FIC: Investors’ perception of Romania has deteriorated significantly due to the package of fiscal measures
Only a third of the investors who responded to the latest edition of the Business Sentiment Index (BSI) carried out by the Foreign Investors Council (FIC) in the fall of 2023 consider the Romanian market attractive as a result of the impact generated by the package of fiscal measures. Compared to the previous edition, from spring 2023, when 47 percent considered the local market attractive, the deterioration of perception in just half a year is significant. Additionally, more than half of FIC members believe that the economic environment in Romania has worsened recently, reaching a minimum level for the last 7 years.
“The package of fiscal measures is very bad news for investors, and we are seeing a drastic drop in confidence in a very short period of just a few months. Considering that other market conditions have not changed dramatically, and that Romania continues to register economic growth compared to other countries in our region that have already entered recession, we can say that it was a very favorable time to attract even more investments. Last year, the flow of foreign investment in Romania was 10 billion euros, the highest amount in over a decade, reflecting more confidence from companies. Unfortunately, these sudden fiscal policy measures motivated only by the desire to bring more money to the budget in the short term will negatively affect not only perception, but also investments as such, in a period of macroeconomic uncertainty. The national authorities should think about how to attract new investments, not just how to tax the existing ones more, because there is a risk of diminishing them,” said Daniel Anghel, president of FIC.
Signs regarding the possibility of introducing new taxes cause companies to be more cautious with allocating budgets for new investments, 20 percent of respondents will reduce the investment plan for the next period, and the number of those who expect revenues to increase in the coming months has decreased from 70 percent in March to 54 percent in October. The perception on regulatory burden almost reached the lowest level in the last 8 years (only 3.8 percent of respondents believe that our country is competitive from this point of view). At the same time, the fiscal burden worsened compared to the last 4 years (53 percent of respondents marked Romania as uncompetitive).
In terms of perceptions of business growth expectations, 17 percent of respondents expect a contraction in the export market and 15 percent in the domestic market. In contrast, the percentage of companies expecting business to increase in the foreign market grew from 30 percent in March to 40 percent in October, while for the domestic market the sentiment dropped by 6 percent.
Although the number of those who consider reducing the workforce has increased since the last edition (19 percent in October compared to 11 percent in March this year), an important share of the respondents (41 percent) is planning new hires. The number of those who consider that the Romanian market in terms of workforce is competitive has remained relatively constant in the last two years (40 percent).
Romania continues to obtain a very poor score for infrastructure (58 percent), bureaucracy (88 percent) and transparency and consistency of policy decisions (79 percent), remaining uncompetitive in the perception of investors. In terms of the biggest challenges faced in business, given the current macroeconomic context, most respondents mentioned taxation issues, legislative unclarities and uncertainties, high inflation/ high interest rate and labor shortage. At the same time, the key opportunities mentioned by the companies for businesses or commercial relations are the EU funds and the structural reforms assumed in the PNRR.
In a volatile geopolitical context marked by various economic and military crises, it is imperative that Romania takes the right measures to ensure the resilience of the business environment as the engine of the economy and the main contributor to the state budget. The constant dialogue framework agreed by the Government of Romania together with the Foreign Investors Council is fundamental for setting the strategic directions of long-term economic growth and consequently ensuring the adaptability of the business environment and the state budget to global challenges
The full results of this year’s autumn edition of the FIC Business Sentiment Index can be consulted here