Frontier Markets Focus | Romania

Author: Al Emid

Moreover, the US State Department cautions that the Romanian government has allowed political interests and budgetary imperatives to supersede accepted Western business practices, and that in areas such as the levying of taxes on infrastructure it resorts to emergency legislative measures, bypassing impact analyses and stakeholder consultation. In 2013 it instituted a windfall tax on profits from natural gas and on some construction.

Notwithstanding these trade-offs, Romania attracted net FDI inflows of €2.7 billion ($3.4 billion) in 2013, up from €2.1 billion in 2012 and €1.8 billion in 2011. Investors have focused on the information technology, energy services, manufacturing and consumer product sectors, according to the State Department.

Romania has surpassed Hungary in consultancy EY’s ranking of the most-attractive countries for foreign investment in Central and Eastern Europe, placing third in the region after Poland and the Czech Republic.

VITAL STATISTICS

Location: Eastern Europe

Neighbors: Ukraine, Bulgaria, Moldova, Hungary, Serbia

Capital city: Bucharest

Population (2013): 19.96 million

Official language: Romanian

GDP per capita (2013): $9,499

GDP growth (2013): 3.5%

Inflation (2013): 4%

Currency: Leu

Investment promotion agencies: Department for Infrastructure Projects, Foreign Investment, Public Private Partnership and Export Promotion

dpiis.gov.ro/new_dpiis/en/

Investment incentives available? State aid schemes, some accelerated deductions, reduced VAT rates on some goods and services

Ease of Doing Business rank: 73 (2014)

Corruption Perceptions Index rank: 69 (2013)

Political risk: Instability reflected in succession of prime ministers since fall of communism in 1989; ruling coalition fell apart earlier in 2014; possibility of more instability

Security risk: Proximity to Ukraine

PROS

Liquid well-capitalized banking system–but with nonperforming loans estimated at over 20%

Progress made in deficit reductions

Deceleration in inflation

CONS

Corruption at all levels and apparent lack of will to tackle it effectively

Some vulnerability to European economic problems

High external debt burden

Inefficiencies in state-owned enterprises

Lack of infrastructure

Austerity measures led to unrest and street clashes in 2012

Sources: A.M. Best, IMF, KPMG, Heritage Foundation, Moody’s Investors Services, National Bank of Romania, Standard & Poor’s, Transparency International, World Bank

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