Commission Report 2002 (Romania)

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

Chapter 16: Small and medium-sized enterprises

Progress since the last Regular Report

Romania has continued to prioritise SME development over the reporting period, and while further improvements can be noted, additional efforts to improve the business environment are essential.

As regards SME policy, in April 2002, Romania endorsed the European Charter for Small Enterprises as the basis for its action to support and develop small enterprises. The European Charter, adopted by the European Council in June 2000, is the reference document in the field of enterprise policy within the socio-economic strategy set up at the Lisbon European Council. The reporting process on the implementation of the European Charter in Romania started in May 2002.

The Ministry for SMEs and co-operatives has also prepared a revised version of the SME strategy, setting a number of short- and medium-term objectives. The new strategy will be supported by a number of national programmes covering inter alia micro enterprises and start-up financing.

In an attempt to improve access to finance, the Romanian authorities established a third guarantee fund, the National Credit Guarantee Fund. The Ministry for SMEs and co-Operatives is also responsible for the management of a wide range of multi-annual programmes. Support measures include investment promotion, providing access to training and consulting services, setting up the national network of consultancy centres, supporting export activities, and the establishment of business incubators.

Romania has made some progress with improving the business environment, and the Ministry for SMEs and co-operatives has continued with the implementation of its Action Plan for Removing Barriers to SMEs. New legislation has attempted to simplify the registration and authorisation procedures for new companies and improvements have been made to the functioning of the ``Single Offices'' (one-stop-shops for company registrations). Other initiatives include developing information materials for entrepreneurs, creating a statistical database of SMEs, producing an Annual Report on the SME sector, and publishing the SME Sector Development Strategy.

A number of horizontal reforms are also likely to have a positive impact on the SME sector. These include amendments to the Code of Civil Procedure designed to accelerate court procedures, increasing the number of judges assigned to commercial litigation, and new legislation to accelerate bankruptcy procedures and reduce inter-enterprise arrears.

New VAT measures helped align Romanian legislation with the acquis but have also removed a number of tax exemptions which had previously been granted to SMEs. Due to their incompatibility with Romania`s WTO and Europe Agreement obligations, reduced tax rates on profits generated by exports will be eliminated by 2004 (see also Chapter 10 - Taxation and Chapter 26 - External relations). Other legislation introduced a legal deadline for VAT refunds, which cannot exceed 30 days. This is a positive development - although until implementing legislation has been developed the law cannot be applied and there is some concern that implementation will be restricted by the absence of sanctions for authorities that miss the 30-day deadline.

In April 2002 a Government decision established the legal obligation for the administration to consult with ``business associations and other NGOs'' on draft legislation with an impact upon the business environment. While it does address a key issue, it is too early to judge the impact of this legislation. Even if consultation on business environment measures does improve, sectoral ministries should also be obliged to consult businesses on sector-specific legislation.

The Romanian SME definition is broadly in line with the EC recommended definition and no developments have been made over the reporting period.

Overall assessment

Priority issues identified in last year`s report were the need for a simplification of enterprise licensing, a binding timetable for streamlining the existing legal framework, and a reduction in the cost and bureaucracy involved in gaining access to services provided by public utilities. No substantial progress has been achieved with these issues. Similarly, there has been no noticeable reduction in the large number of bodies that are authorised to conduct inspections and audits of businesses. Continued legislative instability, such as revisions to VAT and Profit Tax legislation, has made it difficult for SMEs to develop business plans with any degree of certainty.

Although the relationship between the banking sector and SMEs has recently improved, access to finance remains a serious difficulty. In an unstable macro-economic climate, banks are unwilling to accept long-term risks and the cost of credit remains very high. Against this background, government support measures are welcome - although there are concerns that support from the National Credit Guarantee Fund may be allocated on a discretionary basis.

The establishment of the Ministry for SMEs and co-operatives has provided a degree of institutional stability to the sector. It has consolidated its position as the promoter of SME interests, the source of legislative acts which impact upon the sector, and as moderator between the various stakeholders (other ministries, SME representative organisations, trade unions, chambers of commerce, business support centres). However, insufficient personnel and a high turnover of senior staff put a strain on the Ministry`s efficiency and risk undermining its effectiveness.

There is still a considerable policy overlap between the Ministry for SMEs and co-Operatives, the Ministry for Industry and Resources and the Ministry for Development and Prognosis. A specific concern is that the Ministry for SMEs and co-operatives` Action Plan for Removing Barriers to SMEs overlaps with the activities of the Task Force responsible for drafting an Action Plan for Removing Administrative Barriers to Business (led by the Ministry for Development and Prognosis). A clearer definition of the respective tasks of these two bodies, as well as much more effective co-ordination, is needed.

Conclusion

In its 1997 Opinion, the Commission concluded that there was a clear need for greater coherence in SME policy, and that it would be necessary to strengthen the existing support structures, to simplify the legal and administrative environment, and to increase SMEs` access to financing.

Since the Opinion, Romania has taken a number of initiatives to support SMEs and their importance in the overall economy has increased substantially. Although Romania has prioritised the development of the SME sector and Romania`s enterprise policy broadly meets the EU objectives and policies, the legal and administrative environment remains difficult and restricts SME development.

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

Romania should focus future efforts on fully implementing the Action Plan for Removing Barriers to SMEs, and on addressing improvements required in the legal and administrative environment. Measures should also be taken to ensure that there is effective co-ordination between the many different agencies involved in the sector.

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