“A new wave of pandemic restrictions could be the coup de grace for many businesses in Romania, in all fields”
The well-known economic analyst, Adrian Negrescu, makes, for our magazine, a comprehensive analysis of the economic situation in our country. We talked about Romania’s macroeconomic prospects in 2022, the negative impact that pandemic protection measures have had on the economy, ignoring human capital and the about the lack of state support for companies that create jobs. We also debated if the businesses in Romania can withstand a new wave of pandemic restrictions that will strike a blow to our business environment, all coupled with the huge wave of price increases in the area of energy, utilities, fuels and raw materials.
What are Romania’s macroeconomic prospects this year?
2022 should be the year of reforms, but unfortunately it could be the year of contrasts. The year in which we will see an accentuation of the difference between prices and wages, between the dynamics of the economy sectors (some on advantage, others on disadvantage), between the public sector (which did not suffer the effects of the crisis) and the private sector and between promises and reality. It will be a year in which, unfortunately, consumption – the main engine of the economy – will start to fail due to the effects of price increases in the energy sector. A year in which we could experience stagflation, ie low economic growth or economic stagnation in a lethal combination with price increases – the darkest scenario from an economic point of view because investors will put their investments on hold and make new adjustments. budgets, staff. On the other hand, the year 2022 should be the year of reforms, because, for the first time, we have a concrete plan of reforms in all areas, with clear targets, which condition their fulfillment by the payment of European money (approx. 30 billion euros). It could be, thus, the year in which Romania’s modernization will begin, but the chances, as presented at the beginning of this year, are quite few. However, let us be optimistic and believe that in 2022, all wishes will come true – attracting EU funds, political stability, a Fiscal Code without major changes and, especially, the year in which we will overcome the pandemic.
At the time of our conversation, the cumulative incidence rate calculated at 14 days is, for example, in Bucharest, 5.64. Most industries that interact physically with their public (except pharmacies and convenience stores – supermarkets/hypermarkets) are already restricted to a maximum capacity of 30% and are allowed to operate only until 22:00. The gambling industry is one of those. Do you think that the economy can still operate this way for long? I mean, following the principle of the switch? I am referring mainly to the branches in question, which have already been suffering for 2 years after the restrictions.
The chaotic manner in which the restrictions required by the pandemic were imposed has done much harm to the economy, to the consumer-dependent sectors. Many of the measures were taken impulsively, without impact studies, without economic logic, and the results were seen – over 1 million jobs lost in 2020, only partially recovered in 2021, over 100,000 closed companies, bankruptcies and lots of insolvencies. The Romanian economy, which is extremely fragile from the financial point of view, has suffered greatly, and the wounds caused by the aberrant measures taken by the authorities will take years to heal. Investor interest, especially in HORECA and other fun-related areas, has dropped to near zero, and the chances of the gambling industry, for example, returning to pre-pandemic levels are quite slim. We need a predictable framework. We need to take measures to support the sectors that have suffered, an offer fiscal facilities for these areas that contribute strongly to the return of consumption, the main engine of the economy.
In these 2 years of pandemic, the main problem of companies that have suffered shutdowns and/or restrictions of all kinds, was, in addition to large financial losses, major problems in providing human resources to their operations, especially after lifting restrictions. How big do you think the problem of human resources is, given that companies pay a lot of money for recruitment and training, and then lose them in favor of other areas that have not been closed at all or less and where employees could have more confidence in their future?
Among the great mistakes of Romania for the last 20 years is the absolutely outrageous way in which it has managed the problem of attracting investments, especially those with Romanian capital. The local capital was blamed, ignored, limited and passed through the caudal forks of fiscal controls. The second big mistake was to ignore human capital, not keeping the employees in Romania and not supporting the companies that create jobs. The authorities competed in burdening the business environment with all kinds of taxes on labor, in taxing excessively everything related to human resources. And the results are visible now. It is a real impossible mission to open a company with over 100 employees, when payroll taxes represent over 45% of costs. Moreover, beyond excessive taxation, companies that have chosen to train their own employees, to specialize them, have been ignored, have not received any aid, and we now see the effects – the sharp decline in the number of skilled workers in the economy. We ended up importing workers from abroad because we were not able to train the local ones, and those who wanted to train their employees were not supported in any way. An example is the proposal for a staff leasing law, similar to the one followed on other countries, which has unfortunately been ignored by politicians.
In other European countries it was finally understood that the closure of economic activities or their brutal restriction did not lead to anything good and on the 5th wave they let the economy work. In Romania, the first 4 pandemic waves and the bad economic decisions taken by the rulers in recent years have led to an accelerated number of bankruptcies (tens of thousands of companies closed in 2021) and even to high unemployment among young people according to the latest news coming from the National Institute of Statistics. What economic prospects will we have if the only answer (predictable, from what we have seen so far) will be (again) the closure of economic activities in certain sectors of the economy – HoReCa, tourism, gambling, entertainment, entertainment, etc? Can these areas last longer? What would you recommend to the rulers?
A new wave of pandemic restrictions could be the coup de grace for many businesses in Romania, in all fields. The restrictions, combined with the huge wave of price rise in the area of energy, utilities, fuel and raw materials, will virtually shatter hundreds of thousands of businesses, and the economic and social impact will be huge. I hope, however, that the authorities will come to their senses and understand that the restrictions and the inflationary risk are likely to lead Romania into a state of inflation, if not a recession.
What should those with small and medium-sized businesses expect in 2022? What would be the opportunities? What about the risks?
The year 2022, as I said, will be the year of survival. We have a deeper feeling that we are actors in a reality show – Survivors, in which everyone escapes as best they can, both individually and organizationally. In such a crisis, business restructuring is the keyword. For those with liquidity, it is an opportunity, because they will be able to gain market share, they will be able to take over fragile businesses. In any crisis, some lose, others gain, so my advice is to keep our eyes open, try to anticipate market movements, look for lifelines or, as the case may be, opportunities. It is the time of people with initiative, experience and courage enough to cut to the chase, to make the necessary decisions to save or, as the case may be, to consolidate their business. On the other hand, it is the time when you can build a loyal clientele better than ever, thanks to digitalization, marketing mechanisms, exploiting the fears, desires of customers and partners.