EMBASSY OF ROMANIA
Trade and Economic Promotion Office
Amman
HashemiteKingdom of Jordan
Monthly News Bulletin
"To support the Jordanian business community in their efforts towards
enhancing the trade relations and economic cooperation with Romania"
No. 6–June 2014
MACROECONOMIC VIEW
International Monetary Fund: A year from now, Romania will no longer need a new accord
Most probably Romania will no longer sign a new stand-by accord with IMF as of next year, according to Guillermo Tolosa, the IMF representative for Romania.
“Our expectation and I think their perspective too (of the government- e.n.) is that as of next summer Romania will be on its own and will no longer need these stand-by accords,” was the answer made by Tolosa to a question coming from foreign investors present at a meeting with Romanian and foreign investors organized this week by Franklin Templeton, the administrator of Property Fund.
“The only risk is a not very rapid implementation of reforms which we have already discussed. It is a risk for Romania of not reaching its potential. Otherwise I do not expect major problems in years to come. The Ukrainian crisis is not a major risk for Romania. On the contrary, I heard talks about investors who have reconsidered their stands in Russia and reoriented towards East European countries, Romania included,” Guillermo Tolosa concluded.
“After 2015 we will no longer have a deal. This will surely be the last agreement with IMF and the European Commission. We had a deal for EUR 20 million in 2009. The money was taken. Another deal in 2011 for EUR 5 million, the money wasn’t taken and it was a preemptive deal. Another agreement in 2013, for EUR 4 billion – IMF and the European Commission – the money will not be taken again, but it is a stability agreement, it ensures an anchor“, according to the delegate minister for the Budget, Mr. LiviuVoinea.
Romanian government wants 40 percent more SMEs by 2020
The government is looking to increase the number of active SMEs by 40 percent, to 670,000, with 3.2 million employees in total, by 2020, according to a strategy project currently in public debate.
“The main result indicator for 2020 is the net sum of economically active SMEs, which should be higher than 670,000 enterprises in Romania. The government considers that an increase of 41.23 percent of active SMEs, in the next seven years, is a realistic strategic objective. In terms of “SME density for every 1000 inhabitants”, hitting this strategic target means reaching a level where there are 36 active enterprises for every 1000 inhabitants in 2020, compared to 21.94 enterprises in 2012. In terms of total number of people employed, the government believes we have to go over 3.2 million active SMEs employees”, according to a proposal submitted to the Department for SME, Business Community and Tourism.
At the end of 2013, Romania had 474,416 active SMEs which means in the following 7 years the state must create conditions for another 200,000 to be started. The SMEs contribution to the economy is also expected to increase by 41 percent in the next seven years, to EUR 38 billion.
“The strategy establishes the Romanian government’s policies for the next seven years to support the intensive and extensive development of the SMEs sector, with a special emphasis put on enhancing the number of active SMEs on the local and external markets, as well as increasing SME density, especially in the areas where this indicator is below the European average and thus limit regional disparities”, according to the project.
The economic sectors the strategy highlights to receive government support are, in order of importance
- food industry,
- clothing and fashion
- leather industry, shoe manufacturing, fur;
- medicine and pharma production;
- non-metallic mineral-based products;
- metal industry,
- electrical equipment,
- other industrial activities.
Creative industries that will receive government support:
- publishing and editing;
- cinema and tv
- music industry
- IT services
- architecture and engineering
- technical analysis
- research
- advertising
- other educational, scientific and technical activities.
In order to improve these businesses’ access to financing, the measures laid out in the government’s strategy are meant help SMEs with programs for starting, developing and sustaining themselves. At the same time, the authorities are looking into creating a seed capital fund (which finances businesses in early stages of development) and pass new laws that would help design new financing options.
In 2016, the state also wants to apply a stimulus scheme for commercial banks who give loans to SMEs.
Government to implement labor tax cut from October without International Monetary Fund’s approval
Prime minister Victor Ponta has announced thatsocial insurance contributions (CAS) will be cut by 5 percentfor employers starting October 1. The measure is expected to cost the general budget almost RON 850 million (250 Millions Euros) but would have no major effect on overall deficit.
The government will adopt the measure with a new law project to be sent to the Parliament the following week. The PM stated that it is a “reasonable and sustainable” measure that his Cabinet stands by, even though the IMF refused to sign off on it.
“The IMF, European Commission and World Bank agreement remains functional (…). Our international partners said one thing: first, we have to stay within the deficit limits and their agreement will be given based on the discussions we will have late November for the 2015 and 2015 budget. There is no agreement or disagreement. When salaries and pensions were cut, it wasn’t the IMF that reduced them, it was the Romanian government. When we gave it back, we gave it back. When we cut CAS, we will cut it. They are asking for one thing: to keep our promises regarding macroeconomic objectives and to continue structural reforms”, the Prime Minister has added.
He has also underlined the fact that the measure’s impact on the budget will be covered through state revenue.
The government was planning to cut the CAS by 5 percentage points in July, claiming it would support the creation of new jobs and contribute to the reduction of the informal labor market. This measure would have a net impact of RON 1.5 billion (400 millions Euros) to the state budget, according to Ioana Petrescu, the minister of finance.
According to European Commission data published in 2013, the tax wedge on labor in Romania amounted to 44.8 percent in 2011, while the EU average reached 43.3 percent in 2012.
Budget deficit at 0.24 percent after 5 months
Romania’s consolidated budget deficit narrowed to 0.24 percent of gross domestic product at the end of May against a 0.28 percent shortfall in the first four months, according to the latest finance ministry data.At the same time last year, the consolidate budget recorded a 1.04 percent deficit,At the end of may 2014, the Finance ministry recorded a 0.45 percent surplus, compared to a 0.27 percent primary surplus in the similar period of last year.
Revenues were RON 84.1 billion (19.11 billion Euros), representing 12.7 percent of GDP, a 3.7 percent increase year on year. Romania had to pay 16 percent less to the EU, and other expenses came in at RON 85.65 billion (19.46 billion Euros), a 2.3 percent decrease year on year.
For 2014, authorities agreed with the IMF to try and maintain the budgetary deficit at 2.2 percent GDP. Romania ended last year with a 2.5 percent deficit.
Romania prepares for new petroleum licensing round
The National Agency for Mineral Resources (ANRM) aims to organize in the next period a new licensing round for onshore and offshore perimeters and wants to attract bids from big oil majors, Gheorghe Dutu, the agency’s president has said.
The ANRM wants to tender 36 new perimeters in the 11th round, out of which 28 are onshore and the rest in the Black Sea, including deep sea areas. Dutu said this is where the “big candidates” are expected.
“We will have to contribute to the restoration of Romania’s stock of energy resources by attracting investments in a predictable and coherent framework. The last discoveries in the Black Sea could see Romania become a gas exporter starting 2019-2020,” Dutu has added. ANRM’s president has also said earlier this month that an inter-government committee is working on new legislation for the petroleum sector, which could include differentiated royalties for projects.He has hinted that the new scheme will take into account the maturity of the fields and their location. In addition, shale gas couldUS oil major Chevron has started to seek oil shale gas in eastern Romania, while US-based ExxonMobil and Austrian OMV Petrom are jointly exploringa deep shore deposit off the coast of Romania. The companies announced they had made their first discovery of a deposit, which could contain an estimated 42 to 84 billion cubic meters of gas.
Agriculture sector contributed 5.6 percent to Romania’s GDP in 2013
Daniel Constantin, the minister of agriculture, has said during an Agriculture and Environment Conference that the agriculture sectorhas generated 5.6 percent of Romania’s GDP last year, while the food industry accounted for 6.2 percent.
The country’s economic growth reached 3.5 percent last year, out of which half was covered from the agricultural output, according to the National Bank of Romania (NBR).
“In 2013, Romania came first on some harvests. It came first on the amount produced on sunflower, second on corn and sixth on wheat and rapeseed,” said the agriculture minister, adding that the development of the system of irrigations is crucial for securing the growth of the sector going forward.“Through the Common Agricultural Policy (CAP), through the rural development policies Romania can sustain that potential of constant growth of production if we develop the right system of irrigations. We have the possibility through rural development to finance anything related to secondary and third infrastructure in irrigations,” Mr. Daniel Constatin has added.
Romania is currently seeking approval from the European Commission, the executive arm of the EU, to finance the main irrigation investments from cohesion funds. In the meantime, the country has allotted EUR 370 million under the rural development program PNDR to rehabilitate the secondary irrigation infrastructure.
MARKET & COMPANIES NEWS
Record breaking harvest for Romanian farmers: 8.3 million tones of wheat this summer
Romanian farmers will harvest 8.3 million tones of wheat in less than one month, which is the highest production in the last 27 years, according to the available data, and also 12 percent higher than in 2013/2014 season.
Romania will consolidate its position as the 5th biggest wheat producers in the European Union, according to a report published by Toepfer, local leader of grain commerce.
The optimistic prognosis comes as a result of favorable weather conditions for the last six months. The only meteorological factors that can still damage productivity are heavy rains or a heat wave in the very near future.Nearly half of the harvest, 4 million tones, will be traded internationally, Romania becoming the third biggest wheat exporter in European Union and 11th worldwide.
Romania, EU champion at sun-flower production
Romania came in first place in Europe last year for sun-flower production, according to research done by the National Institute of Statistics regarding the state of crops in Romania in 2013. Sun-flower crops represent a tradition in Romania and the country managed to have the highest production yield out of the main European member-states.
Oil plants
Production increased by 79.3 percent, given that the crop area increased by 13.6 percent and yield per hectare was also on the rise. The biggest production hikes were recorded for sun-flower (+52.7 percent), soy (+45.2 percent) and rape (4.3 times).
Sugar Beet
Production: +37.6 percent
Yield/hectare: +32.7 percent
Crops area: +3.7 percent
Potatoes
Production: +31.8 percent
Yield/hectare: +42 percent
Crops area: -7.1 percent
Vegetables
Production: +13.6 percent
Grapes
Production: +27.3 percent
Yield/hectare: +37.4 percent
Crops area: -0.6 percent
Fruit (plantations)
Production: +11.6 percent
- Cherry trees: +30.4 percent
- Pair trees: +15.8 percent
- Apricot trees: +12.5 percent
- Plum trees: 11.5 percent
- Apple trees: +8.3 percent
Tax exemption for reinvested profit
(Emergency Ordinance no. 19 / 2014, published in the Official Gazette No. 308 on 25 April 2014)
The Emergency Ordinance amends the Fiscal Code by reintroducing the tax exemption scheme for profit invested in the production and/or acquisitions of technological equipment as provided in subgroup 2.1 of the Catalogue regarding the classification and the normal useful life of fixed assets.
This profits tax exemption is applicable in case of technological equipment produced and/or acquired after 1 July 2014 and put into use up to 31 December 2016.Similar to the provisions of the previous profit tax exemption scheme (Law no. 329/2009), the reinvested profit represents the balance of the profit and loss account, respectively the accounting gross profit cumulated from the beginning of the year, in the year when the respective technological equipment was put into use.
The reserve created further to the incentive’s application is not subject to the provisions of art. 22, par. (6) regarding tax incentives, being taxed at the time of use in any form, as well as in case of reorganization operations, if the recipient entity does not take over this reserve (i.e. no interests and late payment penalties are due).
The Emergency Ordinance also modifies other rules, e.g. related to the period of retention in the patrimony of the technological equipment, which cannot exceed 5 years, with certain exceptions (e.g. cases where technological equipment is destroyed, lost or stolen, etc.).
Certain provisions remain similar to the ones provided by former facility granted for reinvested profit, inter-alia: (i) cases where investments were performed in prior quarters, (ii) the distribution of the profit amount for which the exemption was granted at the end of the financial exercise, and (iii) technological equipment developed during several consecutive years.
Taxpayers benefiting from the tax exemption for reinvested profit may not use the accelerated depreciation method for the respective technological equipment.For taxpayers who opted for a financial year different from the calendar year, the above provisions are applicable accordingly to the modified fiscal year.
GDF Suez Energy buys 57.2 percent stake in Congaz Constanta
Gas supplierGDF Suez Energy Romania has acquired the controlling stake in Congaz Constanta, active in the supply and distribution of gas, from E.On Ruhrgas International and OMV Petrom for an undisclosed sum.
The deal will see GDF Suez Energy increase its ownership in Congaz to 86 percent, pending approval of the Competition Council. Five local councils in the ConstantaCounty hold minority stakes in the company.
“According to the provisions of the Competition Law, the proposed operation is an economic concentration exceeding the value thresholds included in the law, undergoing the assessment of the Competition Council,” said the anti-trust watchdog in a statement.
Fabryo-Atlas Paints to build a mortar factory in Popesti-Leordeni
Early this year, paint producer Fabryo-Atlas Paints has started a construction for a mortar factory on the platform it owns in Popesti-Leordeni, Ilfov county with the new production unit expected to become operational in October.
“Our investments were up to EUR 500,000 in 2013, and in the near future we will build a mortar factory, which will double our capacity”, according to Dragos Military, CEO Fabryo-Atlas Paints.Fabryo’s portfolio for construction finishes extended in the last few years, especially in the mortar and adhesives category, according to the press release.For 2014, Fabryo-Atlas Paints estimates a turnover over increase of 5%.“In the first five months of the year, our sales volume tripled and we need extra production capacity”, Militaru added.
The company, which resulted after a merger between the Fabryo Corporation and Atlas Paints, is a main player on the paints and plasters market. The group owns a paint, mortar and adhesives factory and Popesti-Leordeni and another production unit for insulation equipment in Tunari, Ilfov county.
Investors have put over EUR 6 billion in Romania’s renewable sector
The country has attracted over EUR 6 billion worth of renewable investments in the last few years and the government should send a “signal” to investors that are grappling with legal uncertainty as some of them plan to exit the market, according to Mr.Valeriu Binig, director, financial advisory services/energy & resources/corporate finance at professional services firm Deloitte Romania. He added that the booming renewable sector could help Romania reach its Europe 2020 target regarding the production of electricity this year. The country should have covered 24 percent of the gross consumption of primary energy from renewable sources six years later.
“This is a watershed moment. Romania could fulfill these criteria in 2014 and next we could see withdrawals from the market, not followed by new investments that can lead to the situation in which Romania in 2017-1018 to not satisfy this criteria. On one hand certain investors would have fulfilled their return on investments through very good return rates, on the other hand the big investors at this moment want to exit Romania,” Mr. Binig has added.
Romania to join ECB’s Single Supervisory Mechanism next year
The country aims to overhaul its banking legislation this year so as to join the Single Supervision Mechanism of the European Central Bank (ECB) in 2015, Mr. Bogdan Olteanu, Vice-Governor of the National Bank of Romania (BNR) has said. Mr. Olteanu said that Romania will be the first non-Euro zone member that will be part of the mechanism.
“The envisaged steps are not simple, on one hand the evaluation of banks’ assets, which is ongoing, and on the other hand the institutional legislative reform that is extremely complex and assumes the transfer of sovereignty from Romania to that part of the European Union that decides to be part of the Banking Union, a new Euro zone, if you like,” .He said Romania needs to change the banking and guarantee fund laws and other provisions regarding the intervention and stabilization mechanisms in line with EU standards.