1. As a macro-economist, you are able to see pros and cons of the record growth that is being registered in Romania in 2016 (in terms of dynamics). Can you summarize them?
Indeed, Romania is likely to post this year a remarkable growth rate, most likely close to 5%. This comes in the context of the pro-cyclical fiscal stimulus which has been provided in 2015 and 2016. As a consequence, this has led to a consumption driven growth mirrored by the high wage growth rates and an acceleration of retail sales. The problem is that without a boost of the potential output due to lagging public investments, the growth acceleration is likely to lose steam and be increasingly reflected in external deficits. Therefore, already as of 2017 we should expect an economic slowdown.
2. As a keen observer of the financial markets, have you expected the unexpected in terms of Brexit?
If you refer to the unexpected results of the referendum, I have never pretended to know for sure that there will be no Brexit whatsoever. Therefore, I have never been part of the majority who ended up being totally surprised. If you refer to what some consider to be a rather mild economic reaction to the Brexit, I consider that it’s far too soon to talk about this. At the end of the day, the economic impact of the Brexit, be it positive or negative, will require at least 1-2 years to be found in the economic statistics. It has nothing to do with the initial emotional reaction of the markets or with the short-term consumer sentiment. For the time being, we see a much weaker GBP supporting to some extent the British businesses, but to the same extent making the British poorer and rising the inflationary pressures. I suspect that this is not what the Brexit voters wished for…
3. You are one of the founders of AAI, The Romanian Independent Directors Association, and one of your goals is to raise the professional standards of members of boards of directors, in order to trigger the development of Romanian companies and increase their value. To what extent have you reached your goals in 2016? From this position, do you think that Romanian companies have rather increased their values in 2016 or have their turnover growths been below their potential?
We have to be aware that the macro economic success of Romania relies heavily on how successful Romanian companies are at the microeconomic level. Companies these days have to perform in a very complicated and unpredictable environment. This requires a highly competent and sophisticated corporate governance which not so many Romanian companies have used so far. Confronted with the scarcity of the domestic capital, Romanian companies have no other choice but to compensate for this by having a state-of-the-art corporate governance which would help them utilize, in the most efficient way, the available resources for maximum results. In terms of size and regional foot print, Romanian companies are behind their Hungarian and Polish peers and I believe that the quality of the corporate governance is one of the main reasons.
4. In which ways does the AAI plan to achieve its objectives?
Our main objective is to start to bring the Romanian corporate governance to a higher level. In order to do so, we shall act in a number of directions. First, we want to build within our Association a community of diverse professionals with relevant executive and board membership expertise and with an impeccable reputation. We shall then focus on explaining to the business community the benefits of a professional, high quality board by being present in conferences or by running training sessions on this matter. Finally, we are ready to offer this expertise directly by joining Boards or by coaching or providing consulting to them. It will not be easy, because we know that change is never easy. However, we trust that our persistence and motivation should help us to achieve our goals.
5. Indeed, if achieved, this would mean a significant break with the past. Can AAI achieve this alone?
It would be unrealistic to believe that AAI can do this by itself. We are in the process of identifying potential partners sharing the same goals with us. For instance, the Bucharest Stock Exchange is such a partner and we have already started to synchronise our activities with it. We had very interesting discussions with the Ministry of Economy, as well. Other partners we are thinking of and plan to contact in the near future are EBRD, World Bank, IFC and other similar institutions interested in creating a strong corporate governance expertise in Romania.
6. In 2016, have you seen major steps being taken in the corporate governance of state-owned enterprises? Do you think Romanian private companies have better corporate governance that the state-owned ones?
Well, I think that it is risky to generalize. Nevertheless, the private companies have enjoyed much more performance-driven shareholders than the state-owned ones. The Romanian state proved until recently to be an extremely complacent shareholder, having little interest in the economic performance of the companies which it owned. The direction for a Board and the key performance indicators are provided by the mandate given by the shareholders. As long as the Romanian state has been until recently so relaxed about its participations, the quality of the corporate governance reflected this. The ‘ice’ started to be broken by the activism of the minority private shareholders who pushed for an increased transparency and for higher professional standards in the Boards of state-owned companies. This has led to a number of improvements that we have witnessed so far, but moving further requires the state to become a much more sophisticated shareholder pushing for ambitious corporate objectives. I see encouraging signs in this direction and I can only hope that the new government will continue to advance on this path.
7. What would you say were the ups and downs for BCR Pensii and for the private pension system in general, in 2016?
Our business environment is pretty unpredictable, as well, the volatility coming from different directions. The volatility of financial markets translates into the revenues that we receive as fund managers, making budgeting and long-term planning quite challenging. On top of it comes the unpredictability of the legal framework which offers us surprises. The most obvious one is the delayed calendar for the increase of the compulsory private pensions contributions which should have been at 6% from the gross wage by now, but it is still at 5.1%. All this requires us to come in front of our Supervisory Board with very well thought of business cases in which we have to use a more conservative stance.
8. A lot of fiscal measures were taken in Romania in the last year having as a result more disposable income for the population/ companies. How has the extra disposable income been used for securing better retirement conditions in terms of accessing Pillar 3 of the private pension system?
We see indeed an increased interest for the voluntary private pensions (P3), but I think that the explanation is not related to the fiscal relaxation, but to something else. There are regional labour markets confronted with a virtual zero unemployment which forces employers to be increasingly innovative about the ways in which they can retain the staff. Given that most of them already offer private medical insurance and meal tickets, they have to move to the next level to make a difference. And private pensions is considered the next level for some of them asking for our support.
9. Please make a statement about what the new administration resulted from the elections should bring for the business environment in 2017.
I think that, irrespective of the political parties who will win the next elections, for Romania it is more important than ever to end up with a very professional government, able to deal with the numerous internal and external challenges that the country is facing. Seeing the future as an extrapolation of the recent path would be a terrible mistake. ‘Romania Ltd.’ is still in a deep need for a professional governance, otherwise risking to derail again from the optimal economic path. One should not forget that Romania’s record economic growth rates came together with having one of the deepest recessions in Europe. This means that in order to have a sustainable and persistent development of the country, any future government will have to do much more than to play with the taxes.