Country Forecast June 2010© The Economist Intelligence Unit Limited 2010 Romania: Country Forecast June 2010 Romania Editor: Joan Hoey Editorial closing

Country Forecast June 2010 © The Economist Intelligence Unit Limited 2010

Romania:

Country Forecast June 2010Romania

Editor: Joan Hoey

Editorial closing date: 11th June 2010


Romania:

Five-year forecast summary


Romania: Five-year forecast summary

Real GDP growth(%)

The Economist Intelligence Unit expects the political scene to be volatile as the government struggles to cope with the continuing fallout from the recession of 2009, including rising unemployment and growing levels of popular dissatisfaction. There is a high risk of social unrest in 2010. A coherent majority government is unlikely to emerge in the next five years, repeating the post-communist pattern of coalition or minority governments struggling to implement coherent policies.

Romania’s business environment rankings improve modestly in 2010-14 as a result of improvements in policies towards private enterprise and the foreign trade regime, as well as continuing investment in infrastructure. However, poor scores for political stability, market opportunities and the macroeconomic environment hold back progress.

Economic growth will average around 3.8% per year in 2010-14, following a real GDP contraction of 7.1% in 2009.


Romania:

Household consumption per head(US$)

Five-year forecast summary

The forecast for market opportunities is mixed. The fast growth rates of recent years will not be replicated in the short term, as growth slows sharply. Over the medium term, however, disposable incomes will rise, generating growing demand for a range of goods and services. Romania’s size gives it an advantage over other, smaller emerging markets.

Prospects for long-term economic growth are fairly good, because of the scope for fast catch-up growth from a low base, but the long-term growth profile is adversely affected by the hard landing of 2009-10. The poor demographic outlook will also have a negative effect on real growth per head after 2010.


Romania: Business environment rankings

Methodology

2005-09 2010-14 2005-09 2010-14 2005-09 2010-14

Overall position 5.91 6.26 50 50 10 10

Political environment 5.3 5.5 49 49 11 11

Political stability 7.0 6.6 37 41 11 11

Political effectiveness 3.9 4.5 59 56 11 10

Macroeconomic environment 5.8 6.1 72 69 13 15

Market opportunities 5.2 5.4 52 53 7 7

Policy towards private enterprise & competition 5.3 6.0 49 43 9 8

Policy towards foreign investment 7.3 7.3 33 34 6 5

Foreign trade & exchange controls 7.8 7.8 42 45 9 8

Taxes 5.4 6.0 55 47 10 6

Financing 5.5 5.5 51 52 8 7

The labour market 6.0 6.4 48 38 11 6

Infrastructure 5.6 6.6 48 45 12 10a Out of 10. b Out of 82 countries. c Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.

Value of indexa Global rankb Regional rankc


Romania:

The political environment


Romania: Political outlook

More from ViewsWire…

Highlights

The government formed by Emil Boc in December 2009, and comprising the Democratic Liberal Party (DLP) and the Hungarian Union of Democrats in Romania (HUDR), is reliant on independents and representatives of minorities for a parliamentary majority, and may therefore fail to serve a full term until the election due in late 2012.

The government faces difficult economic choices, most immediately on the fiscal front, where it has opted for deep cuts in public expenditure rather than tax rate increases in order to meet deficit targets in this and coming years. The government will preside over rising unemployment and falling household incomes in 2010. This will make it unpopular with voters, and the risk of social unrest is high.

Romania remains subject to monitoring by the European Commission and has so far only just avoided censure for its lack of progress in reforming the judiciary and prosecuting corruption. A failure to address these issues could eventually result in a suspension of EU funding.

A coherent majority government is unlikely to emerge in the next five years, continuing the post-communist pattern of minority governments beholden to parliamentary opposition parties, or coalition governments comprising unlikely political bedfellows.


Romania:

Demographics


Romania: Demographic outlook

The population will continue to decline over the next five years. Government plans to address the problem through a series of policy measures are unlikely to have much effect, as the rate of natural increase is not easily susceptible to official intervention.

The entry of the final cohorts of the 1980s "baby boom" to the labour market will mean that the population of working age contracts at a relatively slow rate over this period. This, together with a slight rise in participation rates, will allow the labour force to remain relatively stable.

The main uncertainty concerns the level of future emigration to other EU member states and the number of returnees. Emigration is not expected to rise dramatically, given restrictions on migrants from Romania imposed by EU member states, but there will not be large numbers of migrants returning during the forecast period, despite economic woes in the euro area in 2009-10.

Population (m) 2005 2009 2014

Total 21.6 21.5 21.4

Period averages (%) 2005-09 2010-14

Population growth -0.2 -0.1

Labour force growth 0.2 0.0


Romania:

The business environment forecast


Romania: Business environment outlook

Our business environment rankings assess a country’s relative attractiveness as an investment

location, both globally and regionally.

Romania's overall score in our business environment rankings rises modestly, to 6.26 out of 10

in 2010-14, as a result of improvements in the foreign trade regime, and in policy towards

private enterprise and competition. The infrastructure ranking also improves.

Poor scores for political stability, market opportunities and the macroeconomic environment

hold back progress, but Romania rises by two places in the global ranking, to 50th out of 82

countries; regionally, it comes tenth out of 16 countries, the same as in 2005-09.


Romania: Macroeconomic environment

The macroeconomic environment deteriorated sharply in 2007-09, posing significant threats to macroeconomic stability

in the context of the deepening global financial and economic crisis.

The crisis will continue to have a negative impact on output, exports, employment, the currency and capital inflows in

2010, but the economy will grow on a sounder basis from 2011.

A much smaller external deficit and an IMF-EU financing package should enable Romania to meet its external financing

requirement in 2010-11.


Romania: Fiscal policy

Central government budget balance(% of GDP)

Following negative growth in the first quarter and an increase in government arrears in excess of agreed limits, the IMF revised its deficit forecast for 2010 to 9.1%, assuming that no further actions were taken. The government renegotiated the deficit target from 5.9% to 6.8% of GDP and committed to making swingeing cuts in spending.

Even these may prove insufficient, and increases in the rates of value-added tax (VAT), currently set at 19%, and in the flat-rate incomes and profits tax (16%), may be required.

The government proposes to reduce the deficit to 4.4% of GDP in 2011 and to 3% of GDP in 2012 (on the ESA 95 basis), but has given little indication of how these targets will be met.

We expect the consolidated general government budget to record deficits equivalent to 7% of GDP in 2010, 4.4% in 2011 and 3.4% in 2012, based on national methodology.


Romania: Monetary policy

Money market interest rate(%)

The National Bank of Romania (NBR, the central bank) operates an inflation-targeting regime and has set a year-end inflation target of 3.5% for 2010, the same as in 2009, and of 3% for 2011 (both ±1 percentage point). It forecasts year-end inflation of 3.7% in 2010 and of 2.8% in 2011.

The NBR reduced its monetary policy rate by 50 basis points in each month of the first quarter of 2010, taking it to 6.5%, and by a further 25 basis points on May 5th, to 6.25%. Interest rates are expected to decline further in 2010-11, as inflation falls and interbank rates move closer to those of the NBR. However, there is a limit to how far interest rates can be cut, in view of underlying inflationary pressures.

There have been strong indications that Romania will delay adoption of the euro, scheduled for 2015, by several years.


Romania: Policy towards private enterprise & competition

Gradual implementation of EU competition policy leads to further improvements, but

Romania continues to lag behind other accession states. Prices are progressively

deregulated. Manufacturing becomes more competitive as output recovers with a

smaller labour force.

The pace of restructuring slows as government tries to contain growth of

unemployment, causing stagnating productivity growth. There are minor improvements

in the regulatory regime and less red tape. Utility pricing is harmonised with the EU.

2010-11:

2012-14:


Romania: Policy towards foreign investment

The government remains ambivalent towards privatisation, but comes under fiscal pressure to

go ahead with politically sensitive sales in the energy sector. Greenfield investment, especially

in engineering, is encouraged. Incentives for large investors come under EU scrutiny.

Tax and customs incentives for foreign investors are withdrawn under EU pressure.

2010-11:

2012-14:


Romania: Foreign trade and exchange controls

The leu remains subject to volatility, as the NBR maintains a flexible exchange rate. The

leu may still be relatively overvalued, despite the exchange-rate correction of 2008-09.

Once the current turbulence has abated, after 2010, the leu is expected to continue to

appreciate modestly in real terms, in line with productivity differentials. The economic

downturn in 2009-10 will delay the NBR’s target date for euro adoption.

2010-11:

2012-14:


Romania: Taxes

Excise duties are raised towards EU levels. Pension reform gets under way. The

government may have to raise tax rates—for example, for value-added tax (VAT)—to

compensate for falling revenue.

There are improvements in tax administration and collection, but the climate is still

influenced by arbitrary measures.

2010-11:

2012-14:


Romania: Financing

Parent banks agree to maintain finance to subsidiaries operating in Romania and to increase

minimum capital-adequacy ratios from 8% to 10%. Low take-up of credit by households

pushes the financial sector towards small and medium-sized enterprises (SMEs).

The structure of the financial sector undergoes significant changes as there is increasing

diversification of financial instruments. The capital market begins to play a greater role as the

private pension system starts to take off. Measures by the European Bank for Reconstruction

and Development (EBRD) to improve finance to SMEs start to take effect.

2010-11:

2012-14:


Romania: The labour market

Labour shortages in some critical areas are partly alleviated by greater unemployment in

the early period and by the return of migrant workers. Productivity growth slows, but

falling demand helps to contain wage costs.

The labour force starts to decline, reflecting falling birth rates in the 1990s and the removal of

remaining restrictions on the mobility of Romanian workers in the EU. Productivity growth

improves slowly as the economy recovers, but with a reduced labour force.

2010-11:

2012-14:


Romania: Infrastructure

Romania makes progress in upgrading the energy sector, telecommunications, and the

motorway, road and rail networks, but few large projects are completed.

Romania plans a significant expansion of nuclear-power generation in order to reduce its

dependence on imported energy. Two further nuclear reactors should be opened at

Cernavoda by 2012-13.

2010-11:

2012-14:


Romania:

The economic forecast


Romania: International assumptions

Economic growth (%)

Uncertainty about the global outlook remains exceptionally high. Extraordinary measures have calmed the fiscal crisis in the euro area, but the risk of turbulence remains.

Fiscal consolidation, household retrenchment and banking sector balance-sheet repair will constrain growth for some time. The euro area economy is forecast to grow by 0.7% in 2010 and by 0.8% in 2011, after a fall of 4.1% in 2009. Growth will average 1.6% in 2012-14.

We forecast that the price of dated Brent Blend crude oil will average US$79/barrel in 2010-14, compared with an average price of US$62/b in 2009, adding to Romania's energy import bill.


Romania: Economic outlook

Economic outlook(% real change)

We forecast a return to modest growth in Romania in 2010, of 0.3%, following a contraction of 7.1% in 2009, as domestic demand remains constrained. There is a risk that growth could be negative for a second successive year.

The economic recovery is expected to strengthen from 2011, when growth of 3.8% is forecast, helped by a recovery in domestic demand and robust export growth.

Real GDP growth is forecast to average 5% in 2012-14, driven by a revival of consumption and investment growth and a strong export performance.

A recovery in foreign direct investment (FDI) and other external inflows is expected from 2011.


Romania: Wage and price inflation

Consumer price inflation(%; annual av) Disinflation is set to continue in 2010-14, but

we do not expect inflation to fall to west European levels within the forecast period.

In 2010 we expect that the depreciation of the leu against the US dollar in the first half of the year will generate further inflationary pressures later in the year by driving up the price of imported energy and raw materials.

Wages, which continued to rise in the first quarter of 2010, are also generating inflationary pressures.

Provided that fiscal and incomes policies are tightened, average inflation is forecast to fall to 4.4% in 2010 and to just over 2% by 2014.

The main inflationary risks are uncertainty over the leu and the possibility that wage rates will grow faster than expected.


Romania: Exchange rates

Exchange rates

Exchange-rate volatility is likely to be a feature in the early part of the forecast period, as investor sentiment reacts to the threat of political instability, fiscal policy failure and backsliding on reform.

The leu depreciated by 7.4% in real terms in 2009, but other currencies in the region also depreciated. Based on estimates of equilibrium exchange rates, the leu may still be overvalued.

The NBR will not want the exchange rate to strengthen, but nor will it want too rapid a depreciation, given high levels of foreign-denominated debt and the need to avoid imported inflation. It will have to pursue a cautious monetary policy for the forecast period.


Romania: External sector

External sector(US$ bn unless otherwise indicated)

A more prudent fiscal stance from 2010 will keep the current-account deficit at the equivalent of a sustainable 5-6% of GDP over the forecast period.

Export sales will recover from 2010, helped by strong productivity gains in industry. Import growth will slow greatly compared with the recent past, leading to more balanced growth.

The services deficit will widen steadily from 2011 onwards, and the deficit on income will also widen, reflecting rising interest payments on foreign debt.

The surplus on transfers will build steadily, after a decline in 2009, as remittances from Romanians working abroad and transfers from the EU increase.


Romania:

Foreign direct investment


Romania: Foreign direct investment

Stocks and flows

Inward foreign direct investment stock, 2010(% of GDP)

Despite the strong pick-up in inflows of FDI in recent years, the ratio of the FDI stock to GDP at end-2008 (33.6%) was still one of the lowest in east-central Europe. The jump in the ratio to 46.8% in 2009 reflected the sharp contraction of GDP, which will be common to the region.

Although Romania is the leading recipient of FDI in the Balkans when measured in US dollar terms, it lags behind Croatia and Bulgaria in terms of FDI per head (which was US$3,514 at end-2009).

FDI into Romania has been rising strongly since 2004, and reached a record total of US$13.9bn in 2008. Romania’s stock of FDI at end-2009 was an estimated US$75.4bn.

FDI inflows fell steeply in 2009, to US$6.8bn, as the global economic crisis led to a drying up of all capital inflows, but will pick up again from 2010.



Inward foreign direct investment stock per head, 2010(US$)

Determinants

Romania’s advantages as a location for investment include a domestic market of about 22m consumers and the potential—partly owing to a good geographical position at a crossroads of traditional trade routes—to emerge as a regional hub.

Romania has a comparatively cheap and skilled workforce, as well as a diversified industrial structure that allows intermediate inputs to be bought locally.

In the past, macroeconomic instability, poor reform progress, high regional risk, excessive red tape, and the unpredictable legal and regulatory system were the main obstacles to FDI. Progress in all these areas should ensure continuing large inflows of FDI over the medium term.



Annual inflows of foreign direct investment(US$ m)

Potential

Apart from a large fall in FDI inflows in 2009, owing to the global economic crisis, GDP growth, improvements in the business environment and further privatisations should underpin strong FDI inflows in the coming years.

FDI inflows almost halved to US$6.8bn in 2009, from US$13.9bn in 2008, but will average about US$9bn per year in 2010-14.

Strong market opportunities and a better regulatory environment will make Romania attractive to foreign companies. Investor confidence is reflected in the large share of reinvested earnings in FDI inflows.

Manufacturing industries such as automotives, metallurgy, food-processing, telecoms and information technology (IT), as well as retail and banking, will benefit from foreign investment and know-how.


Romania:

Market opportunities


Romania: Market opportunities

GDP per head(US$ at PPP)

Romania has the second-largest economy of the ten east European countries that joined the EU in May 2004 and January 2007, but its level of GDP per head at purchasing power parity (PPP) exchange rates lags behind most of the other new EU entrants.

We forecast that real GDP growth will average 3.8% per year in 2010-14—a significantly higher rate than the 1.3% forecast for the euro zone—resulting in rising disposable incomes.

Forecast strong growth in incomes and credit will drive private consumption growth, and consumer spending patterns in the more developed, western part of Romania will be increasingly similar to those in western Europe. The north-eastern regions will continue to trail behind.


Romania:

The long-term forecast


Romania: Long-term outlook

Real GDP growth(% annual change)

Romania's low initial income is a definite advantage in terms of the scope for convergence with more advanced economies. Summed up by the phrase "the advantages of backwardness", poor countries generally grow more rapidly than rich ones.

Romania is more distant, compared with central European neighbours such as Hungary, from the economic centres of western Europe. However, it has a large domestic market and easy access to the EU’s eastern neighbours, which give it an advantage compared with some of its neighbours.

In terms of the quality of the labour force, education and health endowments, Romania’s position is mixed, but generally compares favourably with other emerging markets.



Demographic trends: Romania's demographic profile is unfavourable, but not as bad as those of some of its neighbours, such as Bulgaria, and its working-age population is not expected to fall precipitately. The increase in the old-age dependency ratio (that is, of retired people to the working-age population) will become more pronounced as a result of the falling birth rate and increased mortality.

External conditions: Romania has an open economy, which has benefited greatly from the opening up of new markets—especially in the EU, which takes almost 70% of its exports—since 1989. It will benefit from the continuing gradual liberalisation of world trade and closer trade integration with the EU (including eventually through euro membership). Some of the remaining barriers to trade in goods with the EU are likely to be removed, and liberalisation of trade in services, which could eventually benefit Romania, is set to continue. Romania should be in a good position to take advantage of the efforts of firms in Germany and other developed EU countries to improve their profitability by shifting non-core activities to lower-cost locations.

Long-term performance: Of the various factors that determine long-term growth, the government can do little to change many. This is because they are either fixed (geography) or change only slowly (institutions). Much therefore depends on policies. On relatively favourable assumptions about key policy variables and progress in deregulation, in our best-case scenario, Romania's long-term annual average growth per head is forecast at 3.8%.



GDP per head(US$ at PPP; index, US=100)

Nominal GDP(US$ at PPP; index, Romania=100)


Romania:

Resources


Romania: Map


Romania: Comparative GDP, 2009

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product per head(US$; market exchange rates)


Romania: Basic data

Land area

Population

Climate

Language

Currency

Time

Public holidays

Romanian

238,391 sq km; twelfth-largest in Europe

21,623,849 (July 1st 2005)

Continental

Leu = 100 bani; the plural of leu is lei

Two hours ahead of GMT/BST

January 1st-2nd, January 6th, Easter (Orthodox calendar), May 1st, December 1st, December 25th, December 26th

Weather in Bucharest Hottest month, July, 16-30°C (average daily minimum and maximum); coldest month, January, minus 7-1°C; driest month, February, 33 mm average rainfall; wettest month, June, 89 mm average rainfall


Romania:

Outline of the model

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by Country Forecasts using a standard analytical framework. It is designed to reflect the main criteria used by companies to formulate their global business strategies, and is based not only on historical conditions but also on expectations about conditions prevailing over the next five years. This allows the Economist Intelligence Unit to utilise the regularity, depth and detail of its forecasting work to generate a unique set of forward-looking business environment rankings on a regional and global basis.

The business rankings model examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. Each category contains a number of indicators that are assessed by the Economist Intelligence Unit for the last five years and the next five years. The number of indicators in each category varies from five (foreign trade and exchange regimes) to 16 (infrastructure), and there are 91 indicators in total.

Almost half of the indicators are based on quantitative data (eg, GDP growth), and are mostly drawn from national and international statistical sources for the historical period (2005-09) and from Economist Intelligence Unit assessments for the forecast period (2010-14). The other indicators are qualitative in nature (eg, quality of the financial regulatory system), and are drawn from a range of data sources and business surveys adjusted by the Economist Intelligence Unit, for 2005-09. All forecasts for the qualitative indicators covering 2010-14 are based on Economist Intelligence Unit assessments.

The main sources used in the business rankings model include CIA, World Factbook; Economist Intelligence Unit, Country Risk Service, Country Finance, Country Commerce; Freedom House, Annual Survey of Political Rights and Civil Liberties; Heritage Foundation, Index of Economic Freedom; IMF, Annual Report on Foreign Exchange Restrictions; International Institute for Management Development, World Competitiveness Yearbook; International Labour Organisation, International Labour Statistics Yearbook; UN, Human Development Report; US Social Security Administration, Social Security Programs Throughout the World; World Bank, World Development Report; World Development Indicators; World Economic Forum, Global Competitiveness Report.

Back to Rankings

Business environment rankings: Methodology


Romania:

Calculating the rankings

The rankings are calculated in several stages. First, each of the 91 indicators is scored on a scale from 1 (very bad for business) to 5 (very good for business). The aggregate category scores are derived on the basis of simple or weighted averages of the indicator scores within a given category. These are then adjusted, on the basis of a linear transformation, to produce index values on a 1-10 scale. An arithmetic average of the ten category index values is then calculated to yield the aggregate business environment score for each country, again on a 1-10 scale.

The use of equal weights for the categories to derive the overall score reflects in part the theoretical uncertainty about the relative importance of the primary determinants of investment. Surveys of foreign direct investors' intentions yield widely differing results on the relative importance of different factors. Weighted scores for individual categories based on correlation coefficients of recent foreign direct investment inflows do not in any case produce overall results that are significantly different to those derived from a system based on equal weights.

For most quantitative indicators the data are arrayed in ascending or descending order and split into five bands (quintiles). The countries falling in the first quintile are assigned scores of 5, those falling in the second quintile score 4 and so on. The cut-off points between bands are based on the average of the raw indicator values for the top and bottom countries in adjacent quintiles. The 2005-09 ranges are then used to derive 2010-14 scores. This allows for intertemporal as well as cross-country comparisons of the indicator and category scores.

Measurement and grading issues

The indices and rankings attempt to measure the average quality of the business environment over the entire historical or forecast period, not simply at the start or at the end of the period. Thus in the forecast we assign an average grade to elements of the business environment over 2010-14, not to the likely situation in 2014 only.

The scores based on quantitative data are usually calculated on the basis of the numeric average for an indicator over the period. In some cases, the "average" is represented, as an approximation, by the recorded value at the mid-point of the period (2007 or 2012). In only a few cases is the relevant variable appropriately measured by the value at the start of the period (eg, educational attainments). For one indicator (the natural resources endowment), the score remains constant for both the historical and forecast periods.

Business environment rankings: Methodology

Back to Rankings


Romania: Indicator scores in the business rankings model

a Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.

Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly based on data. All other indicators are qualitative in nature.

Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Political environment

1. Risk of armed conflict 4 4.3 4 4.3

2. Risk of social unrest 3 3.4 2 2.8

3. Constitutional mechanisms for the orderly transfer of power 4 3.5 4 3.5

4. Government and opposition 3 3.5 3 3.4

5. Threat of politically motivated violence 4 3.8 4 3.8

6. International disputes or tensions 4 3.3 4 3.3

7. Government policy towards business 3 3.4 3 3.4

8. Effectiveness of political system in policy formulation and execution 2 2.6 2 2.7

9. Quality of the bureaucracy 2 2.3 2 2.3

10. Transparency and fairness of legal system 2 2.4 3 2.6

11. Efficiency of legal system 2 2.8 3 3.0

12. Corruption 2 2.2 2 2.4

13. Impact of crime 3 3.2 3 3.2





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Macroeconomic environment

1. Inflation* 4 3.9 4 4.6

2. Budget balance as % of GDP* 3 3.8 3 3.6

3. Government debt as % of GDP* 5 4.8 5 4.5

4. Exchange-rate volatility* 4 4.3 4 4.5

5. Current-account balance as % of GDP* 1 2.3 2 3.3

6. Quality of policymaking 3 3.1 3 3.2

7. Institutional underpinnings 3 3.6 3 3.7

8. Asset prices 2 2.1 2 2.5





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Market opportunities

1. GDP, US$ bn at PPP* 3 2.5 3 2.6

2. GDP per head, US$ at PPP* 3 3.2 3 3.3

3. Real GDP growth* 3 3.0 3 3.3

4. Share of world merchandise trade* 2 2.1 3 2.2

5. Average annual rate of growth of exports* 3 2.4 3 2.6

6. Average annual rate of growth of imports* 4 2.3 3 2.9

7. The natural resource endowment* 2 2.3 2 2.3

8. Profitability* 3 3.1 3 3.3

9. Regional integration 5 4.3 5 4.3

10. Proximity to markets 3 3.6 3 3.6





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Policy towards private enterprise and competition

1. Degree to which private property rights are protected 3 3.4 4 3.7

2. Government regulation on setting up new private businesses 4 3.1 4 3.3

3. Freedom of existing businesses to compete 3 3.0 3 3.2

4. Promotion of competition 2 2.5 3 2.9

5. Protection of intellectual property 2 2.7 3 3.1

6. Price controls 4 3.8 4 3.8

7. Distortions arising from lobbying by special interest groups 2 2.3 2 2.3

8. Distortions arising from state ownership/control 3 3.1 3 3.3

9. Minority shareholders 3 2.8 3 2.8


Romania:



Indicator scores in the business rankings model

Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Policy towards foreign investment

1. Government policy towards foreign capital 4 3.6 4 3.5

2. Openness of national culture to foreign influences 4 3.4 4 3.5

3. Risk of expropriation of foreign assets 4 3.9 4 3.9

4. Availability of investment protection schemes 4 3.6 4 3.6

5. Government favouritism 3 2.9 3 2.9





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Foreign trade and exchange controls

1. Capital-account liberalisation 4 4.1 5 4.3

2. Tariff and non-tariff protection** 4 3.7 4 3.6

3. Ease of trading 3 3.3 3 3.4

4. Openness of trade* 4 4.3 3 3.8

5. Restrictions on the current account 5 4.7 5 4.7


Romania:



Indicator scores in the business rankings model

Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Taxes

1. The corporate tax burden** 4 4.6 4 4.8

2. The top marginal personal income tax* 4 4.3 5 4.6

3. Value-added tax* 3 2.9 3 2.8

4. Employers' social security contributions 2 2.0 2 2.1

5. Degree to which fiscal regime encourages new investment 3 2.5 3 2.6

6. Consistency and fairness of the tax system 2 2.4 3 2.6

7. Tax complexity 3 2.7 3 2.9





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Financing

1. Openness of banking sector 3 2.6 3 2.8

2. Stockmarket capitalisation 3 3.1 3 3.2

3. Distortions in financial markets** 4 3.5 3 3.6

4. Quality of the financial regulatory system 3 2.7 3 3.1

5. Access of foreigners to local capital market 3 3.4 3 3.4

6. Access to medium-term finance for investment 2 2.7 3 2.7





Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

The labour market

1. Labour costs adjusted for productivity* 3 3.5 4 3.9

2. Availability of skilled labour* 3 3.4 3 3.3

3. Quality of workforce 2 2.7 3 3.1

4. Quality of local managers 3 2.8 3 2.9

5. Language skills 4 3.0 4 3.1

6. Health of the workforce* 3 3.1 3 3.3

7. Level of technical skills 4 3.6 4 3.6

8. Cost of living* 3 2.4 3 1.7

9. Incidence of strikes** 3 3.9 3 3.6

10. Restrictiveness of labour laws 4 3.2 4 3.2

11. Extent of wage regulation 3 2.9 3 3.0

12. Hiring of foreign nationals 4 3.4 4 3.6




Romania

Regional

averagea Romania

Regional

averagea

2005-09 2010-14

Infrastructure

1. Telephone density* 3 3.3 3 3.3

2. Reliability of telecoms network** 2 2.9 3 3.4

3. Telecoms costs* 3 3.3 4 3.9

4. Mobiles* 5 4.7 5 4.6

5. Stock of personal computers* 4 3.7 5 4.2

6. Internet use* 3 3.9 5 4.8

7. Broadband penetration* 5 3.8 5 4.8

8. R&D expenditure as % of GDP* 2 2.9 2 2.9

9. Research infrastructure 3 3.3 3 3.3

10. The infrastructure for retail and wholesale distribution** 2 2.8 3 3.2

11. Extent and quality of the road network** 4 3.3 4 3.4

12. Extent and quality of the rail network** 3 3.4 3 3.4

13. Quality of ports infrastructure 3 3.3 3 3.3

14. Quality of air transport 2 3.1 3 3.3

15. Production of electricity per head* 3 3.8 3 3.6

16. Rents of office space* 2 2.4 2 2.4

Documents

Country Forecast June 2010© The Economist Intelligence Unit Limited 2010 Romania: Country Forecast June 2010 Romania Editor: Joan Hoey Editorial closing