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WorldNovember 3 2014

Romanian minister of economy seeing benefits of EU membership

Romania's minister of economy, Constantin Niţă, talks about the country's economic outlook, the impact of EU membership and the challenges posed by the crisis between neighbouring Ukraine and Russia.
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Romanian minister of economy seeing benefits of EU membership

Q: What is the outlook for the Romanian economy?

A: Romania has a stable political climate, which has helped us generate good economic results. Romania registered a 2.6% increase in gross domestic product [GDP] in the first six months of this year, compared to the same period in 2013. Also, Romania advanced by 17 positions, from 76th to 59th, in the World Economic Forum's economic competitiveness ranking, published at the beginning of September this year.

GDP growth registered by Romania in the first half of this year is based on our exports, industrial production and retail trade. We reached €25.5bn in exports by the end of June, representing a 7.6% increase compared to the same period last year. Industrial production increased by 9.1% in the same period compared to the first six months in 2013, and retail trade turnover volumes increased by 8.6% compared to the same period in 2013.

The data confirms that the Romanian market is stable, offering opportunities for development and investment. This is why I am confident that in the next year we will attract important investments in key sectors such as infrastructure, energy, agriculture, industrial parks, aviation, defence and mining.

The GDP growth, registered in the first six months of the year, is in line with the growth timeline estimated by the Romanian government, the International Monetary Fund and the World Bank. The forecast for year-end 2014 is 2.8%.

Q: What are your expectations for Romania’s trade balance going forward?

A: The economy, at a global level, is characterised by dynamics, which are frequently influenced by regional and global political and economic developments. In this context, it is essential to be familiar with the external particularities in order to capitalise from the key advantages in the external markets.

Exports are an important element of Romania’s economic growth. Last year, we saw an 8.8% [annual] increase in exports to EU member states, which made up 70.1% of all exports. Exports to non-EU countries maintained the upward trend in 2013, with a 12.85% increase compared with the previous year, accounting for a 29.9% share of total exports.

Overall, in 2013 we registered a record level of exports, with approximately €50bn, while the figure for the first half of 2014 was €25.5bn. In fact, in July this year, we recorded our highest ever monthly figure with €4.8bn of exports.

Even if in August, as is usual for the month, we only had a small increase in exports from €3.8bn to around €3.9bn, the data for the first half of 2014 makes us confident that at the end of 2014 we will register a result at least at the same level as last year.

Q: What impacts have you seen on the Romanian economy from EU membership?

A: Membership of the EU has had a positive impact on Romania, especially with regards to single market integration. From an economic point of view, Romania also offers potential to the EU. The 2.6% of economic growth in the first half of 2014 places Romania among the best performing economies in the EU, while in the first quarter of this year, Romania ranked first at EU level, with growth of 3.8%.

We have several strengths and I am confident that Romania, the seventh largest EU country in terms of population, will manage to capitalise on these key elements. Industry is one of our strengths, accounting for 32% of our GDP. Our skilled labour force, expertise of specialists, geostrategic position, natural and energy resources and access to the Black Sea are also strengths that can contribute to achieving our objective of becoming a regional hub.

There is still much for us to do in the process of consolidating the Romanian economy, mostly in capitalising on opportunities offered by the member state statute. I am mainly referring to plans to increase the EU funds absorption rate, especially for developing infrastructure and consolidating the small and medium-sized enterprise sector.

Romania has allocated non-reimbursable EU funds that can support the development of infrastructure and the local business environment. We have registered an important increase in the absorption rate for [EU] structural funds to 36% [as of October 1], compared with the 7% registered in 2011. [This, however, still represents a lower-than-average fund absorption rate – the only other country with a rate of below 50% is Bulgaria.]

It must be noted that the member state statute also translates into obligations and Romania has put a lot of effort into aligning with the standards imposed by EU regulations. At this point, Europe, when compared with the US or China, faces challenges in terms of industry competitiveness and energy prices, related to [high] costs for domestic and industrial consumers, gas and electricity interconnections, and diversification of supply sources in order to assure energy security. Through our representatives, we aim to be an active part of the debates organised at EU level, in order to identify viable solutions for the economic welfare of the EU member states.

Q: What is your view on Romania’s position as an investment location?

A: This year, Romania received investment-grade ratings with a ‘stable’ outlook from all three main rating agencies: Standard & Poor’s, Moody’s and Fitch.

The acknowledgement of Romania’s performance is a confirmation of good management at government level – namely the successful implementation of socio-economic policies aimed at attracting foreign direct investment to the local market. The main objective with regards to the country’s economic development is the reinvigoration of our industry and the development of major infrastructure projects with a social and economic impact.

Besides the economic arguments, Romania offers a geostrategic position with a double advantage: access to western Europe through the Rhine-Main-Danube Canal and access to Asia. Moreover, Romania is the largest market in central and eastern Europe after Poland, and the seventh in the EU in terms of population.

The government is also committed to supporting actions that contribute to creating jobs and develop the local industry, for example, through our wide-ranging framework for public-private partnerships.

Q: Are there any incentives offered to investors?

A: I, the minister of economy, as well as my colleagues in government, put all efforts into meeting the expectations of business representatives in terms of regulation and taxation, which have an impact on investments. This year, we eliminated and merged 92 special taxes in order to establish a more flexible fiscal and administrative framework.

In July 2014, a regulatory package aimed at decreasing the fiscal burden and creating jobs came into force. The central pillars for this package include a five-percentage-point reduction in social insurance contributions for employers from October 1 and tax exemptions for reinvested profit – a measure which came into force on July 1.

The Romanian central and local authorities are open to dialogue with potential investors interested in the local market. The main objective of the government is stimulating economic growth and creating jobs. The Romanian state does not offer state guarantees for investment projects, but there are important mechanisms to support investors’ plans in developing their businesses in the local market.

In 2013, €215m was granted for state aid schemes. For 2014 to 2020, more than 150 companies that create jobs and invest a minimum of €20m will receive financing through a state aid scheme. At the same time, incentives for agriculture increased from €139 per hectare in 2013 to €159 per hectare in 2014. Companies operating in the innovation sector benefit from a 50% deduction for eligible expenditures in research and development activities.

In addition to these elements, there are the facilities granted by the local authorities. Investors interested in developing industrial parks, for example, can benefit from an exemption from the land tax, applicable to the land of the industrial park, as well as an exemption from tax on buildings that are part of the industrial park infrastructure.

Q: What impact is the Russia-Ukraine crisis having on Romania?

A: The crisis in Ukraine has multiple consequences both regionally and internationally. With regards to the energy sector, Romania has a much lower degree of dependence on imports from Russia than other EU member states, as we have reserves that can secure domestic consumption in case of a potential disruption of the hydrocarbons flow, while the interconnection infrastructure with neighbouring EU member states also provides us with a high degree of flexibility should it be required.

For the trade and the business environment in general, it is obvious that any conflict similar to the one affecting Ukraine has undesirable effects on commercial trade, investment flows, etc. At the same time, the bilateral trade relationship between Romania and Russia is below the threshold that would likely generate major economic effects as a result of the conflict and the sanctions imposed [on Russia]. This assessment is also valid for the investment flows between Romania and Russia.

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