"2020 has once again demonstrated the weak capacity of the economy in satisfying internal demand"

EMILIA OLESCU (TRANSLATED BY COSMIN GHIDOVEANU)
English Section / 01 februarie

"2020 has once again demonstrated the weak capacity of the economy in satisfying internal demand"

(Interview with Cristian Pârvan, AOAR secretary general AOAR)

2021 will continue to be a difficult period for the business sector, which should be the central point of interest for the new government, says Cristian Parvan, secretary general of the Romanian Businessmen's Association (AOAR). He told us, in an interview, that the year 2020 tested the readiness and capacity of companies to put into practice the concept of "crisis management" learned theoretically, but especially adapted to the specifics of each activity. Cristian Pârvan kindly discussed topics concerning entrepreneurship, as well as the health crisis, the governmental measures passed last year and the evolution of macroeconomic indicators.

Reporter: What are the marks that 2020 has left on the entrepreneurial sector?

Cristian Pârvan: 2020 tested the readiness and capacity of companies to put into practice the concept of "crisis management" learned theoretically, but especially adapted to the specifics of each activity. Even activities that have increased in volume, as was the case of courier companies, which had to deal with the difficulties generated by random employees falling ill, to those related to the need to rapidly increase the logistical capacity, while maintaining the quality of their services.

The health crisis highlighted the lack of industrial policies capable of ensuring, at critical moments, the production of minimum quantities of first aid products: protective masks, disinfectants, medicines, medical equipment. At the call of the Government, many companies responded positively, invested, changed their manufacturing profile and provided a minimum of products strictly necessary to combat the pandemic, given that economically developed countries in the EU and the world have temporarily banned the export of these products. It is not clear whether, with the return to normal trade in medical products, the Government has understood and strengthened the minimum production capacity obtained through the investment effort of private companies. The development, modernization and diversification policy of the Cantacuzino Institute is also to be pursued and supported, including the policy of national collaboration with other innovation research centers (for example OncoGen Timişoara).

For more than ten years, Romania has continued to import influenza vaccine, which used to be manufactured at the Cantacuzino Institute even during wartime. It is necessary to replace the decisions made in times of crisis, with clear policies, backed by the state budget, which will allow the consolidation of domestic production in the medical field and even the financing of research and development of new products required on the market. Such policies are given attention in countries such as Germany, France, UK.

In short, the business community has done its duty, regardless of difficulties, as evidenced by the increase in state budget revenues in the first ten months of the year. If we take into account the financial support measures that some companies have benefited from, then the result is more than convincing.

Last year, the weak capacity of our economy, especially of the manufacturing companies, to meet the demand of the internal market with the necessary products was demonstrated once again. The increase in consumption, even moderate, therefore led to an increase in imports. The consequence is highlighted by the increase in the trade deficit to around 15 billion euros in the first ten months of the year and the deterioration of the RON / EUR exchange rate.

Reporter: What losses did the business sector suffer last year?

The business sector has faced a serious disruption of activities, which has differed from one sector to the next, both as a result of the health crisis at EU level and given the global situation, but also in the context of the disjointed measures at the EU level, pertaining to the transport of goods, services and people, cross-border or temporary work, etc.

In the manufacturing industry, the most serious problem is the number of people randomly falling ill, and the absence for at least 14 days of important employees with well-defined jobs. The companies producing industrial goods, many of them complex, were forced to quickly reorganize these structures, replacing the absent staff, while being required to honor foreign contracts on time and in conditions of quality.

Companies that had the opportunity to use "work from home" were privileged, although they also incurred additional expenses related to meeting additional conditions of hygiene, physical distancing and in organizing even a small number of meetings at the company headquarters.

The "online" school raised serious problems for employees forced by the specifics of their activity to participate physically in the workplace, as government regulations and financial support did not guarantee job retention, in some cases.

The efficiency of the measures taken by companies is highlighted by the unemployment level in Romania, which did not see a major increase in 2020.

Reporter: What is your assessment of the measures taken by the authorities in 2020 to support the business sector?

Cristian Pârvan: In the difficult context of the situation of the state budget, the aid measures offered by the Romanian government have partially helped a relatively small number of companies, with the practical procedures being late in many cases. The scale of these measures must be judged in relation to the financial resources available, given the existence of a budget deficit for 2019. The promotion of a major public investment policy has certainly yielded positive results, as the effects have been demonstrated by the contribution of the construction sector to the increase,, of the GDP in the second and third quarters of 2020, limited though it may have been.

In contrast, the measures taken, in the absence of an industrial policy, did not help the manufacturing industry, which, based on the results in the first ten months of 2020, saw an 11% drop compared to last year's similar period. The decrease in GDP, corresponding to the reduction of the share of the manufacturing industry, was of about 2.4%, compared to the total decrease of about 4.6%. In this area, the lack of industrial policy will continue to produce negative effects, even if the pandemic is eliminated. The "industrial pandemic" is as serious as the sanitary one.

EU-level figures show that countries whose GDP is based on industry are weathering double crisis easier (Germany) than countries whose GDP is significantly based on the services / tourism industry (Spain, Greece, partly Italy, etc.).

Reporter: How do you see our economic recovery?

Cristian Pârvan: A fundamental role, which already has a maximum degree of urgency, is played by the concrete way which was agreed upon by all political parties to promote some major projects financed from the 2014-2020 EU Budget, the additional funds from the National Recovery and Resilience Plan and, in perspective, the funds allocated to Romania from the future EU budget 2021-2027. The figures are impressive in terms of potential, but in the absence of a cross-party strategy and of mature projects, with competent and responsible institutions to carry out these projects, starting from design, specifications (often contested and of poor quality), tenders, contracting and the careful oversight of their execution on a daily basis, the money allocated to Romania will remain largely just "an opportunity". The business sector is interested in participating in the construction of road and railway infrastructure, new hospitals, expansion of water networks, sewerage, natural gas, etc. The entrepreneurial sector needs a more flexible administration, the computerization of the company-central / local administration relationship. It saves human and financial resources, increases the transparency of the activity and the trust in the good functioning of the state.

It is worrying that, by December 2020, these projects have not yet been put up for public debate, with a wide and organized consultation of specialists on various essential areas of activity: infrastructure, computerization, environment, energy, etc.

In the context of the health crisis combined with the trade crisis (which also had other causes, rather than just the health crisis), the financial-banking sector tried to financially support companies, but was particularly attracted by the opportunity to finance governments forced to borrow amid increasing budget deficits.

In Romania, in the first ten months of last year, government loans exceeded 9 billion euros, with indebtedness rising from 38% of GDP to about 44% of GDP. NBR data shows that there has been an increase in the volume of loans granted by banks to companies, but borrowing by individuals has particularly increased, thus stimulating consumption. The NBR data also shows that the volume of loans granted by banks is lower than the volume of deposits made by companies and individuals, which has allowed the withdrawal of about 7% of the financing lines extended by parent banks to the Romanian subsidiaries. This is the clear definition of the reduction of the degree of financial intermediation, which is already low in Romania.

The NBR's warning regarding the revision by banks of their own lending standards, in the sense of tightening the conditions imposed by banks, attests a possible concern of the increase of the volume of defaults in 2021, once the financial support measures promoted by the government in order to support the economy diminish considerably, or even more, get canceled (in the absence of a postponement GEO, the ANAF has started foreclosing on companies that have arrears in the payment of their taxes and duties).

The crisis has brought additional profits to companies involved in the trade or production of sanitary materials (as many have been produced and sold in Romania), IT service companies (23% increase in turnover at the end of October 2020), the construction sector ( especially the increase in the volume of engineering works - about 19% at the end of October 2020), as a result of the increase of public investments in road infrastructure. The increase could have been higher had the budget of the Ministry of Transport not been cut by around 500 million Euros to create the 1 billion Euros fund used for the SME support programs; all of the above, combined with the incompetence of railway management, mean that freight trains will continue to run at an average speed of 18 km / h, further "guaranteeing" the bankruptcy of rail transport, a conclusion from the Court of Auditors' 2020 Report. For 30 years, Romania's railroads have been gradually "sabotaged", even as in developed countries they have reached the performance of transporting goods and people at speeds of over 160 km / h, and new solutions are being sought for the railway system to increase in volume, ensuring, in superior environmentally-friendly conditions, the transport of goods and passengers in competition with air transport for distances of up to 600 km.

Similarly, no programs for the reconstruction of the ability to chemically process oil industry derivatives, methane, (see the production/import of chemicals, etc.), of the increase of the degree for the processing of other natural resources have been prepared.

Reporter: How has the business sector been affected by the forced computerization?

Cristian Pârvan: Digitization has been forced by the pandemic, but it has the advantage of having shown us that there is also another way for businesses to work with the central / local administration. Also demonstrated has been the administration's poor preparedness for the transition to digital operation and the high level of resilience of bureaucratic systems that quickly reintroduced the demand for maps, stamps and physical presence at the counter, as soon as the Emergency Situations Committee approved the first easing measures.

What is left is, among other things, to speed up the financial resources allocated to Romania through the National Resilience and Recovery Program, for the process of expanding the computerization of the functioning of the economy in particular (of about 3200 local administrations, only 1000 are integrated in the national computer system), as well as of society overall (one million pupils without access to online lessons, the lack of the ability to provide online medical consultations, etc.) Romania has "demonstrated" that it has no management abilities when it comes to computerizing the activity of the National Tax Administration (ANAF), as it has repaid 85% of the loan taken from the World Bank for that purpose, after five years of ... consulting, and essentially, zero results.

The ability to reconvert, learn and use information systems in the day-to-day activity has been demonstrated, both by companies, government officials or citizens.

Reporter: What do you think the situation will be like in 2021?

Cristian Pârvan: The year 2021 is expected by many governments, analysts or consulting companies to be a difficult one, for multiple reasons. If mass vaccination is possible by the end of 2021 and brings optimism to the financial markets, then the level of economic growth will be constantly re-evaluated, but the most widely accepted idea is that future economic growth will not be able to fully offset the decline that all the economies have recorded in 2020.

At the EU level, priority is given to concentrating government actions in launching mature projects that, under the conditions imposed by the European Parliament and the European Commission, can be financed via the Restructuring and Resilience Fund, of which Romania has been allocated about 30 billion euros. The possibility of using the money from the EU Budget 2014-2020 remains (the utilization rate is approximately 46%).

The year 2021 will continue to be a difficult time for the business sector, which should be the focus of the new government. The financial resources provided by the economic activity support the system of health, education, defense and public order.

It is necessary to continue the debureaucratization process, to computerize the functioning of the administration, to focus on solutions that stimulate production, productive work instead of speculative activities with land, real estate, bankruptcies, etc.

Romania, must first of all, stimulate and restore innovation and applied research, called to restore that capacity to meet internally as much as possible the demand for products and services. That can ensure a steady increase in Gross Added Value, i.e. a sustainable increase in GDP.

Reporter: Thank you!

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