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CEG: 1.7 billion euro could be injected in Romanian economy if fiscal and legislative predictability existed


About 1.7 billion euro could represent the profit of companies with foreign capital in 2018 which may be injected in economy in 2019, but the decision depends on the fiscal and legislative predictability, according to Oana Motoi, Managing Partner, Cromwell Evan Global (CEG).

The financial consultant quotes statistic information published by the National Bank of Romania in the report on direct foreign investments in Romania for 2017, according to which, after a period of foreign investment stagnation over 2012-2014, as of 2015, they grew in Romania every year by about 8%, while investors in countries like Holland, Germany, Austria, Italy or France manage 48.387 billion euro, that is 64% of overall foreign investments present in the market in Romania (75.851 billion euro om December 31, 2017).

“All these investments were made from profits prior to 2017, a period when Romania presented predictability about the legislative frame. Concretely, starting with 2015, until the end of 2017, 3,381 million euro represented the profit invested in Romania by all the companies with foreign capital. Year after year, the reinvested profit grew by 7% compared to reinvested profit of the previous year. For instance, 32.9% of  total profit in 2017 registered by companies with foreign capital represented capital reinvested in Romania. That leads to the conclusion that the estimated investment yield was at least reasonable, not to say very good. Until now there have not been any statistic data for 2018,” Oana Motoi said.

According to her, except for the impredictability of the legislative frame, which could influence foreign investors' decisions at the conclusion of 2018 financial exercise, at theoretical level, if the growing trend in the last 3 years maintained in 2018 too, about 1.7 billion euro should represent reinvested profit in Romania for the period starting with 2019, leaving from the premise that 2018 figures could be somewhat similar to those of 2017.

She also points out that reality has proved that investors go to areas predictable for business, since business plans are built for a period of at least three years. Most investors have quarterly reports being listed on the stock exchange or must report to the final investor in the chain.

“Legislative impredictability such as introducing fiscal  and/or parafiscal taxes not announced beforehand could break down business plans built for years and could generate less favorable impact in the foreign investment area. For instance, Holland is the country with the biggest investments in Romania. Why? Because investment in Romania presented over the years the premises of a long term investment. The result of those investments which have grown by 48.4% since 2012, represent one of the pillars of our economy. Hypothetically speaking, if most of those investors with future business plans in Romania must report to third markets, on a quarterly basis, the uncertainty of figures may sooner of later lead to the closing down of activities in Romania, or to blocking future investments. Such decisions could have a very big impact on economy and should be anticipated in preparing economic-fiscal policies with immediate applicability, implemented by means of legislative levers such as emergency orders,” the financial consultant said.

In conclusion, Oana Motoi points to the fact that, for the Romanian economy, it would be beneficial that the positive trend of investments in 2015 to the present should be continued by investors and at least partially, profits resulting from 2018 activities could be reinvested in Romanian economy.

“However, mention should be made that most investors,  not just those of the IT segment, are reticent in continuing the bet on growing investments in Romania, accusing the impredictability of the legislative frame which has been creating surprises for more than a year,' she warned.

CEG is an independent company that offers fiscal services and consulting in business and was set up in 2018 by Oana Motoi, a financial consultant with an experience of 11 years and who worked before for KPMG ad PwC. CEG activates in Romania and Moldova.