TRANSILVANIA BUSINESS CENTER

ABSTRACT: ROMANIAN ECONOMY in TRANSITION to COMPETITIVENESS

www.e-cat.ro/radu.html

Lisbon Strategy – EU competitiveness: The global economic environment need for a speedy implementation of the Lisbon Agenda. The successful implementation of this strategy depends on simultaneous and coherent policy action in a wide range of areas such as: the social and environmental domains, every economic branch, every region-town-commune-village, in all members or candidates states and the level of all the Europeans as individuals. Every&Multi Level Competitivity is a way to create easier and rapidly the EU most competitive, flexible and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. The new style of doing it need: descentralization-debureaucratisation, transparency, mobility, all-for-all (A4A), networking the networks (n2n).

The EU Enlargement and the Single Market as well the Knowledge Society concept have generated the premises for economic growth in Eastern Europe and Romania is deeply engaged in this advanced process. Enlargement is the key for economic growth, a transitional process who is re-energizing the Single Market and the whole European New Economy.

Romania’s accession is both in the country’s and the EU’s interest. Romania as the 7th biggest EU country in terms of population would be an economic heavyweight. Romania's economy has been growing steadily over last three years and it is settled at around 5%, needing in the near future more and more labor force at home. In the long-run, a country like Romania could have a dynamic function, due to its important resources, both material and human talent.

A more prosperous Romania inside the EU is good for EU trade and investment, of its markets and competitiveness. Success in the accession negotiations lays both in the Romania’s and EU’s hands. Neither Romanian and EU leaders nor whoever assumes power after the next 2004 election can afford to allow the momentum to be lost.

The Thessaloniki European Council in June 2003 concluded that: "Bulgaria and Romania are part of the same inclusive and irreversible enlargement process […] the objective is to welcome Bulgaria and Romania as members in 2007. […] the Union supports Bulgaria and Romania in their efforts to achieve the objective of concluding negotiations in 2004, and invites them to step up their preparations on the ground. […]

Strong Points: Romania will give to the Enlarged Europe:

• its own experience and dynamism, growth rate of GDP over 4%, important resources and added-value activities. Romania offers a well-educated workforce especially technical, engineering, technological and software skills professionals, a privatization program with attractive opportunities including commodities (oil, gas, mineral water, timber, agro-food, leather …). The country attracted the larger amounts of foreign investment in comparison to the rest of the SE Europe region, which will prove benefits in the years to come. Romania is a potential market for import-export and co-operation on third markets.
• a substantial additional geostrategic position to play a role on the international global scene. Romania proved a historical and economic role at the GATE of EUROPE starting with the ancient Greek expansion and Roman Empire (the first European unification).
• a solid base in negotiations towards European Constitution, for defining what we hope will be a Federation of Nation States and the appropriate mechanisms of the competitive EU economy. The multiple-speed Europe is a good opportunity for Romanian economy to reborn, adjust and compete where is its place. Romania will be one of the Union's strongest voices in spreading European values and vision in its neighboring regions, in SE Europe, but also in a key-region for European and international security: the Middle East. Romanians are conscience that there is no competitiveness without co-operation and security.

Romania experienced two periods during the transition and accession process to EU:

• (1) 1990-1999
• (2) starting 2000

In the first part between 1990-1999, Romania have performed a "zig-zag" and "stop-an-go" structural reforms that:

1. disorganized and made uncompetitive some traditional industrial sector, such oil drilling equipments, shipyards, energetic equipments, chemical and petrochemical production, constructions, complex and turnkey plants for export to third markets, food and beverages, as well transport, trade, banking, tourism; the agriculture infrastructure and production was very much affected, as well the infrastructure (roads, railways, ports …);
2. enhanced significantly the performances for few others industries: textiles and shoes, wood processing and furniture, telecommunication, IC&T…

The impact of the UN trade embargo on Yugoslavia and then on Iraq, the adoption of "stop-and-go" and "zig-zag" macroeconomic policies have contributed to low economic growth, high and variable rates of inflation, and periods of severe balance of payments pressures.

As a general view of this period, Romania lost its economic competitiveness, vanishing over night important resources, markets and partners especially from the traditional Eastern Europe and the developing countries. Many think that this is due to the inadequate persons who took the management of the companies as well of the alternative Governments and Parliament mandates.

In 2000 when Romania steps in the new millennium with a low competitive economy, the "Zig-Zag" and "Stop-and-Go" period finished. The knowledge generated by the experiences of the first decade is important and Romanians can supply lessons to those who want to avoid failing in economic growth and competitiveness. Those who tried to guide and assist us during this decade did not succeeded because they came from an economy which never faced such situation: the transition from a central command planned socialist economy to a new market economy based on Knowledge.

The second period started in 2000 since Romania has made further progress towards EU accession. There are to close eight chapters under negotiation by the end of 2004, to sign the Accession Treaty in 2005 and to become a full member of the EU on January 1, 2007. The country is decided to make sure macroeconomic stability, to grow competitiveness and productivity, to realize a successful integration into the European Union.

Romania has made progress towards establishing a functioning market economy but although it would not, in the medium term, be able to cope with competitive pressure and market forces within the Union. The existence of a functioning market economy requires that prices, as well as trade, are liberalized and that an enforceable legal system, including property rights, is in place.

Macroeconomic stability and consensus about economic policy enhance the performance of a market economy. Romania realized significant changes in laws and legal institutions to improve its investment framework, and to unify the system with international and European standards - aquis.

The accession roadmap was developed and adopted at last in November 2002 and in May 2003 was revised the Accession Partnership.

Main Indicators of Economic Structure in 2002 (as of 30 September 2003)

Source: EC - http://europa.eu.int/comm/enlargement/report_2003/pdf/rr_ro_final.pdf

GDP- Gross Domestic Product continued to grow last four years with an average of 3.8%, being estimated to attend 5% in 2004, despite a less favorable international environment. 2003 Total GDP: 1,871 Trillion Lei (Other:1,259 Trillion Lei + GCB-General Consolidated Budget: 612 Trillion Lei).

In 2003, the balance-of-payments current account showed a deficit of EUR 2,920 million, up 79.9 percent against the previous year, as reflected by the sharp increase, from 3.4 percent to 5.8 percent share-to-GDP.

As a share of GDP the budget deficit is falling from 5.5% in 2001 to 2.65% in 2003. Further progress in disinflation and interest rates, the sustained economic recovery, the overall diminish in the budget deficit and the increase in the share of the external financing in the total deficit would support this process.

The medium and long-term foreign debt to GDP picked up 3.9% year on year to EUR 15,217 million at end-2003.

International reserves constantly increased. End-December 2003 the National Bank of Romania reported:

• foreign exchange reserves -EUR 6,399.3 million
• gold stock at 105.4 tones -EUR 1,120.8 million
• total -EUR 7.52 billion

In the foreign exchange market gradual disinflation has continued and the exchange rate appreciated by 2.4% against the euro-dolar basket. At the same time, the process of remonetisation has intensified reflecting increased economic activity and rising confidence in both the domestic banking sector and the Romanian economy.

Inflation decrease from 54.8% in 1999 to 22.5% in 2002 and 14.2% in August 2003. Further progress towards macroeconomic stability was made as inflation continued to decline from a relatively high level despite further adaptations of regulated prices.

In the area of the internal market, Romania has continued to make progress in free movement of goods, persons, services, capital as well on company law, competition, the protection of personal data. The more prudent macroeconomic stance implemented under the IMF-SBA limited public consumption and cut household consumption growth in half to 3% in 2003.

The value of exports and imports of goods and services rose in 2002 to 76.6% of GDP from 75.3% in 2001. The share of the European Community in Romania’s foreign trade has continued to increase, constituting its main trading partner. Turnover in trade with the EC in 2002 was 10 % up on 2001 and accounted for 62.3 % of Romania’s overall trade. In 2002, exports to the EC were 11 % up on 2001, accounting for 67.2% (€ 11.1 billion) of Romania’s total exports. Its main industrial exports to the EC were textiles and clothing, machinery and equipment, footwear and steel products. In 2002, imports from the EC were up by 9 % on 2001, accounting for 58.4 % (€ 10.2 billion) of Romania’s total imports. Its main industrial imports were machinery and equipment, textiles and clothing, transport equipment, chemical product and steel products.

Foreign investments have been considered a key economic factor since 1990. Total amount of FDI in 1991-2003 was 10.4 billion USD, with annual average of 803 million USD. It is estimated for the end of 2004 the volume of foreign investments will double its value registered in 2000, and will reach Euro 12-12.5 billion.

The structure of the subscribed capital value by sector of activity shows the industry on the first place with 54%, second comes services with 16%, third place is held up by wholesales with 11%, followed by transport sector - 8%, retailing with 6%, tourism - 2%, and so on. The structure by activity of the number of companies registered shows on the first place the wholesales 37%, fallowed by retailing 19%, industry 19%, services 11% ... FDI by the investors' countries of origin 1991-2003 is: Netherlands, France, Germany, USA, Italy, Austria, Cyprus, Turkey, Greece, Switzerland, Hungary … The study presents 30 relevant reasons to invest in Romania.

Privatization processes are further linking EU companies to Romanian companies contributing to quickly integrating Romanian economic regions. The private sector increased constantly as a share of GDP from 45.3% in 1995 to 67,3% in 2003. The public sector has declined significantly from 35.4% of 2000 to under 32.7% of 2003 GDP. The number of companies in state ownership decreased from 1673 in 2001 to 1342 in mid-2003. Of these less than 10% are held by different ministries, mainly for energy and transport. APAPS holds the remaining 90% of companies. Some of the largest state-owned loss-makers were improving their financial performance and their privatization prospects. In agriculture almost all land is private owned. The proportion of newly registered companies in the trade register is rising from 6.0% in 2001 to 9.4% in the first half of 2003.

The study presents the main aspects of competitiveness in: industrial sector, energy sector (electricity, gas, renewable energy, nuclear energy), agriculture, SMEs activity, fiscality and budgeting, infrastructure (transport, telecommunications, tourism), science and research, education, environment (air quality, waste management, water quality, nature protection, industrial pollution).

The employment rate both male and female registered only 57.6% in 2002 when 8.4% of the labor force was unemployed. Despite the economic growth, Romania made little progress in real convergence towards EU per capita income levels, which has a modest Euro 252. GDP per capita in purchasing power standards increased slightly to 25% of the EU level.

Regional income disparities are increasing, jeopardizing the competitiveness of the local and regional economies. This is largely due to growth in the Bucharest region where the per capita income was more than double the national average and nearly three times above that of the poorest region. The main reasons continues to be the centralistic-bureaucratic distribution to Bucharest of the main incomes and tax collected from the others regions, as well as the Parliament-Government chronically postponements of the decentralization and anti-corruption decisios. Radical changes in this essential activity are very much expected by citizens from-and-after the elections in 2004. Without competitive regional and local economies neither Romania nor EU will increase in competitiveness.

Three pre-accession instruments have been financed by the European Community to assist and increase the Romanian competitivity: Phare programme allocated Euro 2 billion to Romania during the 1992-2002 period; in the years 2000-2003 allocated annually around Euro 280 million from Phare, Euro 156 million from SAPARD, Euro 247 million from ISPA and in 2002 around Euro 13 million was granted for Cross-Border Co-operation (CBC).

Important progress has been made since 2000 regarding the accession in EU and rebuilding the competitive economy in Romania. 2000 was a moment of the conscientious change to this direction because people understood and were puzzled about what the country’s administrators have done in the last decade. What is urgently need:

• Actions to create the functioning market economy based on the good progress made and to be continued. Sustained implementation of its structural reform programme to cope with the competitive pressure and market forces within the European Union in the near future.
• Efforts to improve the workings of the market mechanism to be completed by: liquidating loss-making enterprises; restructuring and privatization the remaining companies in the key sectors: energy, mining, transport and banking; recuperating the arrears and foreigners’ debts; reforming the tax system and reducing the fiscality; encouraging private enterprises (SMEs), innovation and investment; infusion of capital in the countryside to support expansion of existing SMEs or farms and formation of start-up businesses;
• strengthen administrative capacity to translate and implement the acquis in its various aspects, with clear measures and immediately applied for improving the business environment and attractiveness:

• eradicate the state bureaucracy and its products: unstable/confused legislation and corruption – the most chronically and painful problem of our days;
• eliminate the too many officials at all levels who are blocking reform or doing very little to promote it; the too many people at all levels of public sector (especially from politicians, central and local Government, Parliament, Justice …) involved in corruption and illegal over night enrichments;
• recuperate from the "millionaires de carton et barons local" all the "over nights fortunes" and especially from those who decided (parliamentary, ministers, directors, clerks) and influenced the devalisation process of the state/public/cooperative properties after 1990, as well their silent partners involved. Since 2000 Romania Media is presenting them permanently in newspapers, TV or radio and people knows them… the authorities’ measures are expected…
• decentralize and make transparent the activities, introduce IT&C in the bureaucratic structures and replace the old or corrupt decision makers with the new generation-NetG.
• create and supply first the local budgets and then the central budget plus the "special funds"-managed by central government to avoid their allocation at the discretion of the ministries concerned. Central Political considerations are often a major factor in deciding allocations and must be eliminated by decentralized local budgets and measures. The regional economic decentralization who is only on paper now must be implemented; the real competences, financial resources and power must be delegated to the regions, counties (judet), and as much as possible to the towns and communes.
• efforts to introduce the necessary education and training programmes needed to guarantee the level of competence among qualified professionals required by the implementation of the acquis, Lisabona Strategy as well the EU standards. mBIZ, mLeraning and EDUtainment-CULTainment are advanced knowledge tools to be developed and disseminated.

• reorganize the broken-in-pieces actual fragmented agriculture, dominated by family and very small and anemic farms, in modern, sustainable and competitive agricultural companies/co-operatives/farms.
• restructuring and privatization of strategic industries should be accelerated. Approximately 90% of steel production capacity is now privately owned but the restructuring and privatization in key sectors, such as energy, mining and transport, must be brought forward.
• measures to enforce the energy competitive market against the tendency towards centralized co-ordination by the regulatory body, by poor investment planning and by an unstable legal environment. The national authorities should now focus on: the full and timely implementation of legislation as well the structural reforms; the elimination of price distortions and the improvement of bill collection rates; improved energy efficiency; the greater use of renewable energy; the progressive building up of oil stocks; the strengthening of administrative capacity (in particular for the energy regulators and for the nuclear safety authority).
• improve the infrastructure (roads, railways, airports…) and especially the construction of the Highway Oradea-Cluj-Brasov/Sibiu-Buchares-Constanta to connect the western and south borders is vital.
• efforts to improve the co-operation between the research sector and enterprises, as well the administrative capacity and infrastructure.
• radical changes in reducing the actual high fiscality are expected by the SMEs, citizens, innovators, entrepreneurs, free lancers… from-and-after the elections in 2004; competitivity means no arrears and a flexible and low fiscality.
• a real and transparent governmental dialog with all non-governmental business and innovation organizations, and not only with the "selected" by political preference. The discussions have to be concentrated on the competitiveness of the local communities, SMEs, free-lancers… in the Single Market, with priority on the correct and simple repartition of donors’ grants and financial-technical assistance, especially the EU’s.

• Is Europe attractive and competitive ? – YES, Europe is ETERNAL.
• Every&Multi Level Competitivity is a way to create easier and rapidly the EU most competitive, flexible and dynamic knowledge-based economy. The new style of doing it need: decentralization-debureaucratization, transparency, mobility, all-for-all (A4A), networking the networks (n2n). The activities and programs of EDUtainment, CULTainment and BIZtainment, being directly oriented to life quality and happiness, give the BEAUTY of Competitiveness. EU must provide the COMPETITIVITY for ALL.
• European Commission and Foreign Donors’ grants, financial and technical assistance must be transparent and simple in procedures, accessible to all entrepreneurs, innovators, free-lancers, SMEs and local NGOs, sustaining the decentralization, debureaucratization, local development and the implementation of EU standards–aquis. Continuing only approving decentralization and criticizing the corruption but on the other way supporting and financing the same "intermediaries" and central bureaucratic structures will not generate a competitive economy….that is why the accession negotiations could be concluded now or 2007 or any time…
• After 10 years (between 1990-1999) of "zig-zag" and "stop-and-go" policies in economy, Romania re-discovered the way of development and registered an economic growth in 2000-2004 (first quarter). The country has important resources and will be again a competitive economy, contributing to the competitiveness of EU in 2007.
• I do not think that Romania is an example for Baltic State, only if they want to avoid unsuccessful actions designed and implemented by a confused management. In my opinion the small Baltic States would be an example for the Romanian regions, such as Transilvania, to compete on the EU Single Market. The economy of a region like Transilvania is more flexible and easier adaptable to the market demand and easier oriented to a rapid sustainable growth. This is available to local communities of towns, communes, villages.
• Transferring "good practice" is not enough because we learned that there are "bad practice" not to be repeated in the implementation of the transition-accesion-integration acquis and a lot of experience-knowledge in competitiveless measures not to be taken.

18 April 2004, http://www.ClujNapoca.ro

Bibliography - main sources:

• Ministerul Finatelor Publice: http://www.mfinante.ro/macro/macro.jsp
• Ministerul Afacerilor Externe: http://www.mae.ro/index.php?lang=en
• Ministerul Integrarii Europene:http://www.mie.ro/english/mie.htm
• Banca Nationala a Romaniei: http://www.bnr.ro
• Institutul National de Statistica: http://www.insse.ro/indexe.htm
• Agentia pentru Investitii Straine: http://www.arisinvest.ro
• APAPS: http://www.apaps.ro/eng/rapoarte/POSTprivatizare_eng.pdf ; AVAB: http://www.orcb.ro
• European Commission: http://europa.eu.int/comm/enlargement/report_2003/pdf/rr_ro_final.pdf
• UK Ambasador in Romania- Quinton Quayle: www.britishembassy.gov.uk/romania
• CIPE: Romania - National Competitiveness Report Executive Summary: http://www.ciperomania.org/articole/art1_en.php
• WEF: http://www.weforum.org/site/knowledgenavigator.nsf/Content/Romania+KN+sessions
• BICE: http://www.biceps.org

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