"2019 - the first year in which our industry did not perform well"

• (Interview with Mr. Cristian Pârvan, AOAR Secretary General)

Reporter: What were the end of 2019 and the beginning of 2020 like for businessmen?

Cristian Pârvan: The business sector feels that it must remain optimistic, considering last year's economic growth, of over 4%. This evolution is essentially a synopsis of the performance of the Romanian economy, even though we are still far from the results of economies similar to ours, namely Poland, the Czech Republic, Hungary, which have clearly higher performance ratios than we do. But, all in all, in spite of all the turbulence and challenges, our economy has found solutions to do well. Regarding the sources of that economic growth, it is obvious that 2019 saw a downward trend in terms of the participation of the industry in this performance. It is the first year in which the industry did not perform well, and stopped being an essential contributor, in terms of growth, to the evolution of the GDP.

One area where Government Emergency Ordinance 114/2018 had a positive effect was in the constructions sector. The figure with which construction increased in 2019 compared to 2018 shows that this stimulus was needed in the construction industry. A side effect was that a number of construction workers returned home, because the wages here were high enough to no longer justify their working abroad.

Reporter: However, the workforce crisis continued last year ...

Cristian Pârvan: It is true - 2019 was characterized by the continued exacerbation of labor shortages, a phenomenon that forced the authorities to increase the number of labor permits granted to citizens from non-EU countries to 30,000. That number of permits was completely exhausted, which means that every sector is understaffed, from HoReCa to the machine manufacturing industry.

Reporter: Which countries did most workers come from?

Cristian Pârvan: In services, they came mainly from Nepal and Vietnam, in construction Vietnamese had the most significant comers, and Indians in the machinery manufacturing sector, to my knowledge.

The interesting part is that they also integrated, and the Romanians accepted them. Therefore, social integration is not a problem in Romania. However, the workforce shortage remains, and the bringing of this workforce from outside shows the desperation of the business environment, because, aside from salaries, the costs of recruitment, evaluation, transport, etc., which are quite significant, all are paid by the company that is bringing in the foreign workers here and those costs are significant.

Reporter: What are the measures taken locally to halt the workforce crisis?

Cristian Pârvan: There is also the attempt of recruiting locally, using every method - from schooling, specialized classes, apprenticeships, scholarships -, using all the methods provided by the legislation to attract workers in various fields. Unfortunately, the workforce is not attracted to specializing and taking jobs in industries where the level of skills required is not particularly high. Unfortunately, few people are attracted to qualifying and making a future out of various trades, although jobs in HoReCa or construction are among the least threatened by automation, artificial intelligence, etc. For example, we have a shortage of plumbers, and also for other similar trades, where we need specialists.

Thus, labor shortage remains a problem in Romania, compared to other countries, even though Romanians are returning home, but to a lesser degree. That has both positive and negative effects, because the wage increase is driving certain investors away from Romania and is even creating difficulties for Romanian investors from the industrial sectors where the profit margin is low and where wage levels matter. Therefore, the return of Romanians home is happening at a slower pace not because of wages, but particularly because of the lack of reform in public institutions and services, which are not at the level of those in Western European countries. Maybe the bureaucracy is bigger there, but it is predictable, i.e. when you make a request you know exactly how long it will take to get an answer.

Reporter: Last year ended with a budget deficit of more than 4%. How do business people feel about this?

Cristian Pârvan: The business sector is skeptical that the deficit closed at 4.4% in 2019. In our opinion it was less than 4%. In 2019, the Government had to reimburse the car tax, which the previous Governments used. There have been questionable expenses, especially by liberalizing wages in the public administration, without any performance criteria, of incentivizing the administration's participation in the economic performance, things that distorted the wage structure in Romania and created some incomes that were not matched in any way by increased output. In this context, we bought imported products and increased the trade balance deficit. The private sector encountered some difficulties. Statistics clearly show that the private sector was unable to keep up with the wage increases in the public administration. Some companies have managed to survive by increasing wages, others have seen losses, but on average, the private sector has failed to keep up with those hikes and there has been a flow of labor from the private sectors towards the public one, which is absurd.

Reporter: What is your outlook for 2020?

Cristian Pârvan: There is information that in the future, there will be measures that will create difficulties for the business sector. What will the new Government do in 2020? We will see in the budget, which will show concretely what the new policy of the government is, in terms of numbers. We must be aware that 2020 is an election year and austerity measures will not be taken. It is understandable from a political point of view, but less so from an economic one. Politicians should be able to also identify reorganization measures that are absolutely necessary, to justify and take the risk for their implementation, even if they are not popular measures. The growing populism trend is not going to help us economically. We were of the opinion that the 2019 minimum wage should have been kept unchanged in 2020, leaving companies to offer more. There are many companies that have reached their limits and that will continue to happen.

Reporter: Last year was an electoral one as well. How was the business sector affected by the presidential elections in the autumn of 2019?

Cristian Pârvan: The presidential elections affect the business sector to a lesser degree. The new government generates a period of uncertainty, of lack of decision for the public sector employees, of administrative hurdles, because codes need to be changed, as do accounts, bank and State Treasury signatures, etc., which are necessary when we switch from 26 ministries to 16. There are actions which require time and will all be delayed to a certain degree.

Also, the budgetary adjustment was made according to the old structure, the budget was drawn up according to the new structure and, as usual, the future budgetary adjustment will lead to the alignment of the amounts with the organizational realities.

But the main concern of the business environment is aimed at what is happening in the Eurozone, with Brexit, with the US-China trade war, with the situation in the Middle East, etc. These are far greater concerns than what is happening with one government or another. There are other concerns, too, such as those related to the introduction of electric cars, climate change, the ambition of reaching zero emissions in 2050, etc. Since Romania's economy is coupled with the world economy, there is no way those effects won't be felt.

On another level there are the European funds which we have available, and last year ended with only 30% of the funds attracted by Romania, with 2020 being theoretically the last year for attracting European grants out of the current budget.

The next fiscal year is coming and it will certainly be lower than we expected, and that will affect the cohesion fund and the free source of money that Romania has used as it should have.

It's another another year where not even one km of highway has been commissioned, and this has become symptomatic for the ineffectiveness of the Romanian government in attracting EU funds. It is disgraceful that, in the budget correction, for the fourth year in a row, money was taken away from the Ministry of Transports because no projects have been drafted, even as everybody complains about Romania lacking railways or road infrastructure.

Reporter: Will we have a crisis this year or not?

Cristian Pârvan: The unanimous comments are that we will not have a crisis like in 2008, when we witnessed a financial crisis, and most international analysts believe that we will have only a trade crisis. It is clear that the US-China war, Brexit, all the changes in the relations between Russia and China, the crisis in the Middle East, all of them change in one way or another the economic landscape. And the trade crisis is much more complicated. There is plenty of money in the world economy and this should stimulate both personal and business investments. This process isn't happening, which shows that the companies are worried, they have trouble selling and they have no reasons to make investments because of that. In this context, everyone estimates that there is a potential for a trade crisis. How long it will last and how it is going to be resolved is unknown to everyone.

In various areas of the world there are all kinds of initiatives that obviously change the details of the problems and the business sector in Romania has nothing to do but follow them and then for the businesspeople to take measures accordingly on the market segments that concern them.

For example, in the event of a switch to electric cars, then obviously the measures that each company will have to take, depending on their line of business, will have to be adequate.

Climate change will require a great deal of investment, from metallurgy to agriculture or aviation, all of which are going to "face" major challenges in the face of the emerging changes.

Reporter: What are your expectations this year from the authorities?

Cristian Pârvan: In 2020, our expectations would be to focus, in terms of measures to be taken, on what the AOAR has been proposing for years - a better correlation of international companies with those with Romanian capital, which have become increasingly capable, in terms of their equipment, and of standards, qualifications, the social programs that are more compatible with the norms of the multinationals and, from this absolutely necessary symbiosis, we can earn more in terms of added value, meaning a higher GDP.

Because all the measures that are justifiably required to improve the infrastructure - health, education, defense - must have financing, which can only come from a more efficient economy that can provide more money, beyond the organizational part.

It is clear that everyone predicts a 10% to 20% turnover increase this year. And, again, the Romanian business environment has managed to gain strength, but unfortunately not in the field of production, but in ancillary areas. Romanian companies need to know what multinationals need so that they become, to a large extent, sub-suppliers of these companies. We must increase the capacity and attitude of the public administration to resort to Romanian products and not do everything to eliminate them, because we have areas in which the public administration excludes Romanian products.

What we need to do is to ensure conditions for infrastructure, schooling, workforce, dependability and legislative consistency, so we can attract foreign investors in Romania.

Reporter: Thank you!