The World Bank has issued its ‘Doing Business 2017’ ranking, and Romania came in 36th, with 74.26 points.
Romania is ahead of Bulgaria, in 39th place, Hungary, in 41st, Belgium, 42nd, Italy, 50th, and Turkey, 69th. Ahead of Romania are Poland, 24th, the Czech Republic, 27th, Slovenia, 30th, Slovakia, 33rd, or Kazakhstan, 35th. Even though Romania dropped 0.14 points as against last year, it dropped one position in this annual ranking of 190 countries.
According to the World Bank report, Romania made progress in paying taxes, where it went up four places as against last year, but dropped 11 positions in terms of start-ups. The report says that Romania made starting a business harder by increasing the time it takes to register for VAT payment.
At the same time, the Global Entrepreneurship Monitor, whose ranking includes 60 countries, points out that in Romania an entrepreneur needs about 12,500 dollars to start a business, which is more than in Poland, Sweden, Bulgaria, Croatia and Hungary, but less than in Germany, Italy or Norway. The high cost of starting up a business, most times paid out of pocket, is one of the reasons why Romania has so few SMEs, considered the driving engine of an economy.
Romania has only 30 SMEs per 1000 inhabitants, placing it in next to last in the EU, according to an analysis published by the Ziarul Financiar paper. The EU average is 54 per thousand, according to the latest European Commission data.
Here is the Prime Minister Dacian Ciolos: “We also have state-provided aid programs aimed at creating jobs for smaller size companies. Generally speaking, the beneficiaries are Romanian companies that create jobs, and many times these are horizontally created jobs. There are also Romanian companies that develop alongside the foreign partners they work with. We are preparing a state-provided aid program coming into effect next year, with a budget allocation worth 900 million lei, about 200 million Euro, in effect until 2020, which will also address medium sized investments, around 1 to 5 million Euro, which we hope will attract more and more Romanian companies, allowing them to develop.”
Recently, the COFACE agency raised the country's ranking from B to A4 in terms of risks in the business environment. This is the first time this occurs since 2009, but the agency pointed out that the improvement in this environment was due exclusively to consumption, which could lead to future imbalances. The A4 ranking indicates that economic and financial prospects could be fragile, considering political tensions, as well as some legislation gaps. In spite of all this, the average expected rate of default on payment for businesses is at a reasonable level. The A4 grade is the lowest recommended to investors.
In spite of this improvement in the rating, COFACE Romania manager Eugen Anicescu pointed out that the recent evolution relies too much on increased consumption: “The improvement of the economic and business environment, of liquidity, is mostly due to a growth of the GDP based on consumption. What we are seeing now is a feast of consumption. What fed this consumption were medium wage rises, as well as tax cuts. Feeding consumption clearly puts money on the market, companies have the benefit of this liquidity, the environment is on the move, but not without peril. Unfortunately, we don't see investment matching this increase in consumption. In some ways, consumption ends up translated into imports. The VAT cut has been put into effect, the wage hikes have been introduced, they have an impact on the budget, and if no other element to support growth appears in the future, we can expect a flattening.”
According to COFACE, Romania's strong points are the relative large size of the domestic market, the cheap and well trained labor force, a significant monetary reserve in fairly stable currency, a level of public debt below the European average, and a low level of dependence on foreign energy sources. At the same time, its weak points are a decreasing population, low budget revenue, a sub par infrastructure and problems with corruption and entrepreneurship.