“The private sector in Romania is facing turbulence. Despite a high average, Romania’s economic growth has been very volatile, and the gains from reforms spurred by EU accession in 2007 have been eroded by gaps in governance and institutional quality, demographics and acute skills shortages.” says the report of the IFC, the investment arm of the World Bank.

The main obstacles are inefficient tax administration, perceived corruption and political instability

Inefficient tax administration, apparent corruption and political instability are the main obstacles to the business environment, the Report says.

Many tasks — such as obtaining building permits and grid connections, resolving bankruptcy cases, protecting minority investors and enforcing contracts — remain burdensome for companies.

Romania also stands out for its restrictive regulation of professional and transport services (including airlines). Moreover, in 2018, Romanian firms revealed that approximately 18% of senior management’s time was devoted to tax law (up from 2009), compared to a 13.5% average in peer countries.

In Romania, state control over the economy is greater than in most OECD countries

The 2018 OECD Index of Product Market Regulation (PMR), which takes into account government control, barriers to market entry and barriers to trade and investment, shows that Romania has greater government control over the economy than most OECD countries.

Barriers to entry that can be removed to promote competition and GDP growth include, among others: i) burdensome administrative procedures; ii) unnecessary requirements for entry into the field of road freight transport services and professional services; and iii) minimum and maximum legal fees and recommended guidelines for engineering and architectural fees. In addition, SOEs enjoy significant regulatory privileges.

We are the last in the ranking of EU innovations

Romania ranks last in the EU innovation rankings, indicating a decline in the ability of Romanian companies to move up the value chain. Romanian companies rank lower among EU companies in product and process innovation, marketing and organizational innovation, R&D spending, patent applications and ICT training.

Romania has the lowest share of innovative companies in the EU: in 2019, only 10% of Romanian firms introduced a new or significantly improved product or service in the past 12 months, less than countries in the region such as Bulgaria and Hungary. or Poland. In addition, there is no single body responsible for the overall management and coordination of innovation policy.

We are in the last place in the infrastructure quality rating

Romania’s infrastructure metrics lag behind the rest of the EU, with the country ranking last in the overall infrastructure quality ranking almost every year since 2007. According to the Global Competitiveness 2019 report, Romania performed particularly poorly on road quality, ranking 119th out of 141 countries – the lowest position in the EU and, despite being a high-income country, well below some countries with above average income. .

The large role of SOEs in the country’s infrastructure sector (especially in transport and energy) leads to insufficient investment and/or exclusion of the private sector. Public investment averaged 4.2% of GDP between 2000 and 2020, higher than the EU-27 average (3.2% of GDP), but very volatile. The government’s use of investment cuts as a tool to achieve budget deficit targets has become the main driver of instability. Inadequate coverage of transport infrastructure networks hinders competitiveness and job creation.

What else the report shows:

• Agriculture still accounts for a large share of employment, while the relative contribution of services to GDP and employment is the lowest in the EU.

• Unsustainable wage dynamics, an aging and shrinking workforce further erode productivity. The country’s huge shadow economy, estimated at 21% of GDP, creates additional problems.

• Illegal workers are a major component of the labor market, especially for low-skilled jobs.

• Although strong economic growth has led to a reduction in poverty, Romania continues to have the highest poverty rate in the EU. About 45% of the population lives in rural areas, where the poverty rate is six times higher than in metropolitan areas.

• Romania’s labor productivity has regained the gap with the EU average, but remains around 33% lower in 2021. Aggregate productivity growth in recent years is largely due to increased distribution efficiency, which has allowed manufacturing companies to increase their market share. The lack of digital skills, weak human capital, brain drain and deficiencies in the business environment are major and interrelated challenges to productivity in the country.

• The productivity of micro-enterprises and SMEs is hindered by limited access to finance due to both demand-side (e.g. undercapitalization of companies, informality, limited collateral, low financial literacy) and supply-side factors (e.g. lack of financial infrastructure).

• Romania’s population has declined due to aging and emigration, and the working-age population (20-64 years) will decline by around 7.5% by 2025 compared to 2019 levels, with a further 3% decline between 2025 and 2030. At the same time, the labor force The level of participation of women and youth in the force is among the lowest in the EU.

• Weaknesses in the education system, unfavorable attitudes towards lifelong learning, and ineffective training and active labor market policies, combined with brain drain, cause shortages and skills mismatches, which reduce the capacity for innovation and the potential for growth and earnings. (see Daylight Savings Time Update for Romania 2023).

• Romania has the lowest human capital index (HCI) in the EU: 0.58, which means that the future productivity of children born in Romania today will be only 58% of what it could be if they received education and full health care .

• In addition, Romania has the lowest participation rate in lifelong learning in the EU due to cultural and systemic barriers, while the country’s workforce has lower levels of digital and communication skills compared to EU standards.