The tragedy at Colectiv nightclub in Bucharest had the power to bring 20,000 people out into the streets of the Capital and change the Victor Ponta government. Additionally, an entire live concert and nightclub industry has been hit, as the safety of public places became a top priority for Romanians. Business Review talked to specialists and presents a comprehensive analysis of what the Colectiv tragedy really means for the whole political scene and its long-term implications for the business environment, as well as the local economy.
At the beginning of November, Romanian Prime Minister Victor Ponta resigned after 20,000 people took to the streets to protest over the Colectiv nightclub fire that killed 27 people in a first instance. The fire on that Friday night in Bucharest started when Goodbye to Gravity, the rock band performing at the club, set off fireworks inside. The resulting protests in the streets called for Ponta to step down, complaining of government corruption and poor safety supervision measures. “I’m handing in my mandate; I’m resigning, and implicitly my government as well. I hope the government’s resignation will satisfy the people who came out into the streets,” Ponta said in a statement.
In September, Ponta became the first sitting Romanian prime minister to go on trial charged with corruption. He faces allegations of fraud, tax evasion and money laundering, but he denies the charges and has accused prosecutors of being “totally unprofessional.”
According to BBC.com, President Klaus Iohannis, who has repeatedly called on Ponta to step down since the corruption scandal unfolded in June, called for a “sea of change” in Romanian politics in the wake of the resignations. He also said that the club tragedy had “affected the nerve of the nation.” As a result of the resignation, President Iohannis has named Dacian Ciolos prime minister who, in turn, recently announced his list of proposed government representatives and received the green light from the Parliament.
According to Erste Group analysts, the fiscal relaxation measures taken by the former government, led by Victor Ponta, continue to be a risk for 2016. “Considering the wide political consensus with which such decisions have passed, we don’t expect them to be reversed. However, the new government could come out with a series of measures meant to keep the consequences made by the excessive decisions under control,” says a note from Erste Group, quoted by Mediafax. The former government cut taxes on special constructions and, since June, the VAT for food has been reduced to 9 percent. In addition, starting January 2016, the standard level of VAT will be cut from the current 24 percent to 20 percent and by 2017, it will reach 19 percent. Additionally, the new fiscal code eliminates the additional excise on fuel.
Erste analysts say that the government change is a positive incident, despite the fact that miracles cannot be expected overnight. “After the new government sets in, the majority of fiscal decisions should be validated by the same Parliament,” they say.
The current Romanian political situation, along with the creation and setting up a program for the new government, have been one of the many discussions that Dacian Ciolos has recently had with the president of the European Commission, Jean Claude Juncker, and the president of the European Assembly, Donald Tusk. “First of all it was a cordial meeting but we also discussed the political situation in Romania, the creation of the new government and especially the governance program as we will soon negotiate with the European Union about the budget,” stated Ciolos for Mediafax.
Who is Dacian Ciolos
Between 2010 and 2014, Dacian Ciolos has been the European Commissioner for Agriculture, making the first reform of the Common Agricultural Policy. After his mandate expired, Jean-Claude Junker, the president of the European Commission (EC,) appointed him as special counselor for food safety. Between October 2007 and December 2008 Ciolos was the Minister of Agriculture, as part of the Tariceanu Cabinet, and kept his reputation of being a technocrat. In addition, between 2005 and 2007, Ciolos was the counselor of the Agriculture Minister, also representing Romania in the special commission of the European Union Assembly on Agriculture. Previously, between 2002 and 2003, he worked for the Delegation of the EC in Romania, preparing the implementation of the SAPARD program on the local market. The new PM was born in Zalau, Cluj County on July 27th 1969. After he graduated from the Agricultural-Industrial High school in Simleul Silvaniei, he continued his studies at the University of Agricultural Sciences and Veterinary Medicine of Cluj and became a horticulturist engineer. His educational background also includes a series of studies of agronomy at École Nationale Supérieure Agronomique (ENSAR) of Rennes, France, benefiting from a French governmental scholarship and a Master of Science from École Nationale Supérieure Agronomique (ENSAM) and Université Montpellier. Since 2000, he holds a PhD in the economy of agricultural development, agro-food and rural at the National Institute for Agronomy Research within École Nationale Supérieure Agronomique Montpellier.
What investors say
According to the Romanian-German Chamber of Commerce and Industry (AHK Romania,) the resignation of the Romanian Prime Minister Victor Ponta could boost investor trust because it is seen as a success in the fight against corruption. “We hope that things will change and improve. A step down is not quite a basis to create trust, but there have been too many doubts of corruption that hovered over the Ponta government. A new government could bring a new wind and regain the trust of the business environment.” Furthermore, they add that the priorities of the new government should be the same as those of the previous one: stability and predictability, especially of the legal framework, fight against corruption, infrastructure, reform of the educational system and increase of the absorption of the European funds.
Elsewhere, Robin van Rozen, president of The Netherlands Romanian Chamber of Commerce (NRCC) says that the institution he manages considers political stability and economic growth as being deeply interconnected. “A stable political climate, a consistent and transparent tax regime, and a predictable legal environment for businesses are key factors for building investor confidence and driving sustainable economic growth.” He adds that the NRCC welcomes further steps made by the Romanian authorities to ensure a competitive business environment. “In this regard, highly important is the continuation of policies aimed at maintaining macro-economic stability and strategic investments in priority sectors, particularly infrastructure, health, education and agriculture,” he concludes.
But Daniela Nemoianu, president of AmCham, says that the recent political developments are symptomatic of chronic and more profound reasons. “Such gaps and multiple ruptures accumulated in time are difficult to surmount and directly affect the economic environment through their impact on the budgetary balance, the uncertainty of the perspectives of development, lack of stability of institutional mechanisms and of integrated strategic lines.” In her opinion, a governmental rule based on competence and performance, with an agenda of national strategic priorities and zero tolerance towards corruption are legitimate expectations of both the business environment and civil society, regardless of the duration of the mandate of the political platform.
As for the priorities, Nemoianu says that there are many, but it is advisable that any measures be filtered by strategic relevance, economic efficiency and budgetary sustainability, considering the trans-sectorial alignment. “Albeit, we speak about a short-term mandate, the importance of this moment is crucial from the general perspective and that of Romania’s development.” She adds that there are some Gordian knots that need to be rushed in order to immediately unlock European funds, accelerate the reform of public acquisitions, support the major infrastructure projects and those that bring competitive advantages to Romania (ELI, Danube Delta, Digital Agenda, energetic security.)
Pundits say that the change of the government will most likely create a delay in decision making until the new ministers discover the challenges of their respective portfolios. “Due to the short tenure of the government, until the next elections, it is likely that it will act as a temporary caretaker and not engage in significant policy changes. It is therefore likely that any significant public project or investment could be delayed. It will be a transition period,” says Ramona Jurubita, partner, head of tax and legal service at KPMG Romania.
As other business environment representatives, Jurubita says that the new government should focus on fiscal stability, infrastructure and reform of public administration. She adds that, while the new Fiscal Code and Fiscal Procedure Code have been passed, apparently bringing greater stability to the business climate, amendments have already appeared. “Whether or not these are necessary is debatable, but they unfortunately demonstrate a continuation of the past – frequent changes to legislation at short notice. So the new government should make a break from this and focus on stability,” says the KPMG representative.
Statistics issued by the IMF last year revealed that motorway density is ten times lower than in Slovenia and five times lower than in Hungary, while the railways are also in urgent need of investment. “Where the financing sources are still available, the government should push forward with the finalization of projects. Moreover, there should be a much better take-up rate of EU funding, much of which is available to finance infrastructure projects. Greater private sector involvement should be encouraged, such as Public-Private Partnerships.” She warns that
all delays in public investments are paid for by all citizens through the reduced standard of living. “Just as we are paying now for the shortfalls in investment a few years ago, we will be paying for the current reduced public investment in the coming years – as an example, investors will choose other countries with better infrastructure and safer public finances instead of risking investing in a country where public investment is cut but populist measures are introduced in the run-up to an election,” concludes Jurubita.
The fire that spent a government
Fire tore through a nightclub in Romania on the night of October 31st during a rock concert that promised a dazzling pyrotechnic show, killing at least 27 people on the spot and injuring an additional 200 people, The Associated Press reported. Actually, it was the spark for a series of six days of street protests that succeeded in changing the Ponta government.
The international press notes that the club had advertised a concert by a local rock band, Goodbye to Gravity, on its Facebook page. The band was playing from their new album, “Mantras of War,” the club said, and the show was to include “a customized light show and pyrotechnic effects.” The fire at Colectiv broke out as some 400 people gathered for a free rock concert around the stage where the band was playing. The club’s single exit was overwhelmed in the panic that followed.
Two weeks after the Colectiv fire, 56 people have died and dozens are still in the hospital, many in critical or very severe condition. The nightclub went up in flames in just ten seconds because of the pyrotechnic effects that set its roof on fire. According to the preliminary results of the post-mortem examinations, the carbon monoxide, smoke and toxic gases poisoning have been the main cause of death. Paul Brummel, the UK Ambassador in Bucharest stated earlier this month that he had been in first contact with the Romanian authorities regarding the nightclub fire shortly after the tragedy when he called for emergency services. He also explained that two British doctors – Sarah Pape, a surgeon specialized in burn marks and Keith Judkins, specialized in physiology and intensive care – have come to Romania to help the victims. The three owners of the club – George Alin Anastasescu, Paul Catalin Gancea and Costin Mincu have been arrested amid allegations that the venue was overcrowded, lacked the required number of emergency exits, and may not have been authorized to hold such a concert.
The local nightclub market is shaken
The fire at Colectiv generated a series of inspections made by the city hall and also a wave of self-initiated closings of nightclubs both in Bucharest and other major cities in Romania. The first in the series was Expirat, a nightclub in the Old Town in Bucharest. The announcement was made two days after the Colectiv tragedy by its owner, Andrei Sosa. “Since 2003 I have put in danger thousands of lives, weekend after weekend and sometimes even during the week. I quit. Expirat in Bucharest is closing because now I can no longer assume responsibility for people’s lives,” posted Sosa on Facebook. Cluj-Napoca, Iasi and Brasov are other cities where owners have decided either to cancel some events or temporarily suspend their activity because of safety reasons. Goblin, Finnish, Revenge, Bastards, S-club, No.5, Fire, El Comandante, El Comandante Junior, La Historia, Blue Club, Kulturhaus and Hangover have temporarily suspended their activity thus far.
Catalin Davidescu, founder of Dark Side Entertainment says that we can’t talk about an impact of the Colectiv tragedy on the rock concert industry, but of a total setting a drift of it. “At present the majority of bands and their staff are unemployed. This tragedy just doubled the existing problems that we already had: excessive taxation, lack of material basis and the financial incapacity of the market in general,” he says. He warns that the Romanian clubs, especially those that constantly organized live concerts are extremely affected. “We agree and welcome the security measures imposed by the local authorities, but unfortunately, they are not ready to manage the huge number of requests for ISU authorization,” says Davidescu.
He adds that, according to his partners abroad, the measures that Romania has taken as a result of the Colectiv tragedy are much more stringent than those imposed in countries with a long tradition in organizing and producing live events. He warns that there will be a social impact of this situation as the deadline for obtaining an authorization from ISU easily exceeds one month. “Hundreds of locations that are now soliciting authorizations have hundreds of employees and thus, families. If these locations aren’t open and functioning, hundreds of families lose their source of income. I think that soon this will become a social problem,” says the representative of Dark Side Entertainment. He is also the initiator of the #impreunarezistam (“together we stand”) support group for the victims of the Colectiv tragedy. “The Romanian rock community is one of the oldest and most united ones. So far, with the help of the Estura foundation, we managed to fundraise significant amounts of money that will be totally directed towards the families of the victims.” But, he says that this is not all. “We will try as much as possible to militate in favor of the changing of the legal framework of the field we activate in now. We will try to impose new standards in the Romanian music production industry so that tragedies like the Colectiv one, do not happen again,” concludes Davidescu.