Thursday, 06 Dec 2012
Overseas Business Risk - Romania
Political and Economic
Romanian President Traian Basescu is Head of State. In December 2009 he was re-elected for his second (and last) five year term with 50.33% of the votes. On 6 July 2012, President Basescu has been suspended by the Parliament. On 29 July, a national referendum for the impeachment of the President was held. 87% of the participants voted against the President but the referendum failed to meet the 50% quorum required by the Constitutional Court. The Court has postponed to rule on the validity of the referendum until 31 August. Meanwhile, Senate Speaker Crin Antonescu is caretaker President.
The current Prime Minister is Victor Ponta. He is heading a 20 Minister cabinet that won the Parliament’s vote of confidence on 7 May 2012. Based on a coalition between the Social Democratic Party, the Liberal Party and the Conservative Party. It also includes 1 independent Minister.
The bicameral (two Chambers) Parliament consists of a Senate (137 seats) and a Chamber of Deputies (334 seats). Elections to both Chambers of Parliament are held simultaneously every four years – the most recent in November 2008. The voting system was changed in 2008 from a party list system to one whereby voters vote for individual candidates, so that only candidates achieving more than 50% of the vote are directly elected. Where there are no clear winners seats are filled through redistribution of Parties’ votes to the most successful of the candidates who polled less than 50%.
Romania is divided into 41 counties (Judete), with the separate city of Bucharest forming a 42nd area. Each county is governed by a County Council (Consiliul Judetean) consisting of members elected by universal suffrage for a 4 year term. The President of the county council is appointed by the elected members of the council having executive responsibilities.
A Prefect is appointed to each county by Central Government and is the representative of the Central Government at local level directing public services of the Ministries and other central agencies at county level. A Prefect may block action by a local authority if he/she deems it unlawful or unconstitutional. Although Prefects are often appointed from previous MPs, they do not officially represent political Parties.
Counties have responsibility for development planning, water supply, sewage, public transport, roads, social assistance for children, education.
Businessman reading newspaper
Basic Economic Facts
GDP Growth (2012 forecast): 1.5% Inflation: 1.8% (April 2012)
Unemployment: 7.5% (March 2012)
Major Industries: food and beverages, energy, metallurgy, crude oil processing, chemicals, light machinery and textiles
Exports – EU 71,2%, out of which Germany 18,6%, Italy 13,1%, France 7,5%, Turkey 6,4%, Hungary 5,5%, Bulgaria 3,6%, UK 3,2%, Netherlands 3%, Poland 2,5%, Spain 2,4%
Imports – EU 71.7%, out of which Germany 16,8%, Italy 11,4%, Hungary 8,5%, France 5,8%, China 4,8%, Kazakhstan 4,5%, Russian Federation 4,3%, Austria 3,9%, Poland 3,9%, Turkey 3,4%.
Trade Deficit: 7.5 EUR bn deficit (2011)
Current Account Deficit: 5.7 EUR bn (2011)
Foreign Direct Investments: 1.9 EUR bn (2011)
Exchange rate (May 2012): 1 EUR = 4.34 RON; 1 USD = 3.44 RON; 1 GBP= 5.46 RON
Following the collapse of communist rule in 1989, Romania has undergone a long period of economic transition to a market economy, which has not been smooth nor particularly well managed. Since 2000 there has been more progress. An extensive programme of economic reforms included the privatisation of several state-owned enterprises and the restructuring of Romania’s energy, mining and industrial sector. The economy had been growing at an average annual rate of 6% since 2000 until the economic crisis hit Romania’s economy hard in the final quarter of 2008. Romania officially entered recession in mid-May 2009. Romania signed a €20 billion stand-by agreement with the EU and the IMF, which has helped stabilise the economy.
Agriculture represents about 8.1% of GDP but it is mainly subsistence farming. After 15 years of slow progress, the pace of reform has increased in the last couple of years. Direct payments from CAP and rural development funds are likely to raise living standards in the countryside as farmers and local authorities are eagerly applying for funding. Significant amounts of EU structural funding have been allocated for the 2007-2013 timeframe and despite a slow start in absorbing them, Romania is expected to reap the benefits and develop its infrastructure Romania remains well placed to resume a path of above average economic growth once the global crisis ends. It remains an attractive destination for foreign investment, particularly in sectors such as environment and renewable energies, IT and infrastructure.
The mostly foreign-owned banking system has proved stable, thanks to highly effective supervision by the National Bank. But liquidity has been a problem as the Government sought to cover the budget deficit by borrowing from the domestic market.
The Romanian economy increased by 2.5% last year better than many analysts expected, especially due to an excellent harvest. In 2012, the economy is expected to increase by 1% as exports to Western markets are slowing down. Romania attracted €1.9bn of foreign direct investments in 2011 (compared to €9bn before the financial crisis started).
Romania’s second programme with the EC and IMF remained on track. It is precautionary, and so far the Government has not needed to draw funds. The Government met the IMF's 4.4% budget deficit target for 2011. This year’s 3% deficit target will be more challenging given the electoral pressures building up ahead of the 2012 local and parliamentary elections. However, the IMF and Fitch seemed confident that the Government would pursue a responsible fiscal policy, and not risk the wrath of the markets. Public debt is also relatively low at 39% of GDP although still increasing steadily.
Outlook for 2012
Romania’s public finances have been improving, thanks to the combined efforts of Basescu and Isarescu to hold the Liberal Democrat Government to the IMF programme. This has secured Romania's credibility - now reflected in Fitch's upgraded rating - and protected the country from the worst of the economic crisis. However, the economic calculations were based on a return to strong growth in 2012, election year. However, given the political battle between the President and the new Social Liberal Government, the outlook turned bleaker over the summer and economic reform stalled. The government needs to offer better prospects for growth, and may be tempted to reverse elements of the austerity programme. The banking sector could be hit hard if any of the larger foreign banks withdraws capital from a local subsidiary
More information on political risk, including political demonstrations is available in FCO Travel Advice.
Romania has ratified most of the European and universal human rights treaties and counts human rights as an official foreign policy priority. Still, human trafficking, including forced labour, and discrimination against minority groups remains.
Romania is a source, transit, and destination country for men, women, and children trafficked for the purposes of commercial sexual exploitation and forced labour in the agriculture, construction, and service sectors. The Government of Romania is making significant efforts to comply with the minimum standards for the elimination of trafficking. One of the priorities of the Government is to strengthen the institutional capacity of the National Agency against Trafficking in Persons (NAATIP) and to adopt the next Anti-Trafficking Strategy.
Public attitude towards the Roma remains negative and they still face structural discrimination, including enjoyment of equal access to education, jobs or health care. Accepting diversity remains a major issue in Romania, particularly regarding sexual orientations. Romania does not allow civil partnerships, nor does it recognize civil partnerships signed in another country.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Five years after its EU accession, the Romanian judiciary is still being monitored by the European Commission under the Cooperation and Verification Mechanism. Romania has made significant progress since 2007. Key legislation has now been put in place, and anti-corruption institutions are demonstrating a convincing track record. The adoption of the National Anti-Corruption Strategy also marks an important step. However Romania need to continue to focus on the implementation of key reforms, improvements in management and organisation of the judiciary, and more efforts are needed to improve the consistency of jurisprudence. The new Civil Code entered into force in Autumn 2011 and three other judicial Codes are expected in Autumn 2012 and early 2013. Romania will be subject to an additional CVM report at the end of 2012.
Level of perceived corruption in Romania increased in 2011. It ranked 75th in the world in the 2011 Corruption Perceptions Index conducted by Transparency International. Bulgaria and Greece were perceived to be more corrupt than Romania. General perception is that levels of corruption are rising: 93% of Romanians declared corruption was a major issue in a Eurobarometer survey in May 2012.
There is an underlying threat from terrorism. Attacks, although unlikely, could be indiscriminate, including in places frequented by expatriates and foreign travellers.
Protective Security Advice
Businessman working at a computer
You are advised to maintain at least the same level of personal security awareness in Romania as in the UK. You should also be alert to the risk of petty theft in large towns, especially in Bucharest, and for pickpockets and bag snatchers in crowded areas, particularly near exchange shops, hotels, on public transport (especially to the airport), main railway stations and inside airport terminals. Organised attacks by groups, often including children, occur. The most common method is of distraction whilst several people, often the children, attempt to snatch watches and jewellery from pockets or from around the neck and wrist. Thieves have also been known to pose as bogus plain clothes policemen.
We are aware of thefts of valuables including passports from hotel rooms. Items of value, including passports and credit cards should be deposited in hotel safes. However, you should carry a photocopy of the information pages of your passport as ID
You should be aware that there are reports of credit or charge cards being 'copied' when used in some bars and restaurants, resulting in illegal charges being raised against the user account.
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.
For information on obtaining a patent in Romania, you should contact the State Office for Inventions and Trademarks
5 Ion Ghica Street, Sector 3,
T: +40 21 3060800
F: +40 21 3123819
For information on registering your Trademark in Romania, you should contact the Office for Harmonisation in the Internal Market
Refer also to the website of the World Intellectual Property Organisation (WIPO), and the Madrid Protocol for the international registration of marks.
Read the information provided on our Intellectual Property page.
Romania’s location in South East Europe with large land and sea borders make it an ideal transit route for the trafficking of drugs, guns and human beings. Romania is on the Balkans route for the smuggling of South West Asian Heroin from Turkey and Bulgaria and/or the Black Sea coast to Western Europe.
Romania is also a nexus point for migration flows from the North (Moldova, Ukraine, FSU) and the South (Turkey, Iran, Iraq, Afghanistan). Romania has featured in a number of identified routes including Dubai and Yemen to Western Europe. One direct OIC threat with heavy socio-economic consequences from Romania is children from the Roma community being trafficked to the UK and other EU countries (Greece, Sweden and Austria in particular) for the purposes of criminal exploitation.
The banking sector is especially vulnerable to money laundering from Romanian OCGs laundering the proceeds of their criminality through financial institutions in the UK. The regional cooperation usually proves difficult due to historical prejudices and weak bilateral relationships.
Romania’s position at the external border of the EU makes it a target for fiscal crime, including but not exclusively, cigarette smuggling and infringements of Intellectual Property Rights (IPR offences). When added to the possibilities of VAT (MTIC) fraud and emerging fiscal crimes (e.g. Carbon Credit fraud), the country suffers serious losses to its Treasury.
Read the information provided on our Organised crime page.