Can Romania become more competitive in a global market?

Can Romania become more competitive in a global market?

A short answer is that it takes time in order to see sustainable results

Let us look back at the last 15 years, for example. One can see that Romania’s progress has been impressive. In 2000,  Romania’s per capita GDP was only 26% of the EU average; today it doubled, exceeding 50%. Behind these figures, there are the impressive efforts put up by Romania to catch up with the rest of the European Union. In order to match these past achievements and to double its economy in the next 15-20 years, Romania needs to growth at an average annual rate of 4-5%. This is no easy task, but it is achievable provided that the country’s productivity and competitiveness are boosted through an appropriate policy mix. Growth, jobs, prosperity and inclusion can become part of a virtuous circle, where the government makes it easier and less costly for businesses to pay their taxes, and simultaneously allows more predictability; businesses develop and invest, creating more jobs, which in turn makes the lives of those employed and their families better. In other words, proper business conditions lead to sustainable growth, and investment leads to jobs.

Improving business environment is essential for Romania in order to boost its competitiveness, and thus to enable economic growth and job creation. Going forward, there are a few key points to enhance the quality of the investment climate. The main areas that should be targeted by the reform are a more flexible business environment, with less direct state involvement in the functioning of the markets, better regulation and access to credit.

Through the engagement framework of the Country Partnership for Romania, the World Bank is committed to continue supporting the Romanian Government towards growth and jobs creation. In the World Bank Doing Business survey, Romania was classified in 2007 as the second most active reformer in the world. Afterwards, however, Romania’s position stalled.  Currently, Romania moved from 50 to 48 in the 2015 report, but a significant distance to the best practices remains. Romania
has improved in making it easier for companies to pay their taxes, with the majority now using the electronic system for filing  and paying taxes. Romania’s distance to the best practices improved with 1.7%, its DB2015 distance to frontier score is now 70.2.

Regarding the regulatory environment for business, the Government has committed to improving the quality of the regulatory process by moving towards a systematic evidencebased policy-making and by aligning with the EU Smart Regulation agenda. The use of regulatory impact assessments has been highlighted as one of the key topics under the EU’s country specific recommendations for improving the public policy framework.

Reducing the role of the state in the economy is also a priority, particularly in transport and energy. As of 2011, there were more than 900 state owned enterprises of which 645 reported financial statements to the Ministry of Public Finance. The latter had revenues amounting to about 10 % of GDP and employed 22 % and 5 % of the public and total labor force respectively. Their underperformance, lower productivity, insufficient capital investments and pricing distortions pose significant challenges to the economy and the country. State owned enterprises’ arrears have been halved, but remain at about 2% of GDP, and account for over 90% of all public sector arrears. Their financial fragility has a direct impact on actual and contingent state finances, capital markets, the banking sector and the social security system.

At the World Bank Group, we are working to support Romania to ensure that the growth-jobs prosperity- inclusion virtuous circle becomes a reality.

First, we have identified areas that require intervention and we have prepared a comprehensive Country Partnership Strategy for 2014-2017 as the general framework for our engagement in Romania. The Country Partnership Strategy, whose overall objective is to help reduce poverty and foster sustainable growth, particularly for the poorest segments of the population, is built around three key pillars: creating a 21st century government, supporting growth and job creation, and social inclusion. We do see these three pillars as complementary and reinforcing each other.

Second, we share our global knowledge with the government. In Romania, we share knowledge through a number of  instruments: analytical work, lending or technical assistance. Technical assistance projects become increasingly important in our Romania portfolio when it comes to helping streamline business regulation, improve the regulatory environment for small and medium-sized enterprises, or enhance competition in line with the EU principles. Here are a few examples. The World  Bank offers assistance to the Romanian Competition Council to increase the effectiveness of competition policies in relation to sectoral policies. The Bank also works with the Prime Minister’s Chancellery to streamline the institutional and legal system for regulatory impact assessments (RIA), build technical capacity, and raise awareness at the political level regarding the relevance of RIA as evidence-based decision-making.


Third, complementary financing is provided directly to the private sector through the International Finance Corporation. IFC will continue support strengthening the capital market as an alternative of financing for the Romanian enterprises. IFC also  focuses on addressing bottlenecks to growth and improving access to markets, goods and services through infrastructure investments, particularly in the energy sector, and in transport and logistics. IFC will support the private sector in competitive industries as businesses seek to transfer new technologies and innovative models to spur the growth of exporters.