All tax and no investment strategy makes Romania a dull economy

The Romanian authorities should offer investors a mid- to long-term economic recovery and development strategy, which would establish priority sectors for investments in the future, Anca Harasim, executive director of the American Chamber of Commerce in Romania (AmCham Romania), told Business Review.

Simona Bazavan

Is Romania still an attractive destination for American investors or is it beginning to lose ground against other economies in the region?

For several years now the US has continued to rank sixth or seventh in the top ten foreign investors in Romania, and our country the number one destination for FDI in the region. Romania has unique advantages in attracting investors, US and others, and AmCham has constantly pleaded for firm and coordinated efforts from the authorities towards maintaining and increasing Romania’s attractiveness for investments and economic competitiveness.

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The level of FDI is generally lower for all countries nowadays, therefore Romania’s investment attractiveness needs to be an objective supported by modern, coherent and stable fiscal policies, and at the same time by identifying and promoting other types of competitive advantages. Moreover, any measures for attracting investments or other actions that may impact this should consider the regional context and other countries’ efforts toward attracting investments.

How will the local business environment be affected by the latest fiscal changes announced by the government?

Unpredicted increases in the operational costs will be reflected in overall budgets, planned investments could be delayed and consumers have to absorb the additional costs. At the same time, such measures favor tax dodgers, who are encouraged to continue their practices, especially in the absence of efficient control tools.

Tax increases without efficient policies and mechanisms to control and fight fiscal evasion may not bring the expected results, while measures targeted at good-faith payers to the state budget will send a negative signal to investors contemplating the Romanian market and to current investors that may choose not to expand their businesses in the local market, given the lack of stability and predictability of these changes.

How much did American-owned companies invest last year and how did this evolve compared to 2008?

As AmCham Romania members are US, international and local companies, we don’t have such statistics of our own, but statistical data is provided by the Romania country commercial guide, Doing Business in Romania, 2010 edition, put together by the US Commercial Service.

According to this report “officially, the value of US direct investment in Romania as of December 2009 was USD 1.52 billion. The US is the seventh ranked foreign investor nation after the Netherlands, Austria, Germany, France, Greece and Cyprus. US-source investment represented 4.5 percent of Romania’s total FDI. However, because official statistics do not fully account for the tendency of US firms to invest through foreign, especially European-based, subsidiaries, franchises, and off-shore-based investment funds, the actual amount is higher.”

What local industries have the potential to attract American FDI in the future? Can you give any names or mention industries where they might be coming from?

Industries with either a high potential or need for attracting further investments are ICT, energy, agriculture, automotive, and others.

From your contact with American companies, what are the main setbacks of the local business environment and what should the Romanian authorities do to help foreign investors?

In AmCham’s vision, one of Romania’s greatest challenges and needs is building its growth vision and positioning itself as a reliable partner in the region and in Europe.

Our belief is that Romania should offer investors a mid- to long-term economic recovery and development strategy, which would establish priority sectors for investment (i.e. energy, agriculture, education, healthcare) and help to attract those investors interested in such sectors. Transparency in decision-making, developing a constructive dialogue with stakeholders and promoting correct and honest practices also represent key elements of an attractive market and building investors’ trust.

AmCham Romania has advocated for a modern fiscal legislation and the amendment of the labor legislation in view of more flexible and secure labor relations (in line with the EU “flexicurity” objective) which are meant to improve the investment climate.

Stability and predictability of the fiscal regime and legislative framework is what AmCham is calling for on behalf of its members, and to this end we have promoted the use of multi-annual budgets which will allow investors to build their own growth strategy on one market. Another recommendation for encouraging and supporting investors is a functional and professional investment promotion agency, a one-stop-shop for potential and current investors.

What would you recommend to an American investor who plans to open a business in Romania?

From our experience, a due diligence procedure in the orientation stage is important, so the advice of a good lawyer and accountant are essential, while getting the experience of existing companies in the market. It is also important to have a comprehensive understanding of all costs of doing business as well as local markets trends, and, surely, to become an AmCham Romania member!