Economists: Reconstruction - a condition for a competitive economy

The national economy will become competitive at regional, European and global levels only after it resets in certain sectors of activity, rebuilds its production capacities, including in the agri-food sector, and thus reduces the quantity of imported goods, thus reducing the trade balance deficit, said the participants at the conference "The need to restructure and reconstruct the Romanian economy in a changing world”, an event that took place at the headquarters of the National Bank of Romania, which organized the extensive debate in partnership with the Association for Economic and Social Studies and Forecasts.

Opening the debate, Mugur Isărescu, the governor of the National Bank of Romania, stated that the topic of discussion is "bold” and recalled that such reflections have been initiated by the National Bank and ASPES since the tenth anniversary of Romania's entry into the European Union.

"We are now in the midst of a period of strategic realignment, reclassification, global and national redefinition. Change after change is the new normal," emphasized Isărescu, emphasizing that the moment is extremely appropriate, since at the international level there is more and more talk about a "new design and a new technology", which also requires a "new financial envelope".

"I was asked if I was thinking about an economic growth plan, and my answer was that fiscal-budgetary adjustment is now dominant, and the NBR cannot think about increasing competitiveness now. (...) The size, the dimension of the fiscal adjustment is large. The adjustment will last for several years and I did not think we could have a debate about what is happening in the world", said Mugur Isărescu, who specified, however, that we cannot afford to ignore the transformations taking place at the global level, because we risk falling far behind the states that are involved in the development of new technologies.

The central bank governor also referred to the topic discussed at the European level, regarding the introduction of a digital euro currency, which will not replace the classic currency, but warned that the lack of clear cybersecurity systems could have dramatic consequences: "If we do not have cybersecurity systems, the Russians will block our digital payments in three days".

• Development of agriculture, engine of growth of the national economy

Ioan Jelev, president of the Gheorghe-Siseşti Academy of Agricultural and Forestry Sciences, emphasized in his intervention that the restructuring of the Romanian economy is an inevitable topic, given that "the old post-war treaties have ceased to have effect", and the world is going through a tectonic resettlement of major proportions. From the perspective of agricultural research, he advocated placing agriculture at the center of the national economic strategy: "Agriculture must be placed as a priority area in the Romanian economy, as a resource, as a labor force factor and as a raw material and endowment. And above all, it must be encouraged that raw materials are not exported unprocessed."

Mr. Jelev drew attention to the difficulties of public-private partnerships, often risky in Romania due to legislative gaps.

"Unfortunately, the legislative framework, when it comes to agriculture, has many gaps and is often very risky. I speak from my own experience, following public-private collaborations and partnerships that we have within agricultural research in the units that we coordinate. Within the Academy of Agricultural and Forestry Sciences, we have encountered problems regarding whether the legislation covers various aspects in a concrete way, particularly in such associations. Sometimes there is also the issue of association and entry with land as the contribution of a partner which often has the status of a public good, therefore public property, which represents a difficulty in public-private partnerships”, stated the ASAS president.

He formulated a wide set of concrete proposals - from the creation of a national public procurement system for surplus products, the creation of peri-urban storage capacities for agricultural products, to stimulating water conservation, the creation of a forest curtain system, the stimulation and conservation of agricultural biodiversity, the development of digital agriculture and modern research centers, to rapid response measures against extreme phenomena.

During the conference, the rector of the Academy of Economic Studies, Nicolae Istudor, launched the idea of a new ambitious project, aimed at generating solutions that will be taken into account by decision-makers: "Political decisions based on scientific research would be much better understood and agreed upon by everyone, because they have a solid foundation.” He insisted on the need to identify the major problems of economic sectors and to formulate solutions to make them competitive at European and global levels, explaining that the final objective can only be achieved through a close collaboration between academia, business and state institutions.

Nicolae Istudor said: "Related to the general theme of today's conference and regarding the new project launched, we believe it is good to consult on pertinent analyses of the main activity sectors in our country and to identify the major problems, respectively to propose solutions for their recovery and reconstruction, in order to become competitive on the national and global market. (...) Finally, all of us who participate in the project we are launching today, together with all those who have good expertise, must propose solutions, results of scientific activity, for socio-economic development. We believe that this objective can only be achieved if state institutions come to our side with which to develop and implement a model of economic development for Romania. I will also give you two public institutions that can take part in the completion of this project: the Presidency, respectively the Parliament, because they know what is happening and what changes are occurring.”

• Mihai Daraban: "Romania has the most subsistence farmers in the EU”

The Romanian business environment has been living for years between hope and disappointment, between the huge potential it has and the lack of real dialogue with decision-makers, said Mihai Daraban, president of the Romanian Chamber of Commerce and Industry.

"I think that these types of events are more about maintaining personal relationships between us, those present, because I am somewhat pessimistic that our message or what is being discussed here will be taken up by today's decision-makers,” said Mihai Daraban, expressing a frustration that most business people feel: the lack of receptivity of the authorities.

According to Mr. Daraban, the leadership of the Chamber of Commerce has always tried to put "on the table of the political decision-maker the reality on the ground as it is, based, of course, on the figures of the Romanian state,” but this data is not processed, it is not transformed into analyses and solutions. The CCIR president said that instead of a differentiated dialogue, adapted to the size and specifics of each company, confusion and superficial mixing are perpetuated, and added: "We cannot mix micro-enterprises with large and very large enterprises at the same table, just to take pictures.”

According to official data presented by Mihai Daraban, we have a significant increase in the number of companies and turnover. On August 1, Romania had 917,881 reported companies, 51,000 more than the previous year, and total turnover rose to 527.89 billion euros, compared to 490 billion euros last year. However, profit stagnated at 53.28 billion euros, largely due to fiscal uncertainty and discussions about dividend taxation.

"We need to encourage companies to make a profit, we cannot discourage them,” warns Mihai Daraban, explaining that many companies artificially reduce their results, increasing expenses to protect themselves from the tax burden.

Beyond the numbers, his central message is that Romania cannot cover the imbalances generated by excessive state consumption through the private sector: "No matter how much we produce, no matter how much we try to make money, increase turnover, make profit, we will not be able to cover the consumption deficit of the Romanian state.” The solution proposed by the CCIR since 2019 is the administrative reorganization of the country, so that the national budget is relieved and can support the business environment.

The CCIR president's analysis did not bypass the agricultural sector and the food industry, where Romania continues to be paradoxical: "Last year, we imported over a billion processed dairy products, 803 million processed bakery and pasta products, 15 million meat products, etc. The food industry will have to represent a basic pillar of the Romanian economy in the future. Now, I know what people in agriculture have done. I think that before we give recipes on how to cultivate, I think we need to answer the question: how do we have 578,000 farms under 5 hectares? We have 178,000 (farms) between 5 and 30 hectares, 28,000 farmers who own between 30 and 150 (hectares), over 3109 farmers have between 2000 and 3120 (hectares). (...) We have a big competitiveness problem in the agricultural field. But we also have a European title: we have the most farmers in the European Union, that is, 33% of all European farmers. But we only produce 3.2% of European agricultural production, which shows that we actually have a subsistence agriculture”, said Mihai Darban.

• Energy and agriculture, areas that can bring added value to the national economy

Regarding exports, the situation is equally worrying. The President of the CCIR said: "The first 100 exporters (out of the 26,980 exporters officially registered by the Romanian state on December 31, 2024) produce almost 51% of total exports, and in the first 100 there are only three Romanian companies. Romania's export is made by foreign capital that has activity in Romania, for the most part, and we have to accept this. If they leave the country, we turn off the lights”.

This dependence makes the economy vulnerable and shows the lack of a Romanian product with high added value. However, the CCIR president is optimistic: "I still believe that Romania's future will be, especially in the export line, it will be towards the food industry on the one hand and the energy sector on the other. I believe that Megawatt will be the Romanian product with significant added value because we have a growing energy base. It exists and has a perspective of improvement”.

Economic polarization is another alarm signal: only 0.12% of companies, that is, 1094 companies with a turnover of over 50 million euros, generate 46% of Romania's total turnover. "It is a reality that we would like to be heard. The business environment needs incentives, maybe not facilities, but some incentives”, says the CCIR president, suggesting that the state should offer tax benefits to companies that demonstrate consistent performance and responsibility.

At the same time, Mihai Daraban criticizes the administration's inability to attract large investments, given that other countries offer land free of encumbrances, utilities and ready-made infrastructure for world-class companies: "We do not have these assets. The central and local administration is not going to offer BMW or Mercedes or I don't know what other famous brand a location like BMW was offered in other states. And then we have to bring those investments oriented towards satisfying the Romanian consumer”.

The voice of the organized business environment was also heard through lawyer Gabriel Biriş, vice president of the Romanian Businessmen's Association, who put his finger on the wound regarding the budget deficit and fiscal unpredictability. He accused the fact that all the amendments to the Fiscal Code in the last ten years have translated into compliance costs of hundreds of lei per month for companies in our country.

Gabriel Biriş stated that the problem of the budget deficit cannot be solved only by tax increases, but by reducing government spending and increasing production and investment, and harshly criticized the maintenance of the minimum turnover tax.

"The turnover tax has blocked investments in Romania. No sane investor, whether Romanian or foreign, will invest in a country where they have to pay tax before making a profit. No sane country taxes investments. (...) Nobody taxes investments if they want to be attractive to investors. We have Romanian companies that are suffering, large companies that have a turnover of 50 million euros, that are closing or want to close their activities. Some will not be able to close, they will sell”.

• Consistent financial potential, unavailable to companies

At the end of the conference, Constantin Boştină, president of ASPES, spoke about the huge responsibility that Romania has to capitalize on its potential.

"It is unacceptable that a country like Romania, which ranks sixth in the European Union in terms of human potential and ninth in terms of surface area, is in last place in terms of living standards and has the highest degree of poverty in Europe”, stated Constantin Boştină.

He specified that our country also has a substantial financial potential, which is not being capitalized on.

"In Romania, there is almost 70 billion lei, the money from the deposits of the population and commercial companies. The lending mass is somewhere around 50 or 55 billion lei. There is even a supply, if you know how to get the circulation moving. So it is even available for financing. Unfortunately, the Romanian banking system lends more to the state than to companies. (...) And this potential that places Romania somewhere in the top 10 places in the European Union, in terms of potential, leads you to incredible quality of life indicators. Here we are in last place, 27th, in the European Union, in terms of poverty level. A country that places itself in the 10th position in the EU in terms of potential, to have the highest health level in Europe, leads you to the conclusion that it is poorly governed”, specified Constantin Boştină.

The conference at the NBR was, as a whole, a lucid radiography of the realities of the Romanian economy, but also a collection of ideas, solutions and warnings from those who understand economic mechanisms in depth. Faced with a world in constant change, Romania needs more than ever a coherent strategy, a real dialogue between decision-makers and society and the courage to transform the huge potential into sustainable and competitive development.