiment Index (carried out in March 2018) came to confirm the significant drop in trust recorded last year in spite of the fact that 54% of respondents are anticipating a growth in their revenues.

Over 70% of respondents said that events in the past 6 months (the reference period) have lowered their trust in the local business environment and believe this has deteriorated.

These numbers are not bearers of good news for the Government as one of its priorities is to grow the level of investments in the Romanian economy – this objective is hard to achieve in these conditions. The FIC sentiment index clearly shows there are several structural constraints that are hindering new investments:

68% of respondents believe the available workforce is not competitive enough compared to other peer locations;

85% believe the Romanian fiscal system is uncompetitive and we believe this is mostly due to the constant changes of the Fiscal Code and the lack of modernization of the fiscal administration;

96% said they face difficulties in operating their business due to regulation that is unclear and in constant flux;

92% characterized the available infrastructure as uncompetitive which is no longer a surprise for anybody;

100% of respondents have said bureaucracy is a burden compared to other locations in Europe where they do business and respondents have also unanimously complained about the transparency and consistency of public policy.

Foreign investments reached a level of 4,5 billion euro in 2017 in a slight growth compared to 2016 and 2015 but still, only half the volumes recorded in 2007-2008 before the crisis. A significant part of these investments has been carried out by existing investors which are adapting to the growth recorded by the local, European and global economies. However, Romanian needs new investors on top of the existing ones in order to bring more capital and technology to the market. A recent analysis[1] from the World Bank showed that foreign investment attracted by Romania in 2016 accounted only for 2.8% of GDP, while in Eastern Europe flows were around 8% of GDP for the same period. These results show that the amounts attracted by Romania are very small both a year on year and when compared with peer countries.

The FIC message for policy makers is that as long as existing investors harbor the current perception regarding the local business environment the changes of attracting significant new investments will be slim. With this level of trust, it is unlikely Romania will attract new investments in areas with continued high unemployment, in key economic sectors like utilities or in public-private partnerships which the Government is currently championing.

2017 has been marked by a fiscal revolution which the business community opposed almost unanimously and continues not to understand. In parallel a great deal of energy has been consumed on debates regarding judicial reform without taking into consideration the needs of the business community. Companies have advocated for many years now for specialized commercial and fiscal courts and for increasing the number of judges in order to increase the speed of judicial decisions. These important issues never made it on the agenda of policy makers.

In conclusion, short term data looks good and a significant part of FIC members are expecting their business to grow in 2018. However, medium and long-term investments, which are absolutely necessary for sustainable growth, will fail to materialize if the perception of existing investors regarding public policy in Romania does not change to the better.

This survey is carried out every six months only within the membership of the Foreign Investors Council (FIC), companies with a total turnover of 187 billion RON in 2016 which employ approximately 200.000 people.