Commission Report 2002 (Romania)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 15: Industrial policy

Progress since the last Regular Report

Since the last Regular Report, Romania has made progress in developing a coherent industrial policy. Substantial progress has also been noted in the steel restructuring process, while progress with privatisation has been relatively slow.

As regards industrial strategy, in April 2002 the strategic document ``Industrial Policy of Romania'' and the corresponding Action Plan were amended in order to increase their usefulness as operational policy instruments and to ensure coherence between interrelated policy areas. The changes made represent substantial improvements over the initial version that was adopted in 2001. Over the reporting period, implementation measures have mainly focused on improving the business environment, attracting foreign investment and accelerating the privatisation process.

The Ministry of Industry and Resources established a specific Directorate-General for Syntheses, Strategies, Industrial Policy and Development programmes, although the effectiveness of this change still remains to be seen. In June 2002, the first meeting of the Consultative Forum took place. The forum is comprised of all stakeholders (institutional, corporate, social, academic and civil society) and is to be consulted periodically on the implementation of Romania`s industrial policy.

Romania continues to lag behind other candidate countries in terms of attracting foreign direct investment (see Section B.1.2. - Economic criteria). In an effort to improve investment promotion, the Romanian Agency for Foreign Investments (ARIS) was established in March 2002. ARIS replaces two bodies that had overlapping competences and as such is a welcome development. It is headed by a state secretary, and its responsibilities cover strategy design, legislative harmonisation, assistance to foreign investors and local companies, and investment promotion. Further legislation is, however, needed for the Agency to become fully operational, and adequate resources still need to be allocated.

In 2002 Romania witnessed steady growth in both domestic and foreign investments. The share of gross fixed capital formation in GDP averaged 19% and the investment ratio also improved over the reporting period although levels remain low. Inflows of foreign direct investment represented 2.9% of GDP in 2001.

Since last year, some progress has been made with privatisation and restructuring. In March 2002, new legislation was adopted to speed up the privatisation process. This is, in itself, tacit recognition that previous privatisation efforts had been disappointingly slow. The law incorporates recommendations from the IFIs and its major features include new privatisation methods and the possibility to settle debts before contract signature.

A Government Ordinance from February 2002 clarified the relationship between the Authority for Privatisation and Management of State Assets (APAPS) and investors. However, in November 2001, a new Office of State Ownership and Privatisation in Industry (OPSI) took over APAPS`s responsibility for companies in strategic sectors (energy, oil and gas, mining, defence). OPSI is part of the Ministry of Industry and Resources and its portfolio represents 75% of total state assets.

Considerable progress has been made with restructuring of the steel industry. Privatisation of the steel company SIDEX was successfully concluded in 2001 and approximately 80% of steel production is now privately owned. The closure of production facilities at the Hunedoara steel plant means that progress has also been made with the implementation of restructuring measures. A revised steel restructuring programme was also produced during the reporting period. The national plan along with individual viability plans forms the basis of Romania's efforts to fulfil its obligation under the Europe Agreement as concerns state aid in the sector.

Overall assessment

Following the development of an industrial policy, the key challenge for the Romanian authorities is implementation. Progress in this area has been slowed by a lack of effective co-ordination between the various ministries involved and relevant stakeholders. A number of co-ordination bodies have been established in order to rectify the situation, but these are not fully operational. The Inter-Ministerial Group, which is supposed to meet monthly and ensure overall policy co-ordination, only met twice during the reporting period. The Task Force established at expert level meets on an ad hoc basis and only deals with operational issues. Problems have also arisen due to the overlapping responsibilities of the Ministry of Industry and Resources and the Ministry for Development and Prognosis (which share responsibility for the implementation of industrial policy), and the Ministry for SMEs and co-operatives.

Romania would seem to be steadily, if slowly, enhancing its international credibility in the area of foreign direct investment. Improving the investment climate has consistently been given a high priority by policy makers and there has been a greater willingness to consult and listen to the concerns of investors. This said, levels of investment will remain low until the general problems of corruption, excessive bureaucracy and an unstable legislative climate are addressed (see also Chapter 16 - Small and medium-sized enterprises for progress in implementing the business environment).

Recent legislative measures may help boost the privatisation process, but these are yet to be applied. The Romanian authorities should take great care to ensure that current privatisation practices (e.g. debt-for-equity swaps, the possibility of using a special administrative regime to accelerate privatisation, and direct negotiations with potential buyers) do not further reduce the financial discipline of enterprises. The benefits of splitting the responsibilities for privatisation between APAPS and OPSI are not clear since OPSI does not (yet) have the experience or the political stature of APAPS. Experience over the last year demonstrates that increasing transparency in the privatisation process should be a priority for both institutions.

While undoubted progress has been made, restructuring of the steel industry remains a challenge that needs to be tackled in order to fulfil Romania`s obligations under the Europe Agreement concerning state aid. It should be noted that an important element of any industrial policy is the control of state aid and the compatibility of support schemes with EC rules, which will have to be examined (see Chapter 6 - Competition policy).

Conclusion

In its 1997 Opinion, the Commission concluded that Romanian industry was not well advanced in the process of adapting to a market-based economy. The need to end state monopolies and reduce excessive state involvement in enterprises was noted, as was the need for far-reaching restructuring in individual sectors.

Since the Opinion, Romania has internalised the principles of EC industrial policy. However, while progress has been made in certain areas, Romania has been slow in addressing and implementing necessary structural reforms. Limited privatisation has been a particular problem. Romania`s policy towards industry generally complies with the principles of EC industrial policy. However, underlying structural weaknesses (economic, administrative and legal) remain and limit the effectiveness of the industrial policy and its various instruments.

Negotiations on this chapter have been provisionally closed. Romania has not requested any transitional arrangements. Romania is generally meeting the commitments it has made in the accession negotiations in this field.

Romania should focus its further efforts on finalising the privatisation process in a fully transparent manner, attracting investment by simplifying and stabilising the business environment, and developing the administrative capacity and structures necessary to implement its Industrial Policy Strategy. Great care will have to be taken that the policy of restructuring is implemented in a manner which conforms to the competition and state aid acquis so as to create efficient competitive firms.

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