Market entry

BLISSROMANIA operates closely with foreign companies in planning their business strategy when looking at the business opportunities in the Romanian market.  With our local support office and our wide range of specialists we provide essential market information, ease and facilitate the market entry process. Our clients will value the complete potential of new chances the Romanian market has to offer.

We are a professional, reliable, affordable and knowledgeable partner and our clients will achieve a strong and sustainable position in the Romanian business environment.

Why to enter this market?

• Member of the EU
• Enduring industrial traditions
• Stable economy
• Stable political system
• Broad education system
• Second largest EU country in CEE
• Diversified industry
• Second lowest average salary in the EU
• Attractive tax system
• Access to domestic market of 22m people with high level of consumption
• Skilled labour force
• Reduced social insurance contributions since 2007
• Access to EU funds
• Well-developed base of suppliers
• Infrastructure development

Business and economic environment

Romania, which has been a member of the EU since 2007, has come a long way from the centrally-planned Communist economy to its current free market system. As the second largest EU member in CEE in terms of population – 22 million – it offers diverse possibilities in areas such as metal processing, business process outsourcing, food manufacturing, the chemical industry, the timber industry, the car industry, construction, the mechanical industry and renewable energy. The political system is stable, and the country’s legal regulations comply with those of the EU. Tax was recently simplified and reduced to a universal flat rate of 16% for both corporate and personal income tax. In 2007, social insurance contribution rates were reduced. Romania offers a variety of incentives for potential investors, including access to EU structural funds and a variety of special economic zones, business parks, greenfield and brownfield locations and property tax exemptions. In addition, with a developed industry, it also offers access to a wide base of local suppliers which offer superior components for further use in other products. One of the threats to investors is Romania’s exclusion from the Euro zone, which creates an additional currency risk. This risk is even greater because the government is running the country with a substantial deficit in excess of the 10% threshold.

Before the current crisis, the Romanian economy was characterised by high growth rates, which reached 6.21% on average between 2001 and 2008. The highest rates were recorded in 2004 (8.47%) and 2007 (7.92%), the years of EU expansion in Central Eastern Europe, the second stage of which involved Romania and Bulgaria. However, after significant growth during the first three quarters of 2008 (7.3%), the economy began to shrink during the last quarter and continued to contract by 7.3% in 2009 and by a further 1.9% in 2010. This was because of the dependency of Romanian companies on their Western business partners, along with Romania’s still modest domestic consumption, which has been unable to offset the reduction in demand on the external markets. In 2009, Romania sought a EUR 19 bn assistance package from the IMF, the EU and other international lenders in order to combat the effects of the crisis. The IMF expects the Romanian economy to pick up again in 2011, with a growth rate of 3.6%.

Inflation, which stood at 40% in 2000, has been curbed and has been in single figures since 2004, despite rising to 7.8% in 2008 (food prices had become volatile because of limited domestic agricultural production, a depreciation in the lei and rising fuel prices). Forecasts for the coming year envisage a further reduction in inflation, from 6.6% in 2010 to 5.2% in 2011, which is still relatively high for an economy in recession.

The inflationary threat has been addressed by the National Bank of Romania, which raised the key policy rate to 10%, from 9.75% in 2008. This was principally because of an increase in consumption, an increase in wages which was not matched by productivity gains, a relaxation of income and fiscal policies determined by the local and general elections and the related risks of economic overheating. In fact, the Bank acknowledged that it might need to use all of its instruments in order to respond to inflationary pressures. However, it reduced the rates again, to 8.5% in 2009 and 7% in 2010.

The Romanian currency, the Lei (RON), which was introduced in the 2005 currency reform, has been losing value against the Euro, and the average exchange rate increased from 3.68 in 2008 to 4.34 in 2010 and 4.23 in 2011.

The average unemployment rate continued to fall, from 5.4% in 2006 to 4.3% in 2007, and reached 2% in 2010, after a short-lived 8% in 2009.

Since the stabilisation of the Romanian economy (mainly after 1997) and after European Union accession, the country has attracted significant investment. Between 2003 and 2004, following progress in the implementation of structural reforms, FDI inflow came to EUR 7bn. In 2006, FDI was the equivalent of 8.9% of GDP (EUR 8.3bn), whereas in 2007 it stood at 5.9% of GDP (EUR 3.2bn, with EUR 0.8bn accounted for the purchase of Electrica Muntenia Sud by ENEL). In 2008 the figure was 6.6% of GDP (EUR 9bn). In 2009 it fell to 3.8% as a result of a depression in the global economy but returned to 4.2% in 2010 and is expected to remain at the same level in 2011.

According to the 2011 World Bank report, Romania currently ranks 56th of 175 economies in terms of ease of doing business, scoring higher than other countries in the region, such as Hungary, Poland and the Czech Republic, particularly with regard to obtaining credit (15), starting a business (44) and trading across borders (47).

Infrastructure and technological environment

The Romanian transport network is a major recipient of EU regional funds, as it is currently underdeveloped. At the beginning of 2009, the railway network had 10,784 km of track, of which only 3,888 km were electrified.

There are 81,713 km of roadways, of which 66,632 km are paved. These include approximately 230 km of motorways – both the rail and road networks are underdeveloped in terms of km per 1,000 km² in comparison with other countries in the region, such as the Czech Republic, Hungary and Poland. The Merchant Marine fleet consists of 15 ships registered on Romanian territory and 35 ships registered abroad.

In 2009 there were 25 m mobile phone users and around 7.8m internet users in Romania, in a population of 21.9 m.

Social environment

The population of Romania stands at 21.94 m but is slowly falling; the population growth rate is -0.25%.

Romania’s population has been multi-ethnic for centuries, mainly because of frequent changes in the borders and the influence of the Austro-Hungarian Empire and the Ottoman Empire. Today, slightly less than 90% of the population is ethnic Romanian, and almost 7% is Hungarian – the largest ethnic minority in Romania. Other ethnic groups include: Roma (2.5%), Ukrainian (0.3%), German (0.3%) Russian (0.2%) and Turkish (0.2%).

The official language of the country is Romanian.

Political environment

Romania has a total surface area of 237,500 square kilometres. Bucharest, the nation’s capital, is located in the southern part of the country. Other major cities include Iasi, Cluj-Napoca, Timisoara, Constanta, Craiova, Galati and Brasov. Romania is divided into 41 administrative regions called judete.

After the end of Ceausescu’s regime in December 1989, Romania embraced democracy, and Euro-Atlantic integration became the main objective of its foreign policy. The first years of the transition to democracy (during Ion lliescu’s first terms) were marred by a lack of structural reform, political and administrative uncertainty and civil and ethnic unrest. After 1997 political and economic focus moved away from the bureaucratic and administrative obstacles, and Romania regained the interest of the US and the West. Furthermore, foreign direct investment was attracted after the first successful privatisations were carried out as a means of revitalising the economy.

Other problematic issues outlined by the European Commission are: reform of the justice system, the fight against corruption and an increase in the country’s capacity to absorb European Union Structural and Cohesion Funds. The country is not expected to join the Euro zone before 2015.

The following factors can be considered the main reasons for corruption in Romania:

• an incomplete legal framework and the selective enforcement of existing laws
• excessive regulation of the economy by the state
• close links between the political and the economic elite
• limited advocacy
• public sector contracts are still the major source of business, and decision makers earn very little
• limited public access to information on government decisions and operations
• tradition.
  

General data

Area: 237,500 sq km
Population: 21.9 m (2009)
Capital: Bucharest
Language: Romanian (official), Hungarian is spoken by approximately 7% of the population
Ethnic groups: Romanian 89.5%, Hungarian 6.6%, Roma 2.5%, Ukrainian 0.3%, German 0.3%, Russian 0.2%, Turkish 0.2%, others 0.4%
National boundaries: Ukraine 531 km, Moldova 450 km, Bulgaria 608 km, Serbia 476 km, Hungary 443 km

Contact us now to find out more how we can assist with your market entry in Romania:

Mr Isfahan Doekhie
CEO
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0040(0)729 0005 625