Romania ranks above the EU average in terms of birth rate of enterprises

Romania is above the European Union average in term of birth rate of enterprises, according to Eurostat.

In 2016, the birth rate in Romania was 10.4 percent, compared with an EU average of 9.8 percent.

The birth rate of enterprises is the number of newly-born companies as a proportion of the total number of activefirms.

The higher birth rates in the EU were registered in Lithuania (18.8 percent), Malta (16.4 percent) and Latvia (16.2 percent) and were close to the EU average in Spain, France and the Netherlands.

At the other end of the scale, the lowest enterprise birth rates were in Greece (4.5 percent) and Belgium (6.2 percent).

Romanian experts say this high birth rate of companies could be expplained by the structural vulnerabilities.

According to a recent BR Analysis, in a moderate scenario, one in three companies in Romania faces the risk of becoming insolvent due to rising borrowing costs.

The main reason is the low level of operating profit, coupled with the aggressive policy of paying dividends.

“In the context of rising financing costs, some companies will find themselves in a very difficult situation, as operating profit will become insufficient to cover interest on loans,” Iancu Guda, president of the Romanian Financial Analysts Association, points out.

The situation worsened in 2018 due to higher inflation and wage pressure, translating into higher expenses for firms.

“In addition to increasing insolvencies, companies will be tempted to extend supplier payouts using the rise in lending rates as an excuse, and Romania already has the highest payment terms in the region,” Guda told Business Review.

In this scenario, Romanian companies could enter into a vicious cycle of commercial credit, using suppliers as creditors. Goods or services are received on deferred payment terms, so suppliers face higher risks of non-payment.

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