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FIC: Investors in Romania losing confidence due to frequent fiscal policy changes
The foreign investors' council in Romania, FIC, said on Thursday that although Romania's economy is growing, investor confidence is deteriorating due to the ever-changing fiscal policy.
Although the high economic growth rates are being translated into increased revenues, business and employment growth, they will not be sustainable on the current path, FIC said in a business sentiment index survey.
Inadequate infrastructure, increased shortage of qualified workforce, regulatory and fiscal uncertainty and pessimistic business sentiment will lead to less investments, local or foreign, and this in turn will curb growth and take the economy below its potential, FIC warned.
FIC member companies represent a significant share of foreign direct investment in Romania. They have more than 180,000 employees and a total turnover that is equivalent to about a quarter of the country's GDP.
More than 60% of FIC members expect their revenues and business to grow next year, considering the economic growth recorded this year and the projections for next year. At the same time, the sentiment of FIC members regarding the business environment in Romania, especially on the predictability of the legislative framework, and the stability of fiscal and regulatory frameworks is deteriorating considerably.
Some 90% of the survey respondents said that constant legislative changes are affecting their business planning, while 65% report that the fiscal burden has increased. As many as 75% think that the business environment in Romania has worsened recently and note that current developments have lowered their trust.
"Constantly changing fiscal policy with measures being announced and then dropped has had a powerful negative effect on the trust of investors. Equally, perceived or real dangers for the rule of law in Romania, translate into less trust on behalf of investors," FIC said.
Also, some 42% of FIC members said that Romania is losing its competitiveness in term of labour force, up from only 6% in 2015. This is one of the most severe deteriorating indices.
Some 90% of respondents say that infrastructure and bureaucracy have a negative impact on their competitiveness.
"The FIC believes that the necessary adjustments could be made on time if the Government and political parties open a constructive dialogue with the business community. Ultimately everyone shares the same goal of economic growth and increased well being," the council added.
Foreign direct investment (FDI) into Romania fell 19% on the year to an estimated 2.518 billion euro ($2.978 billion) in the first eight months of 2017, latest data from the central bank, BNR, showed.
"To talk about this difference as a result of a diminishing trust of foreign investors in Romania would be premature, because an investment decision is usually made after two years. However, some recent public policies tend to worry the current foreign investors, as the sentiment index shows and to possibly 'intimidate' the new ones," FIC commented.
In FIC's view, the authorities should develop a coherent policy of attracting FDIs, because greenfield projects represented only 78 million euro, only 2.4% out of the total foreign equity in 2016, which means few companies are entering the market.
In 2016, Romania's economy grew by 4.8% year-on-year compared to a revised growth rate of 3.9% in 2015.
Romania's government expects a 5.6% economic expansion in 2017.