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ROMANIA – A COUNTRY OF AMBITIOUS RISK-TAKERS WHO’VE MADE IT

Swept under the red tide of the troubled Chinese stock markets data, buried under the volcanic ash spewed out by the financial turmoil in Greece, and starved of oxygen by the climate of uncertainty which prevails in some EU member states groaning under their debt load is other interesting news which doesn’t grab our headlines.

Having just returned from Romania, I have realized that it is fast becoming a more and more interesting and impressive country.

What of Romania then? Well, sit back and take note. Corruption is still rife, but VAT will come down (in Poland corruption is negligible, but an unpaid VAT bill has put a well-known underwear maker, Atlantic, into administration). Here are the figures: while Poland adds 23% VAT to retail prices, Romania is planning to bring VAT down to 20% (from 24%) as of next year and to 19% the year after.

It’s a bold move. Receipts to the public purse will fall – warns the European Commission. Public debt will be 2% of GDP, not 1.8% – the level approved by the Commission. True, but the Maastricht Treaty puts the safe level of indebtedness at 3%. Not bad after all, then. And if the Laffer curve is anything to go by, it may turn out that tax receipts will actually rise, same as was once the case in Poland with tax on alcohol.

It is quite possible too that the move will spur on economic growth. So much is clear: lower taxes equals higher spendings. In the second quarter of 2015 Romania’s annual GDP, according to Eurostat, was the second fastest growing GDP in the European Union. It had grown by 3.7% (to be topped only by the economic output of Malta – 4.8%, and the Check Republic – 4.4%). In the first quarter of the year Romania’s economic growth of 4.3% was nearly twice as high as the pundits’ forecasts of 2.6% – a figure 10 of them had arrived at for Bloomberg. Poland has not seen this sort of rate of growth for many years. Romania’s unemployment is relatively low too (7%), and has remained low over a long period of time (the 2006 – 2015 average is 6.97%).

I’d say I’m impressed by Romanian politicians. They could each have a go at one another over where they are going wrong in taxing personal income, but they have managed to reach agreement over reform of the country’s fiscal policy, including reduction of VAT. And I wouldn’t be surprised if they got it right. Strangely enough and contrary to popular belief, Romania can defy the odds. Romanians can prove that the impossible is actually possible sometimes. That the idea works. That where there is a will there is a way. And you can count on me being impressed at people’s success due to hard work and judicious risk taking.

The way it was with Romania’s auto making industry. When many years ago I stumbled upon the news that Renault was planning to buy Dacia, I thought, ‘Hm, that’s interesting … Very interesting … ‘ The ellipsis at the end of the sentence – you get it – implies not only being interested but also incredulity, something of a rhetorical question: ‘What on earth for?’ I say rhetorical because you and I know the answer is: “They’ve lost their mind!”

The late 90’s (Renault moved into Romania in 1999) were a time when Eastern Europe was still licking its wounds following the post-Soviet period of restructuring. That includes Poland. Surviving state-owned behemoths were still making goods whose quality was far inferior to their western counterparts. Poland’s automotive industry was lucky (we know today) – Fiat is making Italian cars in Bielsko Biała and Tychy until this very day. The factory in Żerań on the other hand is a lesson in how not to go about economic transformation. Empty factory floors dotted with abandoned machines – a very depressing sight indeed.

Meanwhile in Romania, Dacia has changed beyond recognition. In 2014 the company sold cars worth a total of Euro 4.24 billion, making a net profit of Euro 95 million, according to the data published by its board of directors in the Romanian media. The money came from the sale of 339 thousand cars which rolled out of the factory in the small town of Mioveni, nestling in low hills. Some of these cars passed, in kit form, through what is likely to be the largest logistics centre in the world (located next to the factory) on their way to assembly plants in Russia, Morocco, Columbia, Argentina, Brazil, South Africa, Iran and India. Renault’s annual report boasts of five of their best selling models, with Duster at no. 1 (395 thousand vehicles), and the new Logan and Sandero at no. 3 and 4 respectively.

Why so much data about Dacia? Well, lest no one say I’m talking through my hat. Or that I sing Romania’s praises with no facts to back me up. Not only is Romania an interesting country but a country with an eye on innovation. In the late 90’s Swatch built a watch which, much as in today’s NFC technology (Near Field Communication), could be used as a ski pass. The technology lost some of its luster once ski passes no longer had to be inserted into a terminal (all you have to do now is bring your pocket with a plastic ticket inside close to the terminal at the gate), but guess where (among a few other places) were the ski resorts where you could use this gizmo? In Romania, of course.

Romania is also building up its securities market. To this end it has drafted in Ludwik Sobolewski, former president of GPW (the Warsaw Stock Exchange), who was quick to copy its alternative market formula for trading small companies’ stock. No surprise there. Romania has a rapidly growing market of Internet startups with global ambitions, developing solutions at home but seeking markets and investors in the West, preferably in the U.S..

According to politico.eu, a highly-regarded information platform tracking European politics, Romania’s leaders are even entertaining the idea of decriminalizing bribes for doctors as a way of compensating them for salaries which are not commensurate with the work they do (income from envelopes handed to doctors after surgery would be deemed legitimate). The latest news though is that this particular revelation was just a rumor, but it shows nevertheless that Romanians are looking for practical solutions. Even if they are somewhat off the wall.

Romanians are trying, working hard, taking risks and making an effort – and scoring successes as they go along. For this they have my admiration.

More about Romania’s economy and the latest news can be found on the Trading Economics pages (start with the annual rise in GDP):
http://pl.tradingeconomics.com/romania/gdp-growth-annual

Romania’s GDP in the second quarter of 2015:
http://www.agerpres.ro/english/2015/09/08/eurostat-malta-czech-republic-romania-the-highest-q2-2015-economic-growth-in-european-union-15-46-41

First quarter ’15 GDP against the Bloomberg forecast:
http://www.bloomberg.com/news/articles/2015-05-13/romanian-economic-growth-unexpectedly-quickens-in-first-quarter

To refresh your memory about the Laffer curve, go to:
https://pl.wikipedia.org/wiki/Krzywa_Laffera

To ease any doubts you may have about my Dacia example, let me refer you to page 10 of Renault’s 2014 annual report:
http://rapport-annuel.group.renault.com/en/assets/pdf/renault_ra_2014_en.pdf

The Guardian summed up Dacia’s success in an insightful article here:
http://www.theguardian.com/business/2014/oct/21/dacia-romania-car-maker-europe-sales

Polish readers will find a similar article on:
http://www.auto-zieba.com.pl/swiatowy-sukces-dacia

Like other EU states Romania is battling deflation too:
http://www.thediplomat.ro/articol.php?id=6384

Some interesting facts about Romanian doctors’ earnings from politico.eu :
http://www.politico.eu/article/bribes-doctors-legal-romania-health-care-patients/

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