Social economy gains prominence on local market

While in other countries social enterprises play a significant role in the economy, Romania is still far from being a flag-bearer in this area. But there is great potential for the future as the legal framework that regulates these concepts is becoming clearer.

Anda Sebesi

While the concepts of the social economy and social entrepreneurship are well known and developed in Western Europe and the US, they remain in an incipient stage in Romania. Plenty of such initiatives come from NGOs active in the fields of integrating disadvantaged people in the labor market (Fundatia pentru Voi), social inclusion (Ateliere fara Frontiere) and recycling, manufacturing and sustainable consumption (Viitor Plus). But all have a very complex business model.

“At present, more and more people with experience in traditional business are working on social entrepreneurship ideas that they think will be more rewarding. Besides, they have the necessary knowledge to make these initiatives happen and a different way of thinking from the non-profit sector,” says Ancuta Vamesu, coordinator for the social economy at the Social Economy Institute/Civil Society Development Foundation (FDSC).

Mutual benefit societies, such as CARP Omenia, are among the social entrepreneurship initiatives that have managed to endure. “These initiatives are real ‘malls’ of services – from hair salons, dental surgeries, electronic repair shops, day centers, computer center and trips, all at low prices for pensioners, especially hard-up ones,” says Vamesu. The business model is based on a system of small financial contributions (less than EUR 1) from members and provides services to a community of about 20,000-30,000 people. Mutual benefit societies also lend money to borrowers considered too poor by other financial institutions. “It is about serving the low-income client, which means that such customers are seen as a target market rather than a weight on the shoulders of the social assistance system,” she adds.

According to Vamesu, who quotes data from the Social Economy Atlas, the social economy sector supplies four percent of jobs in the Romanian private sector. But she warns that in fields like cooperatives and mutual societies Romania lags behind developed countries. “Compared with other EU members, cooperatives have a minor role in Romania while mutual societies – which are very important players on the European health insurance market for example – are not present on the local market,” says Vamesu.

She adds that cooperatives have a significant market share in key economic sectors in the majority of EU members: agriculture (83 percent in Holland, 79 percent in Finland, 55 percent in Italy and 50 percent in France), forestry (60 percent in Sweden and 31 percent in Finland), banking (50 percent in France, 37 percent in Cyprus, 35 percent in Finland, 31 percent in Austria and 21 percent in Germany), retail (consumption cooperatives have a market share of about 36 percent in Finland and 20 percent in Sweden), pharmacy and medical services (21 percent in Spain and 18 percent in Belgium). “For example cooperatives supply 500,000 jobs in Poland. In Romania it is over 40, 000,” says the expert.

The Sectoral Operational Program for the Development of Human Resources (POSDRU) financed by the Social European Fund (FSE) has given a significant impetus to the social economy and social entrepreneurship by offering several hundreds of millions of euro to help develop this sector. But there is bad news too: the size of the fund meant that large programs were conceived. Strategic projects of up to EUR 5 million, which did not allow for micro development, were put forward. Besides, the legal framework is not tight.

“For example, the law that regulates foundations and associations allows them to carry out economic activities but just as a secondary condition. Plus, private sources of financing and more flexible ones than POSDRU simply don’t exist and there is no culture of investing in the social economy and social entrepreneurship,” says Vamesu. She adds that it is not yet clear if the management authority from the Ministry of Labor will make funds available for this field in the future, even though it has proved to have a good capacity of fund absorption.

Social enterprises in Romania are faced with the same problem as any other start-up: lack of financing. In addition it is much harder for them to develop because they don’t have their own financial resources at their disposal.

“Micro-lending is a tool that could be used and yet it is not widely available in Romania. Fortunately, the social economy and social entrepreneurship will continue to be a priority for European funds because this is stipulated in the Social Business Initiative launched by the European Commission at the end of last year. But the funds will be available after 2014,” says Vamesu. Turning to the legal difficulties, the expert says that the draft law proposed by the

Ministry of Labor in December last year takes a specific approach exclusively centered on fighting social exclusion and creating jobs for the under-privileged.

But the social economy has great potential on the local market. “We believe that it has a bigger role to play in very different fields like agricultural and rural development, solving environmental problems and promoting an economic democracy that enables everybody to participate in different economic activities – from taking out loans and health insurance to creating their own jobs,” concludes Vamesu.

anda.sebesi@business-review.ro

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