Romania overthrew its communist regime more than 30 years ago, yet the Romanian government still plays an oversized role in the economy in terms of employment, ownership of assets, and influence on the business environment. State-owned enterprises shape many industries, acting as dominant customers, suppliers, or, in some cases, competitors. Despite pleas from the international finance and business community, state-owned enterprises in the country do not regularly utilize private management.

While some progress has been made since joining the EU in 2007, companies in Romania still report challenges regarding the independence and efficiency of the judicial system, corruption, bureaucracy, and political instability. Romania’s poor infrastructure continues to negatively impact business costs, productivity, public safety, and the country’s ability to attract foreign investment. The country’s connections to the rest of the EU’s transportation infrastructure are still underdeveloped, which holds back the country’s ability to realize its full potential for new investment, trade, and tourism.

Romania is not a member of the “Euro Zone”, so payments are made in local currency – the New Romanian Lei (RON). However, many companies and consumers have debt denominated in euros, and most big-ticket consumer items (i.e., real estate, cars, and major appliances) are priced in euros. This creates trade inefficiencies due to higher transaction costs and exchange rate fluctuations.

Many U.S. firms operating in Romania face ongoing challenges with recruiting and retaining employees. A fast growing economy, increasing investments and the ability for Romanians to work for higher wages elsewhere in the EU have led to a labor shortage. This shortage is more pronounced in northern and western parts of the country, where employers often bus in workers from villages. While unemployment rates are higher in the Moldova region, companies report that skilled work are harder to find in the lesser-developed eastern portions of the country.

All companies operating in Romania report complaints with frequent legislative changes without prior private sector consultations. Regulatory Impact Assements (RIAs) are very rare and laws can change with little notice.

The conflict in Ukraine is impacting the way Romanian companies, especially those involved in international trade, do business during this period. The past month has seen the highest volatility in the currency market in years, similar to levels since the beginning of the pandemic.

The natural reaction of monetary policy in the current global inflationary framework (inflation has not just increased in Romania) can only be restrictive, and the channel through which the economic stimulus is to be given remains the fiscal-budgetary one.

Despite most estimates, price dynamics entered the double digits (exceeded 10%) as early as the first quarter. Before beginning the correction / drop phase, we may experience a shock this quarter (12-15 percent inflation).

When compared to the same period last year, the external deficit climbed by roughly 56% in the first two months of this year (in the conditions of a trade deficit increasing by 65 percent ). In the first two months, the domestic deficit was only 0.7 percent. This is an outstanding result.

It takes 20 days to start a business in Romania, compared to the regional average of 9.0 days.

Most respondents to a recent survey (see below) in Romania considered that the country’s biggest problem in 2022 was the health system, followed by the country’s economic situation. Only two percent of Romanians thought that terrorism was a threat. 

Source: Statista 2022 

 Things to improve

Construction of highways and other critical infrastructure, the overhaul of the public health system, the enhancement of the state education system and a greener economy are all major objectives for further development of Romania. Over the long term, however, 41% of investors believe Romania’s attractiveness will improve during the next three years.