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Driven by profits

Driven by profits

Even if trust is equally important in doing business, the profits drive, naturally, most of endeavors. What do foreign investors expect from Romania, other than predictability is underlined by Florin Vasilica, Partner, Transaction Advisory Services Leader, Ernst & Young Romania

Romania, as with other countries in the region, is still going through the crisis. But still, there is more and more interest, more and more questions being asked of us from foreign investors, the main issues being taxation and the general status of the political and business environment. In terms of industries, renewables continue to be a "hot" topic, in spite of the talk about a so-called "energy bubble", as resources do (like mining and oil). Other industries continue to struggle with the long-term effects of the financial crisis, and they have a way's to go yet before they become legitimate targets for FDI.

 

When it comes to trust and accountability, I believe we have to differentiate between private and state. In Romania we will not encounter a really "personal" approach to business relationships. The driver is profit. So, although trust is important, it's not the first motivator for businessmen in Romania, unlike in the countries of the former USSR, where personal relationships can decide the fate of businesses.

 

As for accountability, the country has come a long way since communism, but the old mentality still lingers, especially since the state remains heavily involved in the economy. People still look to the state first, and not in the way that a person in France or Germany does. The people here were taught - for almost half a century - that the state is the answer to everything, and the cost-free answer at that! It will take a while yet before the effects of that philosophical detour wear off.

 

But progress is being made. The younger generations were not as exposed to communist propaganda, and they are producing more and more self-starters - that is to say, people who just want the state to do the basics and otherwise get out of the way of entrepreneurs.

 

From the fiscal point of your, the 16% flat tax helps with investors, as many are influenced in their decision to come here by neutrality in taxation. On the other hand, one of Romania's great advantages, cheap labour, is coming to an end. And, as it has been proven, big investors would rather spend the money to build a factory in Africa or Bulgaria rather than on relatively expensive labour here. So, in terms of tax and other levies, lower social contributions might help to make Romania more attractive again.

 

But more than that, foreign investors value two key things - transport and predictability. They want to know that they can get their goods from one place to another quickly and affordably, and they also want to know that the amount of money that they have to pay from month to month and year to year will be the same (or at least foreseeable). And this is where the state can help. It can build transport infrastructure that unblocks the flow of trade through the country (which is currently traveling on roads and railways that are too narrow and too blocked up). The state can also avoid damaging talk about changing rules for political purposes - investment schemes, incentives, and tax need to be stable and predictable.

 

The Romanian government has to show stability and transparency in their actions and political decisions. No investor will go into a country that has situations like the one we experienced last summer, when we didn't know who had which position in the government and whether we had a president or not. Except, maybe, investors that want to take serious risks, and those are not the one that sustained economic growth is based on. The fact is that Romania is still new to the EU and we have to prove we are trustworthy for the big players, who are still reluctant to come here.

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EY ROMANIA SRL