#GetReadyforFIS2016 | Analysis. High-tech industries and competitive costs for workforce – the future of FDI in Romania

Newsroom 25/10/2016 | 16:48

The authorities have been trying in the past few months to change the perception that Romania is a low-tech country attracting foreign investors that are looking for a cheap labor force. With foreign direct investments this year set to exceed the EUR 3 billion registered last year, the government has been talking extensively about turning Romania into a destination for complex investments, be it in the automotive or aerospace industries.

Ovidiu Posirca

As the departing head of InvestRomania, Manuel Costescu, put it, “Today, companies are not looking at Romania as a country that can offer cheap labor, but are heading towards a highly-qualified workforce, at competitive prices.”

Foreign investments made in the past few months include the opening of a EUR 52 million plant by commercial aircraft producer Airbus Helicopter near Brasov. The fresh investment completed this autumn, had a state aid component. Then, there is car parts manufacturer Faurecia, which opened a EUR 12 million plant for automotive seat covers in central Romania in September.

The document recently put out by the government on making Romania competitive states some of the driving principles for enhancing direct investments in the country. This includes a reduction in the waiting period for getting various permits and a more efficient procedure for securing state aid.

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Romania is continuing its state aid program for new investors, targeting both companies making greenfield investments, as well as smaller firms planning to increase their headcount.

According to InvestRomania data, EUR 1 in state aid had a multiplication effect of 3.5 in the 2007-2014 period.

Romania looking to simplify communication with investors through two agencies

The authorities are looking to make it easier for foreign companies or individuals pondering an investment in Romania to make a decision.

In the near future, the government plans to launch BusinessRomania, an agency for the promotion of foreign investment and trade.

“In addition, it is planned that all requests from foreign investors and Romanian exporters will be redirected by government authorities towards InvestRomania and TradeRomania for a common and coordinated approach and to create an inventory of projects so as to establish an integrated approach at national level,” Costescu told BR.

The government is also to looking to open local InvestRomania offices so that more foreign investment can be channeled into areas that have been ignored by companies for over two decades, such as the north-eastern and south-eastern parts of the country.

How can Romania attract more R&D investment?

Although in recent years, some of the most visible investments have been in the automotive industry, especially in the case of car parts makers working for the Dacia and Ford brands, as well as for other companies outside the country, Romania has been able to convince some investors to develop complex research & development facilities.

Car parts maker Continental has an R&D center in Romania, while Renault has in Romania its second largest research facility outside France, Renault Technologie Romania (RTR), which accommodates a large array of facilities from product design to the actual testing ground for new car models.

“We believe Romania will continue to attract investors because of the positive macroeconomic indicators and prospects for improvement, becoming more and more attractive compared to other markets in the region,” Miruna Suciu, managing partner at law firm Suciu Popa, told BR. According to EU statistics office Eurostat, Romania posted the biggest economic growth rate in the bloc, a 6 percent hike in GDP, in the second quarter.

Monica Pascu, tax manager at professional services firm KPMG, said that taxpayers prefer state aid when planning an investment because it presents fewer challenges, which also applies to R&D ventures.

“One of the main difficulties in applying the existing tax incentives related to R&D is the lack of clarity as to how R&D activities are defined. To solve this, the Ministry of Education should set up the R&D Experts Registry as soon as possible. Companies, employees and the tax authorities would then be able to consult the registered experts, in order to assess whether certain R&D projects qualify as applied research and technological development and, hence, whether the tax incentives apply to their activity,” Pascu told BR.

Recent developments in streamlined legislation and controversial bills

The modernization of the public procurement legislation in line with EU standards and the creation of regulation for vocational education have been among the measures rolled out in recent months in order to improve the business environment in Romania, both for local and foreign companies.

The government has also approved a new bill that aims to incentivize the unemployed to find a job in another part of the country. This would help companies that have manufacturing units in western Romania, in towns where the unemployment rate is so low that there simply aren’t enough workers. Although, in theory, it sounds great to bring people from areas that don’t offer enough job prospects to areas with thriving economic activities, the media has reported on cases in which people preferred to stay at home on a lower income than move to another county, away from their family.

The risk of legislation changing overnight has not disappeared completely from the local market, and investors remain cautious. For instance, the renewable sector, which attracted billions of euros in fresh investments, has been in the red for the past two years after the government changed the incentives scheme in 2013. This year, the banking industry issued warnings regarding the outlook for home lending in Romania, after the approval of the debt discharge law in May. This piece of legislation, which was heavily criticized by banks, allows mortgage holders to return their homes to the banks and thereby be free of all debt. Although only around 4,000 people have made such requests to banks up to now, the lenders are seeking to overturn the law at the Constitutional Court, and a verdict was expected in late October. Bankers claim it is not fair that the bill also applies to existing contracts and not only new ones.

Competitive Romania – plan for direct investments

Streamlining of permitting procedures in various fields

The acceleration of the state aid approval chain

Improving relations between public investors and investors

 

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