Transcript Romania

Romania:
Country Forecast
June 2010
Romania
Editor: Joan Hoey
Editorial closing date: 11th June 2010
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Five-year forecast summary
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Five-year forecast summary
The Economist Intelligence Unit expects the political scene to be volatile as the government
struggles to cope with the continuing fallout from the recession of 2009, including rising unemployment
and growing levels of popular dissatisfaction. There is a high risk of social unrest in 2010. A coherent
majority government is unlikely to emerge in the next five years, repeating the post-communist pattern
of coalition or minority governments struggling to implement coherent policies.
Romania’s business environment rankings improve modestly in 2010-14 as a result of
improvements in policies towards private enterprise and the foreign trade regime, as well as continuing
investment in infrastructure. However, poor scores for political stability, market opportunities and the
macroeconomic environment hold back progress.
Economic growth will average around 3.8% per year in 2010-14, following a real GDP contraction
of 7.1% in 2009.
Real GDP growth
(%)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Five-year forecast summary
The forecast for market opportunities is mixed. The fast growth rates of recent years will not be
replicated in the short term, as growth slows sharply. Over the medium term, however, disposable
incomes will rise, generating growing demand for a range of goods and services. Romania’s size gives
it an advantage over other, smaller emerging markets.
Prospects for long-term economic growth are fairly good, because of the scope for fast catch-up
growth from a low base, but the long-term growth profile is adversely affected by the hard landing of
2009-10. The poor demographic outlook will also have a negative effect on real growth per head after
2010.
Household consumption per head
(US$)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Business environment rankings
Value of index a
Global rankb
Regional rankc
2005-09
5.91
2010-14
6.26
2005-09
50
2010-14
50
2005-09
10
2010-14
10
5.3
5.5
49
49
11
11
Political stability
7.0
6.6
37
41
11
11
Political effectiveness
3.9
4.5
59
56
11
10
Macroeconomic environment
5.8
6.1
72
69
13
15
Market opportunities
5.2
5.4
52
53
7
7
Policy towards private enterprise & competition
5.3
6.0
49
43
9
8
Policy towards foreign investment
7.3
7.3
33
34
6
5
Foreign trade & exchange controls
7.8
7.8
42
45
9
8
Taxes
5.4
6.0
55
47
10
6
Financing
5.5
5.5
51
52
8
7
The labour market
6.0
6.4
48
38
11
6
5.6
6.6
48
45
12
10
Overall position
Political environment
Infrastructure
a
b
c
Out of 10. Out of 82 countries. Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia,
Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Methodology
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
The political environment
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Political outlook
Highlights
The government formed by Emil Boc in December 2009, and comprising the Democratic Liberal
Party (DLP) and the Hungarian Union of Democrats in Romania (HUDR), is reliant on
independents and representatives of minorities for a parliamentary majority, and may therefore fail
to serve a full term until the election due in late 2012.
The government faces difficult economic choices, most immediately on the fiscal front, where it
has opted for deep cuts in public expenditure rather than tax rate increases in order to meet deficit
targets in this and coming years. The government will preside over rising unemployment and
falling household incomes in 2010. This will make it unpopular with voters, and the risk of social
unrest is high.
Romania remains subject to monitoring by the European Commission and has so far only just
avoided censure for its lack of progress in reforming the judiciary and prosecuting corruption. A
failure to address these issues could eventually result in a suspension of EU funding.
A coherent majority government is unlikely to emerge in the next five years, continuing the postcommunist pattern of minority governments beholden to parliamentary opposition parties, or
coalition governments comprising unlikely political bedfellows.
More from ViewsWire…
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Demographics
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Demographic outlook
Population (m)
2005
2009
2014
Total
21.6
21.5
21.4
2005-09
2010-14
-0.2
-0.1
0.2
0.0
Period averages (%)
Population growth
Labour force growth
The population will continue to decline over the next five years. Government plans to address the
problem through a series of policy measures are unlikely to have much effect, as the rate of
natural increase is not easily susceptible to official intervention.
The entry of the final cohorts of the 1980s "baby boom" to the labour market will mean that the
population of working age contracts at a relatively slow rate over this period. This, together with a
slight rise in participation rates, will allow the labour force to remain relatively stable.
The main uncertainty concerns the level of future emigration to other EU member states and the
number of returnees. Emigration is not expected to rise dramatically, given restrictions on migrants
from Romania imposed by EU member states, but there will not be large numbers of migrants
returning during the forecast period, despite economic woes in the euro area in 2009-10.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
The business environment forecast
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Business environment outlook
Our business environment rankings assess a country’s relative attractiveness as an investment
location, both globally and regionally.
Romania's overall score in our business environment rankings rises modestly, to 6.26 out of 10
in 2010-14, as a result of improvements in the foreign trade regime, and in policy towards
private enterprise and competition. The infrastructure ranking also improves.
Poor scores for political stability, market opportunities and the macroeconomic environment hold
back progress, but Romania rises by two places in the global ranking, to 50th out of 82
countries; regionally, it comes tenth out of 16 countries, the same as in 2005-09.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Macroeconomic environment
The macroeconomic environment deteriorated sharply in 2007-09, posing significant threats to
macroeconomic stability in the context of the deepening global financial and economic crisis.
The crisis will continue to have a negative impact on output, exports, employment, the currency
and capital inflows in 2010, but the economy will grow on a sounder basis from 2011.
A much smaller external deficit and an IMF-EU financing package should enable Romania to
meet its external financing requirement in 2010-11.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Fiscal policy
Central government budget balance
(% of GDP)
Following negative growth in the first quarter
and an increase in government arrears in
excess of agreed limits, the IMF revised its
deficit forecast for 2010 to 9.1%, assuming that
no further actions were taken. The government
renegotiated the deficit target from 5.9% to
6.8% of GDP and committed to making
swingeing cuts in spending.
Even these may prove insufficient, and
increases in the rates of value-added tax (VAT),
currently set at 19%, and in the flat-rate
incomes and profits tax (16%), may be
required.
The government proposes to reduce the deficit
to 4.4% of GDP in 2011 and to 3% of GDP in
2012 (on the ESA 95 basis), but has given little
indication of how these targets will be met.
We
expect
the
consolidated
general
government budget to record deficits equivalent
to 7% of GDP in 2010, 4.4% in 2011 and 3.4%
in 2012, based on national methodology.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Monetary policy
Money market interest rate
(%)
The National Bank of Romania (NBR, the central bank) operates an inflation-targeting regime and
has set a year-end inflation target of 3.5% for 2010, the same as in 2009, and of 3% for 2011
(both ±1 percentage point). It forecasts year-end inflation of 3.7% in 2010 and of 2.8% in 2011.
The NBR reduced its monetary policy rate by 50 basis points in each month of the first quarter of
2010, taking it to 6.5%, and by a further 25 basis points on May 5th, to 6.25%. Interest rates are
expected to decline further in 2010-11, as inflation falls and interbank rates move closer to those
of the NBR. However, there is a limit to how far interest rates can be cut, in view of underlying
inflationary pressures.
There have been strong indications that Romania will delay adoption of the euro, scheduled for
2015, by several years.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Policy towards private enterprise & competition
2010-11:
The pace of restructuring slows as government tries to contain growth of unemployment,
causing stagnating productivity growth. There are minor improvements in the regulatory
regime and less red tape. Utility pricing is harmonised with the EU.
2012-14:
Gradual implementation of EU competition policy leads to further improvements, but
Romania continues to lag behind other accession states. Prices are progressively
deregulated. Manufacturing becomes more competitive as output recovers with a smaller
labour force.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Policy towards foreign investment
2010-11:
The government remains ambivalent towards privatisation, but comes under fiscal
pressure to go ahead with politically sensitive sales in the energy sector. Greenfield
investment, especially in engineering, is encouraged. Incentives for large investors come
under EU scrutiny.
2012-14:
Tax and customs incentives for foreign investors are withdrawn under EU pressure.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Foreign trade and exchange controls
2010-11:
The leu remains subject to volatility, as the NBR maintains a flexible exchange rate. The
leu may still be relatively overvalued, despite the exchange-rate correction of 2008-09.
2012-14:
Once the current turbulence has abated, after 2010, the leu is expected to continue to
appreciate modestly in real terms, in line with productivity differentials. The economic
downturn in 2009-10 will delay the NBR’s target date for euro adoption.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Taxes
2010-11:
Excise duties are raised towards EU levels. Pension reform gets under way. The
government may have to raise tax rates—for example, for value-added tax (VAT)—to
compensate for falling revenue.
2012-14:
There are improvements in tax administration and collection, but the climate is still
influenced by arbitrary measures.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Financing
2010-11:
Parent banks agree to maintain finance to subsidiaries operating in Romania and to
increase minimum capital-adequacy ratios from 8% to 10%. Low take-up of credit by
households
pushes
the
financial
sector
towards
small
and
medium-sized
enterprises (SMEs).
2012-14:
The structure of the financial sector undergoes significant changes as there is increasing
diversification of financial instruments. The capital market begins to play a greater role as
the private pension system starts to take off. Measures by the European Bank for
Reconstruction and Development (EBRD) to improve finance to SMEs start to take effect.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: The labour market
2010-11:
Labour shortages in some critical areas are partly alleviated by greater unemployment in
the early period and by the return of migrant workers. Productivity growth slows, but
falling demand helps to contain wage costs.
2012-14:
The labour force starts to decline, reflecting falling birth rates in the 1990s and the
removal of remaining restrictions on the mobility of Romanian workers in the EU.
Productivity growth improves slowly as the economy recovers, but with a reduced
labour force.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Infrastructure
2010-11:
Romania makes progress in upgrading the energy sector, telecommunications, and the
motorway, road and rail networks, but few large projects are completed.
2012-14:
Romania plans a significant expansion of nuclear-power generation in order to reduce its
dependence on imported energy. Two further nuclear reactors should be opened at
Cernavoda by 2012-13.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
The economic forecast
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: International assumptions
Economic growth (%)
Uncertainty about the global outlook remains exceptionally high. Extraordinary measures have
calmed the fiscal crisis in the euro area, but the risk of turbulence remains.
Fiscal consolidation, household retrenchment and banking sector balance-sheet repair will
constrain growth for some time. The euro area economy is forecast to grow by 0.7% in 2010 and
by 0.8% in 2011, after a fall of 4.1% in 2009. Growth will average 1.6% in 2012-14.
We forecast that the price of dated Brent Blend crude oil will average US$79/barrel in 2010-14,
compared with an average price of US$62/b in 2009, adding to Romania's energy import bill.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Economic outlook
Economic outlook
(% real change)
We forecast a return to modest growth in Romania in 2010, of 0.3%, following a contraction of
7.1% in 2009, as domestic demand remains constrained. There is a risk that growth could be
negative for a second successive year.
The economic recovery is expected to strengthen from 2011, when growth of 3.8% is forecast,
helped by a recovery in domestic demand and robust export growth.
Real GDP growth is forecast to average 5% in 2012-14, driven by a revival of consumption and
investment growth and a strong export performance.
A recovery in foreign direct investment (FDI) and other external inflows is expected from 2011.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Wage and price inflation
Consumer price inflation
(%; annual av)
Disinflation is set to continue in 2010-14, but
we do not expect inflation to fall to west
European levels within the forecast period.
In 2010 we expect that the depreciation of the
leu against the US dollar in the first half of the
year will generate further inflationary pressures
later in the year by driving up the price of
imported energy and raw materials.
Wages, which continued to rise in the first
quarter of 2010, are also generating inflationary
pressures.
Provided that fiscal and incomes policies are
tightened, average inflation is forecast to fall to
4.4% in 2010 and to just over 2% by 2014.
The main inflationary risks are uncertainty over
the leu and the possibility that wage rates will
grow faster than expected.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Exchange rates
Exchange rates
Exchange-rate volatility is likely to be a feature in the early part of the forecast period, as investor
sentiment reacts to the threat of political instability, fiscal policy failure and backsliding on reform.
The leu depreciated by 7.4% in real terms in 2009, but other currencies in the region also
depreciated. Based on estimates of equilibrium exchange rates, the leu may still be overvalued.
The NBR will not want the exchange rate to strengthen, but nor will it want too rapid a
depreciation, given high levels of foreign-denominated debt and the need to avoid imported
inflation. It will have to pursue a cautious monetary policy for the forecast period.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: External sector
External sector
(US$ bn unless otherwise indicated)
A more prudent fiscal stance from 2010 will keep the current-account deficit at the equivalent of a
sustainable 5-6% of GDP over the forecast period.
Export sales will recover from 2010, helped by strong productivity gains in industry. Import growth
will slow greatly compared with the recent past, leading to more balanced growth.
The services deficit will widen steadily from 2011 onwards, and the deficit on income will also
widen, reflecting rising interest payments on foreign debt.
The surplus on transfers will build steadily, after a decline in 2009, as remittances from
Romanians working abroad and transfers from the EU increase.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Foreign direct investment
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Foreign direct investment
Stocks and flows
Despite the strong pick-up in inflows of FDI in recent years, the ratio of the FDI stock to GDP at end2008 (33.6%) was still one of the lowest in east-central Europe. The jump in the ratio to 46.8% in 2009
reflected the sharp contraction of GDP, which will be common to the region.
Although Romania is the leading recipient of FDI in the Balkans when measured in US dollar terms, it
lags behind Croatia and Bulgaria in terms of FDI per head (which was US$3,514 at end-2009).
FDI into Romania has been rising strongly since 2004, and reached a record total of US$13.9bn in
2008. Romania’s stock of FDI at end-2009 was an estimated US$75.4bn.
FDI inflows fell steeply in 2009, to US$6.8bn, as the global economic crisis led to a drying up of all
capital inflows, but will pick up again from 2010.
Inward foreign direct investment stock, 2010
(% of GDP)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Foreign direct investment
Determinants
Romania’s advantages as a location for investment include a domestic market of about 22m
consumers and the potential—partly owing to a good geographical position at a crossroads of
traditional trade routes—to emerge as a regional hub.
Romania has a comparatively cheap and skilled workforce, as well as a diversified industrial structure
that allows intermediate inputs to be bought locally.
In the past, macroeconomic instability, poor reform progress, high regional risk, excessive red tape,
and the unpredictable legal and regulatory system were the main obstacles to FDI. Progress in all these
areas should ensure continuing large inflows of FDI over the medium term.
Inward foreign direct investment stock per head, 2010
(US$)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Foreign direct investment
Potential
Apart from a large fall in FDI inflows in 2009, owing to the global economic crisis, GDP growth,
improvements in the business environment and further privatisations should underpin strong FDI inflows
in the coming years.
FDI inflows almost halved to US$6.8bn in 2009, from US$13.9bn in 2008, but will average about
US$9bn per year in 2010-14.
Strong market opportunities and a better regulatory environment will make Romania attractive to foreign
companies. Investor confidence is reflected in the large share of reinvested earnings in FDI inflows.
Manufacturing industries such as automotives, metallurgy, food-processing, telecoms and information
technology (IT), as well as retail and banking, will benefit from foreign investment and know-how.
Annual inflows of foreign direct investment
(US$ m)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Market opportunities
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Market opportunities
GDP per head
(US$ at PPP)
Romania has the second-largest economy of the ten east European countries that joined the EU
in May 2004 and January 2007, but its level of GDP per head at purchasing power parity (PPP)
exchange rates lags behind most of the other new EU entrants.
We forecast that real GDP growth will average 3.8% per year in 2010-14—a significantly higher
rate than the 1.3% forecast for the euro zone—resulting in rising disposable incomes.
Forecast strong growth in incomes and credit will drive private consumption growth, and consumer
spending patterns in the more developed, western part of Romania will be increasingly similar to
those in western Europe. The north-eastern regions will continue to trail behind.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
The long-term forecast
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Long-term outlook
Real GDP growth
(% annual change)
Romania's low initial income is a definite advantage in terms of the scope for convergence with
more advanced economies. Summed up by the phrase "the advantages of backwardness", poor
countries generally grow more rapidly than rich ones.
Romania is more distant, compared with central European neighbours such as Hungary, from the
economic centres of western Europe. However, it has a large domestic market and easy access to
the EU’s eastern neighbours, which give it an advantage compared with some of its neighbours.
In terms of the quality of the labour force, education and health endowments, Romania’s position
is mixed, but generally compares favourably with other emerging markets.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Long-term outlook
Demographic trends: Romania's demographic profile is unfavourable, but not as bad as those of
some of its neighbours, such as Bulgaria, and its working-age population is not expected to fall
precipitately. The increase in the old-age dependency ratio (that is, of retired people to the
working-age population) will become more pronounced as a result of the falling birth rate and
increased mortality.
External conditions: Romania has an open economy, which has benefited greatly from the
opening up of new markets—especially in the EU, which takes almost 70% of its exports—since
1989. It will benefit from the continuing gradual liberalisation of world trade and closer trade
integration with the EU (including eventually through euro membership). Some of the remaining
barriers to trade in goods with the EU are likely to be removed, and liberalisation of trade in
services, which could eventually benefit Romania, is set to continue. Romania should be in a good
position to take advantage of the efforts of firms in Germany and other developed EU countries to
improve their profitability by shifting non-core activities to lower-cost locations.
Long-term performance: Of the various factors that determine long-term growth, the government
can do little to change many. This is because they are either fixed (geography) or change only
slowly (institutions). Much therefore depends on policies. On relatively favourable assumptions
about key policy variables and progress in deregulation, in our best-case scenario, Romania's
long-term annual average growth per head is forecast at 3.8%.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Long-term outlook
GDP per head
(US$ at PPP; index, US=100)
Nominal GDP
(US$ at PPP; index, Romania=100)
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Resources
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Map
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Comparative GDP, 2009
Gross domestic product
(US$ bn; market exchange rates)
Country Forecast June 2010
Gross domestic product per head
(US$; market exchange rates)
© The Economist Intelligence Unit Limited 2010
Romania: Basic data
Land area
Population
Climate
Weather in Bucharest
Language
Currency
Time
Public holidays
238,391 sq km; twelfth-largest in Europe
21,623,849 (July 1st 2005)
Continental
Hottest month, July, 16-30°C (average daily minimum and maximum); coldest
month, January, minus 7-1°C; driest month, February, 33 mm average rainfall;
wettest month, June, 89 mm average rainfall
Romanian
Leu = 100 bani; the plural of leu is lei
Two hours ahead of GMT/BST
January 1st-2nd, January 6th, Easter (Orthodox calendar), May 1st,
December 1st, December 25th, December 26th
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Business environment rankings: Methodology
Outline of the model
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries
covered by Country Forecasts using a standard analytical framework. It is designed to reflect the main criteria used by
companies to formulate their global business strategies, and is based not only on historical conditions but also on
expectations about conditions prevailing over the next five years. This allows the Economist Intelligence Unit to utilise the
regularity, depth and detail of its forecasting work to generate a unique set of forward-looking business environment
rankings on a regional and global basis.
The business rankings model examines ten separate criteria or categories, covering the political environment, the
macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign
investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. Each category
contains a number of indicators that are assessed by the Economist Intelligence Unit for the last five years and the next
five years. The number of indicators in each category varies from five (foreign trade and exchange regimes) to 16
(infrastructure), and there are 91 indicators in total.
Almost half of the indicators are based on quantitative data (eg, GDP growth), and are mostly drawn from national and
international statistical sources for the historical period (2005-09) and from Economist Intelligence Unit assessments for
the forecast period (2010-14). The other indicators are qualitative in nature (eg, quality of the financial regulatory system),
and are drawn from a range of data sources and business surveys adjusted by the Economist Intelligence Unit, for 200509. All forecasts for the qualitative indicators covering 2010-14 are based on Economist Intelligence Unit assessments.
The main sources used in the business rankings model include CIA, World Factbook; Economist Intelligence Unit,
Country Risk Service, Country Finance, Country Commerce; Freedom House, Annual Survey of Political Rights and Civil
Liberties; Heritage Foundation, Index of Economic Freedom; IMF, Annual Report on Foreign Exchange Restrictions;
International Institute for Management Development, World Competitiveness Yearbook; International Labour
Organisation, International Labour Statistics Yearbook; UN, Human Development Report; US Social Security
Administration, Social Security Programs Throughout the World; World Bank, World Development Report; World
Development Indicators; World Economic Forum, Global Competitiveness Report.
Back to Rankings
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania:
Business environment rankings: Methodology
Calculating the rankings
The rankings are calculated in several stages. First, each of the 91 indicators is scored on a scale from 1 (very bad for
business) to 5 (very good for business). The aggregate category scores are derived on the basis of simple or weighted
averages of the indicator scores within a given category. These are then adjusted, on the basis of a linear transformation,
to produce index values on a 1-10 scale. An arithmetic average of the ten category index values is then calculated to yield
the aggregate business environment score for each country, again on a 1-10 scale.
The use of equal weights for the categories to derive the overall score reflects in part the theoretical uncertainty about the
relative importance of the primary determinants of investment. Surveys of foreign direct investors' intentions yield widely
differing results on the relative importance of different factors. Weighted scores for individual categories based on
correlation coefficients of recent foreign direct investment inflows do not in any case produce overall results that are
significantly different to those derived from a system based on equal weights.
For most quantitative indicators the data are arrayed in ascending or descending order and split into five bands (quintiles).
The countries falling in the first quintile are assigned scores of 5, those falling in the second quintile score 4 and so on. The
cut-off points between bands are based on the average of the raw indicator values for the top and bottom countries in
adjacent quintiles. The 2005-09 ranges are then used to derive 2010-14 scores. This allows for intertemporal as well as
cross-country comparisons of the indicator and category scores.
Measurement and grading issues
The indices and rankings attempt to measure the average quality of the business environment over the entire historical or
forecast period, not simply at the start or at the end of the period. Thus in the forecast we assign an average grade to
elements of the business environment over 2010-14, not to the likely situation in 2014 only.
The scores based on quantitative data are usually calculated on the basis of the numeric average for an indicator over the
period. In some cases, the "average" is represented, as an approximation, by the recorded value at the mid-point of the
period (2007 or 2012). In only a few cases is the relevant variable appropriately measured by the value at the start of the
period (eg, educational attainments). For one indicator (the natural resources endowment), the score remains constant for
both the historical and forecast periods.
Back to Rankings
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Political environment
1. Risk of armed conflict
4
4.3
4
4.3
2. Risk of social unrest
3
3.4
2
2.8
3. Constitutional mechanisms for the orderly transfer of power
4
3.5
4
3.5
4. Government and opposition
3
3.5
3
3.4
5. Threat of politically motivated violence
4
3.8
4
3.8
6. International disputes or tensions
4
3.3
4
3.3
7. Government policy towards business
3
3.4
3
3.4
8. Effectiveness of political system in policy formulation and execution
2
2.6
2
2.7
9. Quality of the bureaucracy
2
2.3
2
2.3
10. Transparency and fairness of legal system
2
2.4
3
2.6
11. Efficiency of legal system
2
2.8
3
3.0
12. Corruption
2
2.2
2
2.4
13. Impact of crime
3
3.2
3
3.2
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Macroeconomic environment
1. Inflation*
4
3.9
4
4.6
2. Budget balance as % of GDP*
3
3.8
3
3.6
3. Government debt as % of GDP*
5
4.8
5
4.5
4. Exchange-rate volatility*
4
4.3
4
4.5
5. Current-account balance as % of GDP*
1
2.3
2
3.3
6. Quality of policymaking
3
3.1
3
3.2
7. Institutional underpinnings
3
3.6
3
3.7
8. Asset prices
2
2.1
2
2.5
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Market opportunities
1. GDP, US$ bn at PPP*
3
2.5
3
2.6
2. GDP per head, US$ at PPP*
3
3.2
3
3.3
3. Real GDP growth*
3
3.0
3
3.3
4. Share of world merchandise trade*
2
2.1
3
2.2
5. Average annual rate of growth of exports*
3
2.4
3
2.6
6. Average annual rate of growth of imports*
4
2.3
3
2.9
7. The natural resource endowment*
2
2.3
2
2.3
8. Profitability*
3
3.1
3
3.3
9. Regional integration
5
4.3
5
4.3
10. Proximity to markets
3
3.6
3
3.6
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Policy towards private enterprise and competition
1. Degree to which private property rights are protected
3
3.4
4
3.7
2. Government regulation on setting up new private businesses
4
3.1
4
3.3
3. Freedom of existing businesses to compete
3
3.0
3
3.2
4. Promotion of competition
2
2.5
3
2.9
5. Protection of intellectual property
2
2.7
3
3.1
6. Price controls
4
3.8
4
3.8
7. Distortions arising from lobbying by special interest groups
2
2.3
2
2.3
8. Distortions arising from state ownership/control
3
3.1
3
3.3
9. Minority shareholders
3
2.8
3
2.8
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Policy towards foreign investment
1. Government policy towards foreign capital
4
3.6
4
3.5
2. Openness of national culture to foreign influences
4
3.4
4
3.5
3. Risk of expropriation of foreign assets
4
3.9
4
3.9
4. Availability of investment protection schemes
4
3.6
4
3.6
5. Government favouritism
3
2.9
3
2.9
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Foreign trade and exchange controls
1. Capital-account liberalisation
4
4.1
5
4.3
2. Tariff and non-tariff protection**
4
3.7
4
3.6
3. Ease of trading
3
3.3
3
3.4
4. Openness of trade*
4
4.3
3
3.8
5. Restrictions on the current account
5
4.7
5
4.7
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Taxes
1. The corporate tax burden**
4
4.6
4
4.8
2. The top marginal personal income tax*
4
4.3
5
4.6
3. Value-added tax*
3
2.9
3
2.8
4. Employers' social security contributions
2
2.0
2
2.1
5. Degree to which fiscal regime encourages new investment
3
2.5
3
2.6
6. Consistency and fairness of the tax system
2
2.4
3
2.6
7. Tax complexity
3
2.7
3
2.9
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Financing
1. Openness of banking sector
3
2.6
3
2.8
2. Stockmarket capitalisation
3
3.1
3
3.2
3. Distortions in financial markets**
4
3.5
3
3.6
4. Quality of the financial regulatory system
3
2.7
3
3.1
5. Access of foreigners to local capital market
3
3.4
3
3.4
6. Access to medium-term finance for investment
2
2.7
3
2.7
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
The labour market
1. Labour costs adjusted for productivity*
3
3.5
4
3.9
2. Availability of skilled labour*
3
3.4
3
3.3
3. Quality of workforce
2
2.7
3
3.1
4. Quality of local managers
3
2.8
3
2.9
5. Language skills
4
3.0
4
3.1
6. Health of the workforce*
3
3.1
3
3.3
7. Level of technical skills
4
3.6
4
3.6
8. Cost of living*
3
2.4
3
1.7
9. Incidence of strikes**
3
3.9
3
3.6
10. Restrictiveness of labour laws
4
3.2
4
3.2
11. Extent of wage regulation
3
2.9
3
3.0
12. Hiring of foreign nationals
4
3.4
4
3.6
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010
Romania: Indicator scores in the business rankings model
2005-09
Regional
Romania
a
2010-14
Regional
average
Romania
a
average
Infrastructure
1. Telephone density*
3
3.3
3
3.3
2. Reliability of telecoms network**
2
2.9
3
3.4
3. Telecoms costs*
3
3.3
4
3.9
4. Mobiles*
5
4.7
5
4.6
5. Stock of personal computers*
4
3.7
5
4.2
6. Internet use*
3
3.9
5
4.8
7. Broadband penetration*
5
3.8
5
4.8
8. R&D expenditure as % of GDP*
2
2.9
2
2.9
9. Research infrastructure
3
3.3
3
3.3
10. The infrastructure for retail and wholesale distribution**
2
2.8
3
3.2
11. Extent and quality of the road network**
4
3.3
4
3.4
12. Extent and quality of the rail network**
3
3.4
3
3.4
13. Quality of ports infrastructure
3
3.3
3
3.3
14. Quality of air transport
2
3.1
3
3.3
15. Production of electricity per head*
3
3.8
3
3.6
16. Rents of office space*
2
2.4
2
2.4
a
Out of 16 countries: Azerbaijan, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania,
Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.
Country Forecast June 2010
© The Economist Intelligence Unit Limited 2010