sign in sign up
<<
Home , Giurgiu, Romania

Romania – A Strategic Choice Manuel Costescu – State Secretary, InvestRomania

2016, Contents

1. Country overview

2. Macroeconomic overview and outlook

3. Doing business in

3.1 Cost of doing business 3.2 3.3 Government support

4. Life in Romania and key takeaways

2016 The 2 1. Country overview 1

Romania is one of the most promissing investment destinations in , boasting features that set it apart as a growth opportunity

Economic growth in Romania is among the EUR highest in the EU and is forecast to remain above BN 3 Area: 238,391 potential in 2016 and 2017 NET FDI INFLOW km2

Romania has been a member of EU since 2007 EUR Capital: and a member of NATO since 2004 BN 160 Bucharest NOMINAL GDP st Romania is ranked 1 in the EU for maximum EUR Currency: LEU (RON) speed of internet connectivity and 2nd for high BN 55 speed broadband adoption EXPORTS Population: 19,5 mn ppl In 2021, Romania will host the European Capital S & P Moody’s Fitch of Culture for the second time, after in 2007. BBB- Baa3- BBB- Mare, Bucharest, Cluj and Timisoara have Stable Positive Stable S-E Europe been shortlisted for this role

2016 The Government of Romania Source: InvestRomania 4 1

The country is in the transition 2-3 stage of development with regards to the Global Competitiveness Index 2015 – 2016

Romania – Global Competitiveness Index 2015-2016

2016 The Government of Romania Source: Economic Forum - The Global Competitiveness Report 2015-2016 5 1

Romania is now connected than ever, boasting a transport network of 14 international & domestic airports and 8 ports

SUCEAVA IASI

ORADEA BACAU CLUJ- TARGU MURES

GALATI ARAD

BRASOV SIBIU BRAILA TIMISOARA

M. KOGALNICEANU CONSTANTA International Fligths

BUCURESTI Domestic Fligths TR. SEVERIN Under construction Ports

2016 The Government of Romania Source: InvestRomania 6 1

130 direct flights can be accessed from 4 Romanian international airports, leading to 76 destinations in 31 countries worldwide

Barcelona Eindhoven Barcelona Bari Geneva Bologna Paris Basel London Tel Aviv-Yafo Rome Bologna Bucharest Tel Aviv-Yafo Brussels Malmö IASI Istanbul Bucharest Memmingen 14 direct flights London Venice Milan Vienna Munich CLUJ-NAPOCA Dubai Nuremberg 26 direct flights BUCURESTI OTOPENI TIMISOARA 73 direct flights 17 direct flights Barcelona Madrid Bari Memmingen Bologna Milan Brussels Munich Bucharest Paris Alghero Belgrade Madrid Nuremberg Satu Mare Timisoara Dortmund Rome Doha Geneva Málaga Sibiu Turin Eindhoven Valencia Amman Birmingham Doncaster Glasgow Malmö Valencia Frankfurt Venice Bologna Dortmund Paris Venice London Brussels Dubai Iași Milan Strasbourg Barcelona Istanbul Moscow Pescara Vienna Bari Catani Düsseldorf Larnaca Munich Pisa Warsaw Basel Chisinau Eindhoven Tel Aviv Zaragoza Beirut Cluj-Napoca London Nice Rome Zürich

2016 The Government of Romania Source: InvestRomania 7 1

70 industrial parks are spread across Romania, most offering capabilities suited for industries like aerospace, IT&C and industry

Industrial parks in Romania Status at regional level

1 1 North : 15 parks

1 1 1 West Region: 4 parks 3 1 9 South West Region: 6 parks 1 1 1 2 South Region: 22 parks 3 2 1 9 1 South East Region: 2 parks

1 North East Region: 4 parks 2 1 13 5 Center: 15 parks 1 2 1 Bucharest: 2 parks 2 2 1

• There are 70 industrial parks spread across Romania, placed under both private and public ownership • All offer access to utilities, particular benefits packages according to their focus and potential for synergies • Also, investors are exempted from land, and urban planning taxes as well as for land destination changing

2016 The Government of Romania Source: InvestRomania 8 1

Technology is becoming a significant part of Romania’s backbone infrastructure, being leveraged by a talented pool of developers

Top 10 EMEA countries by avg. speed [Q2 2015, Mbps] Top 10 EMEA countries by top speed [Q2 2015, Mbps]

16.1 15.6 15.2 72.1 71.4 14.3 14.0 13.9 12.9 12.8 62.8 60.9 59.4 12.4 12.1 57.3 54.2 53.2 51.7 50.9

SE CH NL NO FI CZ DK RO BE IL RO IL SE NL CH BE RU FI HU UK

Top 10 EMEA countries by Mbps Broadband adoption [Q2 2015, % > 4 Mbps]

95.0 95.0 94.0 93.0 93.0 92.0 91.0 90.0 90.0 88.0 31.0 60.0 47.0 57.0 49.0 60.0 53.0 53.0 48.0 35.0

59.0 53.0 35.0 48.0 37.0 44.0 33.0 39.0 38.0 42.0

NL IL RO DK CH SE BE AU FI HU Share above 10 Mbps Share between 4 - 10 Mbps

• The internet infrastructure has developed along with the developers, who are leveraging the network to offer high quality services, although the focus is now shifting towards product design and, consequently, startups

2016 The Government of Romania Source: Akamai Technologies; InvestRomania 9 2. Macroeconomic overview & outlook 2

Current macroeconomic outlook is stable, with positive evolutions expected by some credit rating agencies

Potential and real GDP evolution [%]

The output gap is projected to close 7 in the 2nd half of 2016 6 5 6 4

0 0 -2 -2 -1 -4 -3 -4 -5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

• Romania is under surveillance mechanism through Macroeconomic Imbalances Procedure • Currently, Romania respects all of MIP indicators suggesting a strong position in terms of macroeconomic policies • Credit rating agencies: – Moody’s: Updating Romania's Baa3 government ratings from stable to positive (Dec 2015) – Fitch: Outlook is stable with long-term foreign and local currency IDR at “BBB-” and “BBB” (Jan 2016) – S&P: Outlook is stable, rating of “BBB-”(Oct 2015)

2016 The Government of Romania Source: AMECO database, European Commission; InvestRomania 11 2

Real GDP growth rate was 3.8% in Q4 of 2015, one of the highest in EU 28, with forecasts maintaining a positive outlook

Real GDP growth [%]

3.8 4 3.5 3.6 3 3.1 2.6 2.7 2.1 1.8 1.9 1.5 1.2 1.2 1.3 1.3 1.3 0.9 1 1.1

-0.2

-1.9

• Growth rate is expected to remain high, close to current potential (4%) • Current forecasts estimate growth at 4.2% in 2016 and 3.7% in 2017 according European Commission Forecasts for Romania

2016 The Government of Romania Source: AMECO database, European Commission; InvestRomania 12 2

Nominal GDP grew by a total 275% between 2000 and 2014, while FDI stock grew by 971% for the same interval

Evolution of nominal GDP in Romania 2000 – 2014 [EURbn]

+10% 142 144 150 125 120 127 133 134 80 98 41 46 49 53 61

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Nominal GDP

Evolution of FDI stock in Romania 2000 – 2014 [USDbn]

+18% 76 83 75 62 65 70 68 70 45 20 25 7 8 8 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

FDI stock CAGR

2016 The Government of Romania Source: ; UNCTAD; InvestRomania 13 2

Romania experienced a recovery of internal demand amid a pro- growth fiscal policy boosting private consumption and investment

GDP growth by aggregate demand components [%]

6.86 Forecasts

8.36 8.06 4.17 8.46 5.59 5.52 5.18 2.40 3.53 4.20 2.96 3.60 3.69 1.06 0.64

-0.80

-7.07 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Inventories GFCF Net exports Public consumption Private consumption

• Domestic demand is set to remain the driver of growth in 2016 and 2017. Private consumption recovered to its post-2008 peak on the back of higher disposable income and negative inflation • Net exports' contribution to growth is projected to remain negative over the next years, as imports growth in line with surging domestic demand outpaces exports growth

2016 The Government of Romania Source: AMECO database, European Commission; InvestRomania 14 2

Public finances remains solid despite the effects of the financial crisis and the push of external challenges

ESA fiscal balance, Romania [% GDP] • Fiscal deficit decreased constantly 2011 2012 2013 2014 2015 2016 2017 2018 during 2011 – 2015 amid a strong fiscal consolidation process

• Starting 2016 it is expected to -1.4 -1.2 increase to 2,8-2,9% of GDP, mainly -2.2 -2.3 due to fiscal measures taken -2.95 -2.89 -3.2 recently to stimulate economic growth (standard VAT rate reduction, SSC reduction in 2014, state aid Forecasts -5.4 schemes and public investment). Public debt [2015, Q] • However, Romania stays in the limits imposed by 200 regarding both fiscal deficit and 150 public debt. EU28 average: 86% of GDP 100 • Romania has one of the lower public 50 debt in EU 28 at the end of Q3 2015: 0

37,2% of GDP, after (9,8%),

Italy

Malta

Latvia (21,3%),

Ireland

Poland

Cyprus

Croatia

Finland

Estonia

Sweden

Bulgaria

Portugal

Slovakia

Slovenia

Romania

Lithuania

Germany (26,9%) and (36,4%).

Netherlands

Luxembourg

CzechRepublic UnitedKingdom

2016 The Government of Romania Source: AMECO database, European Commission; InvestRomania 15 2

The unemployment rate has been broadly stable below 7% and is expected to decrease somewhat in the coming two years

Unemployment rate [%]

16.5 15.5

10.5 10.0 9.1 8.7 8.9 7.2 6.7 4.5

EU28 EA19 Bulgaria Czech Latvia Romania

• Unemployment remained broadly stable at 6.7 % in 2015, but is expected to decrease to 6.5 % in 2017 • The low unemployment rate is to be seen in the context of a continuous decline in the working-age population due to ageing and net outward migration

2016 The Government of Romania Source: Eurostat ; InvestRomania 16 2

Inflation has been falling recently, plunging to historical lows in 2015 – however the National Bank expects it to return to positive values

Inflation rate [%] • As a large part of EU member states 16 (Bulgaria, Greece, , Lithuania, Poland, Spain, Croatia 11 and others) Romania is going through a period of deflation 6 • The current situation is mainly owed 1 to implemented fiscal measures: -0.4 – standard VAT rate reduction -4 to 20% starting with 1 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 – VAT rate cut for food, in Business confidence index [%] 2015 to 9% and • Another reason can be the evolution 30 of global energy prices 20 20 • Inflation is set to return to positive 13.4 territory in the second half of 2016 10 7.4 0 as the impact of the VAT cuts fades -10 out and the output gap closes -20 • In the same time, business -30 confidence is at the highest level in the last 4 years

Industry Services Commerce

2016 The Government of Romania Source: Eurostat ; InvestRomania 17 2

At the end of 2014, final FDI stock came in at EUR 60,2 billion, while FDI net inflows saw a 25% increase at the end of 2015

FDI stock [EURbn] • 2015 saw a significant increase in FDI +4% net inflows, with equity financing rising by approx. 17% 59.96 60.20 57.85 53.72 • The FDI stock in greenfield enterprises, 51.41 48.80 in amount of EUR 32,527 million, holds 54% of total FDI stock

2009 2010 2011 2012 2013 2014 • Equity (including reinvested earnings) of FDI enterprises amounted to EUR FDI net inflows [EURbn] 43,243 million (71.8 percent of the final FDI stock) at end-2014

+6% 3.04 • Total net credit taken by direct 2.42 investment enterprises from foreign 2.49 2.46 2.26 0.03 direct investors, intercompany lending 0.43 1.70 included, reached EUR 16,955 million, 1.66 3.34 0.20 2.85 i.e. 28.2% of the final FDI stock 2.43 Credit 1.83 1.51 Equity 0.83 -0.43 -0.31 CAGR 2010 2011 2012 2013 2014 2015

2016 The Government of Romania Source: ; InvestRomania 18 2

Manufacturing, financial services and trade account for approx. 56% of FDI stock existing in Romania, followed by utilities and real estate

Spread of FDI stock among different sectors [%, 2014] Computer & electronics FDI [EURbn]

+14%

1,06 1,05 1,25 1,43 0,84 1,7% Financial services 5,1% 2010 2011 2012 2013 2014 5,6% 2,5% Trade 0,9% 32,0% Utilities Utilities FDI (EUR billion) 6,0% 0,6% Real estate 9,8% IT&C +15% Extractive industry 6,64 6,70 3,87 4,36 5,72 Prof., scientific, tech. and admin. 11,1% 13,0% Agribusiness 2010 2011 2012 2013 2014 11,7% Transportation HoReCa IT&C FDI [EURbn] CAGR Other +4% • The computer & electronics manufacturing sector as well as utilities are 4,13 3,60 registering the highest FDI growth rates 3,08 2,97 2,85 • IT&C, while not growing at the same acceleration, is becoming a focus sector with strong connections to international markets 2010 2011 2012 2013 2014

2016 The Government of Romania Source: National Bank of Romania; InvestRomania 19 2

A large majority of FDI stock in Romania is of European origin, with Western Europe (NL, AT, DE) in the lead with EUR 31 billion (52%)

Global spread of FDI stock in Romania [%] European spread of FDI stock in Romania [%]

1,8% 10,5% 18,4% 27,0%

14,2%

15,3% 7,8% 87,7% 4,1% 5,3% 8,1%

Europe USA Others Austria France Cyprus Others

• Most of the local FDI stock is owned by companies originating from Western and , led by the Netherlands, Austria, Germany, France and Italy • The US is being responsible for only 1.8% of FDI stock in Romania • However the presence of companies of American and transcontinental origin is significant in Romania, due to investments executed through European based proxies due to fiscal reasons

2016 The Government of Romania Source: National Bank of Romania; InvestRomania 20 2

Exports have performed well in the past 8 years, growing with a CAGR of 8.6% per year – the stability of the FX rate also helped

FX rate evolution for RON / EUR and RON / USD Evolution of exports [EURbn]

-1,5% +8,6% 4,52 4,48 50 53 4,23 +12,7% 45 45 4,04 37 34 3,70 30 29

3,20

Jan. Jan. Jan. Jan. Jan. Jan. Jan. Feb. 2007 2008 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 2015 2016

RON/EUR RON/USD CAGR

• For most of the analyzed period, the RON/ EUR exchange rate has been relatively stable, allowing for an acceleration of • The US is being responsible for only 1.8% of FDI stock in Romania

2016 The Government of Romania Source: National Bank of Romania; InvestRomania 21 2

Romania has seen a 8.6% increase per year in exports, with the most impressive growth occurring in machinery and equipment

Spread of exports by goods [%, 2000 – 2014] • According to the National Bank of Romania, foreign owned firms accounted for 71 % of total exports 2.6% 0.6% 0.5% and 65% of total imports of goods in 5.8% 8.5% 7.2% 5.2% 2014 6.4% 9.2% 5.4% • Foreign owned enterprises have also 31.6% contributed approximately 51% to the 55.7% exports and imports of services, with companies in the manufacturing + 23.3 p.p. sector contributing the most 42.3% 18.9% • The most impressive sector is by far machinery and transport equipment, 2000 2014 which has grown by 23.3 percentage points since 2000

• The next most significant sector as Commodities and transactions not classified SITC Raw materials share of exports is represented by Food, drinks and tobacco Other manufactured goods other manufactured goods, followed Chemicals and related products, n.e.s. Machinery and transport equipment at a large distance by chemicals and Mineral fuels, lubricants and related materials related products

2016 The Government of Romania Source: Eurostat, National Bank of Romania; InvestRomania 22 3. Doing business in Romania 3

Historically, investing in Romania has never been easier, with the government becoming a partner for businesses and entrepreneurs

World Bank ease of doing business rank EU labor costs rank

Ahead of Bulgaria, Romania has a very Croatia, Hungary, competitive labor Italy, , or force in the EU 37 Greece 2 UKR

MD HU EU gas prices rank RO Maximum broadband speed

SRB Low gas prices and 5th BG Romania’s maximum lowest electricity in broadband ranks first 1 Europe 1 in the EU

2016 The Government of Romania Source: World Banks, Doing Business Report 2016 24 3.1 Cost of doing business 3.1

Romania has some of the lowest energy prices in the EU

Electricity prices in the EU [EUR / 1000 kWh, 2015]

156 144 132 129 112 108 104 99 94 91 90 87 84 83 82 81 78 76 76 76 73 72 71 71 68 64 62 61

MT UK CY IE ES SK EL PT IT LV BE HR LU PL LT DE HU CZ EE FR AT NL SI RO BG FI SE DK

Medium sized industry - electricity prices

Gas prices in the EU [EUR / gigajoule, 2015]

11 11 11 10 10 10 10 10 10 10 10 9 9 9 9 9 9 9 9 8 8 8 8 8 8 6

PT LU HR ES IE SE EL DE PL HU FR EE UK SK LV IT SI BG FI AT CZ LT DK BE NL RO

Medium sized industry - gas prices

2016 The Government of Romania Source: Eurostat 26 3.1

Romanian labor costs are some of the lowest in the EU, maintaining a competitive position relative to member states

National minimum wages in the EU [EUR/ month, 2016]* 1,923 1,467 1,473 1,502 1,508 1,529 1,546

764 791 618 684 728 350 353 366 370 405 408 430 431 215 233

BG RO LT HU CZ LV SK HR EE PL PT GR MT ES SL FR DE BE NL UK IE LU National minimum wage

Estimated average hourly labor costs [EUR/ h, 2014]**

40 39 37 36 35 34 32 32 31 30 28 22 21 16 16 15 13 12 10 10 9 9 8 7 7 6 5 4

DK BE SE LU FR NL FI AT DE IE IT UK ES CY SL GR PT MT EE SK CZ HR PL HU LV LT RO BG

Other labor costs Wages and salaries

* Denmark, Italy, Cyprus, Austria and have not implemented a national minimum wage; ** Enterprises with 10 or more employees

2016 The Government of Romania Source: Eurostat 27 3.1

With the local taxes already low compared to European peers, the government plans future tax cuts through the new fiscal code

Overview of the Romanian tax system

VAT Social Security

• The government is committed to Employee Employer reducing the tax burden – 2016 marked the drop in VAT to 20%, which will be followed by 20% another drop to 19% in 2017 16% 23% • VAT on food products is 9%

Tax System of Romania

• The individual tax rate does not • The government’s have any planned cuts for the commitment to lower the near future tax burden covers the 16% • However, the new fiscal code corporate tax rate as well, 16% planned a reduction of the with a reduction to 14% dividend tax from 16% to 5% planned for 2019

Individual Tax Rate Corporate Tax Rate

2016 The Government of Romania Source: InvestRomania 28 3.1

The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (1)

VAT in the EU [2015, %]

27 25 25 25 24 23 23 23 23 22 22 21 21 21 21 21 21 20 20 20 20 20 20 20 19 19 18 17

HU DK HR SE FI GR IE PL PT IT SI BE CZ ES LT LV NL AT BG EE FR RO SK UK CY DE MT LU Corporate tax rate in the EU [2015, %]

35 34 33 31 30 29 29 28 25 25 24 22 22 21 20 20 20 20 19 19 19 17 16 15 15 13 13 10

MT BE FR IT DE LU GR ES NL AT DK SE SK PT HR FI EE UK HU PL CZ SI RO LT LV IE CY BG

Individual tax rate in the EU [2015, %]

57 55 52 52 50 50 50 48 48 47 45 45 45 44 43 42 40 35 35 32 25 23 22 20 16 16 15 10

SE DK FI NL BE AT SI PT IE ES FR DE UK LU IT GR HR MT CY PL SK LV CZ EE HU RO LT BG

2016 The Government of Romania Source: KPMG 29 3.1

The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (2)

Employee social security in the EU [2015, %]

28

22 20 20 19 18 18 16 16 14 13 13 13 12 11 11 11 10 10 10 8 8 7 6 4 2 2 0 NL SI DE HR HU AT FR RO GR PL SK BE BG LU PT CZ LV IT MT LT FI CY SE ES IE UK EE DK

Employer social security in the EU [2015, %]

45 35 35 34 34 31 31 30 30 29 25 24 24 23 23 22 21 19 18 18 17 16 15 14 12 11 10 0

FR SK BE CZ EE SE LT IT ES HU GR PT LV RO FI AT PL DE NL BG HR SI LU UK CY IE MT DK

2016 The Government of Romania Source: KPMG 30 3.1

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (1)

Number of payments required to cover tax costs per year • From a tax perspective, the number of payments/ year required to fulfil fiscal obligations has dropped dramatically, from -99 113 in 2012 (historic maximum) to just 14 108 108 108 113 113 113 113 in 2016

41 39 • Coupled with a tax system that is one of 14 14 the most friendly in the EU, a more accessible tax system is the next step for 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 growth

Number of days required to start a business in Romania • In order to support entrepreneurs, the Romanian government has also simplified 29 28 the process of opening up a business, reducing the necessary time from 29 days in 2004 to a little over a week in 2016 14 -21 11 11 • For the short, medium and long term, the 9 9 9 9 10 9 8 8 government is committed to aiding emerging entrepreneurs

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2016 The Government of Romania Source: World Banks, Doing Business Report 2016 31 3.1

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (2)

Paid-in minimum capital [% of income per capita]

• The pro-growth policy has further implications in the Romanian business 2.9 environment, with the necessary paid-in - 2.3 p.p. 2.2 minimum capital decreasing by 2.3 1.9 1.6 1.5 percentage points since 2004, reaching a 1.1 0.9 0.9 minimum historical value of 0.6% of 0.8 0.8 0.7 0.7 0.6 income per capita

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cost to start a business [% of income per capita] • Overall, the cost to start a business in Romania has decreased by about 9 percentage points every year since 2004, 10.9 reaching 2% in 2016, the lowest recorded - 8.9 p.p. value 7.4 5.3 4.4 4.5 • The pro-growth policy is still being 3.5 2.8 3.0 2.8 2.6 2.4 2.1 2.0 implemented, with further tax cuts and aids being developed by the government 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2016 The Government of Romania Source: World Banks, Doing Business Report 2016 32 3.2 Human capital 3.2

Enrolment in professional education has risen constantly, which translates to a shorter transit from the classroom to the workplace

Students enrolled in professional schools in Romania [‘000]

156 1 8 +19% 129 1 8 113 49 2 7 26 92 18 2 7 10 86 95 98

73 2011 2012 2013 2014

Special post-secondary schools Special post-secondary schools – Cycle 2 Vocational schools Foremen Schools Scoli postliceale

2016 The Government of Romania Source: NIS, Eurostat, InvestRomania 34 3.2

Over a 25% of graduating students will have a technical degree, followed by approx. another quarter in business and economics

Percentage of university graduates by subject of degree [2014] • The quality of is recognized internationally, local students 2% consistently ranking in the top 10 in 10% Science and humanities International Olympiad competitions in math Technical and informatics, better than any other 28% 11% Economics country in the EU Law • The focus on technical subjects is Medical significant, with the number of engineers/ capita – higher than the US, India, China or Arts 23% • With 5 polytechnic universities, 59 domain 26% specific universities and 174 private colleges, the most successful students tend to pick high tech industries, such as IT – the Number of students by subject of degree [‘000, 2014] 433 local education system supplies over 7,000 IT&C engineers every year

• 99% of Romanian students learn two or 112 134 80 43 57 more languages in upper secondary 8 education * Includes: mathematics, physics, biology, chemistry, geography, journalism, history, political and administrative science, philosophy

2016 The Government of Romania Source: NIS, Eurostat, InvestRomania 35 3.2

There are 7,000 IT&C grads in Romania every year, adding to a total of 90,000 with forecasts exceeding the 100,000 mark by 2018

1 High quality – top 10 worlwide at math and computer science international olympiads • Romania consistently ranks in the top 10 in International 1 Olympiad competitions in math and informatics, better than any other country in the EU HIGH • Romanian universities have been in the top 3 of the IEEE QUALITY Design Competition every year since 2001

Available – number of engineers/ capita higher than the US, 2 India, China or Russia CODING IN • There are 5 polytechnic universities in Romania, which ROMANIA together with 59 domain specific universities and 174 private 3 2 colleges supply over 7,000 IT&C engineers every year

COST AVAILABLE 3 Cost effective – value for money is much higher than in EFFECTIVE Western Europe or the US • Avg. annual salary for a software developer working in Romania is EUR 17,000, with the low living costs implying a standard of living better than even London

2016 The Government of Romania Source: IEEE; Brainspotting; ANIS; ARIES; ZDNet; InvestRomania 36 3.2

9 out of 10 university students are proficient in English, as a result of the fact that almost all students study 2 languages in high school

Languages studied by Romanian students [2014]

• 97% of Romanian high school students study 2 or more foreign languages while in secondary education 97% • The predominant languages are English, French, German and Spanish, yet initiatives for teaching Japanese, Nordic languages or the entire language family (Spanish, Italian, French) exist

University students in Romania are proficient in [% of total]:

90% 26% 17% 8% 5%

2016 The Government of Romania Source: ABSL, NIS, Eurostat, InvestRomania 37 3.2

The top university centers in Romania are Bucharest, Cluj – Napoca and Iasi, followed by Timisoara, Sibiu, Brasov and Constanta

Top 3 University Centers Botosani Bucharest - 33 Universities Baia Mare Suceava Iasi Cluj - 10 Universities Satu Mare Iasi - 10 Universities Bistrita Roman Zalau Neamt Targu Mures Bacau Cluj-Napoca Birlad Oradea Onesti Human Capital Index 2015 - Rank 39 Medias Sfantul Gheorghe Upper-middle income Country - Rank 3 Arad Deva Focsani Galati Sibiu Brasov Braila Age group rankings Timisoara Tulcea Buzau Ramnicu Valcea Ploiesti Targu Targoviste Resita 15 – 24 25 – 54 55 – 64 Pitesti Rank 45 Rank 36 Rank 29 Drobeta-Turnu Severin Calarasi Bucuresti Constanta Slatina Craiova Giurgiu Number of graduates by University Center [‘000] 29

10 9 6 5 4 4 = City >100,000 inhabitants 3 3

= City 50,000 – 100,000 inhabitants B CJ IS TM CT DJ BV AR SB

2016 The Government of Romania Sources: NIS, , InvestRomania 38 3.3 Government support 3.3 FISCAL INCENTIVES

Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (1/2)

Fiscal incentive Short description Exemption from • 16% profit tax exemption for the reinvested profit in new technological equipment profit tax used for business purposes

Income tax exemption for • An exemption on the 16% income tax is available in Romania for employees IT&C employees activating in IT, under conditions including: o Bachelor’s degree in one of the 14 technical specializations available o Employee is hired on a software engineer/ programmer/ software analyst position o Annual revenue per exempted employee must be over USD 10 000

Deduction of R&D eligible • Eligible R&D expenses include: depreciation of R&D equipment, salaries for R&D expenses personnel • 50% of these expenses can be deducted from the taxable income

Accelerated depreciation • A deduction of 50% from the fiscal value of the assets during the first year of use, of machinery, equipment while the remaining value may be depreciated linearly along the expected remaining and real estate used for lifespan R&D purposes • Accelerated depreciation can be used also for equipment and/ or for research and development activities • If a company benefits from exemption of the income tax for reinvestment it will not benefit from accelerated depreciation

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 40 3.3 FISCAL INCENTIVES

Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (2/2)

Fiscal incentive Short description • International income derived by Romanian residents is tax exempted under the Foreign tax credit following conditions: o There is a valid tax treaty between Romania and the relevant jurisdiction (from where the income is derived by the Romanian resident) o The interested party (taxpayer) can demonstrate that income tax was paid abroad on the respective income o The tax credit cannot exceed the Romanian tax applicable for the respective income

Industrial parks • Investors that set up manufacturing locations or offices in an industrial, scientific or incentives technological park benefit from o Exemption on land, building and urban planning tax o Taxes charged for changing land destination

Facilities for people with • Income received by people with serious disabilities can benefit from income tax serious disabilities exemption (e.g., for salary income, income from freelancing activities)

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 41 3.3 EMPLOYMENT INCENTIVES

In a competitive market employment incentives are designed to maximize productivity of the available human resource

Employment incentives

Hiring young graduates for For both types of incentives the employers will have to take into undetermined periods. consideration that they have to maintain working relations for 18 months. The incentives are granted to the employer on a monthly basis for a In case of termination the employment contract before this period, the period of one year. employer will return the incentive if the contract was terminated in the following conditions: • Termination of the employment contract due to cancellation of the employees position in the company for reasons which are not related to the employee; Hiring unemployed individuals with the age over 45 (for an undetermined • In case the employee does not correspond professionally to the period). job he has been assigned; The incentives are granted to the employer on a monthly basis for a • Nullity of the employment contract observed by the parties period of one year. agreement or by a court decision; In case that job is occupied again by a person that was illegally fired.

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 42 3.3 STATE AID

State aid in Romania can be executed through 4 main methods, each being employed by various state aid schemes

• State Resources transfer • Selectivity – Grants – Oil reserves (with 600 million barrels) – Fiscal benefits – Export growth rate of R&D services – Guarantees – Energy independence

State Aid policy in Romania has been developed according to EU Law in order to facilitate and stimulate foreign investment in the country

• Economic Advantage • Effect upon market competitiveness and trade – Renting or buying property from the state under the – If EU law is obeyed, the skewing effect is drastically market price reduced, according to the Competition Council – Subsidies for salary costs – Access to infrastructure tax-free

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 43 3.3 STATE AID

With a budget of EURm 600 for the next 6 years, the two schemes for regional state aid aim to support value adding investments

GD 2014/ 807 GD 2014/ 332 • The creation of at least 10 jobs per • To support minimum investments valued at Aim location, out of which 3 jobs are for EUR 10 million unfavored workers

• Construction of new • Salary costs registered for a 2 consecutive • Renting costs for existing buildings year period resulted as a direct Eligible Costs • CAPEX aimed at technical installations consequence of the investment and tools • Salary costs are comprised of gross • Acquisition of intellectual property annual salary plus benefits

Budget • Total budget for the two schemes is EUR 600 million, with annual investments projected at EUR 100 million

Payout • 2015 – 2023 • 2015 – 2025

• The two schemes offer state aid in the form of non reimbursable grants from the state budget, caped by the limit of maxim intensity approved according to the regional map

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 44 3.3 STATE AID

Eligibility criteria for companies concern their financial health and their capacity to see the investment project through

GD 2014/ 807 GD 2014/ 332

• Are registered according to company law no. 1990/31 • Execute an investment in one of the eligible sectors • Do not have outstanding debt from the general consolidated budget Eligibility Criteria • Are not registered as enterprises in difficulty or are not debtors in an enforcement or insolvency for Companies proceeding, nor are they suspended from activity (common) • Are not part in a state aid recovery proceeding • Have not benefited from regional state aid for eligible costs in the same investment project • Have not closed a similar or even identical enterprise in the European economic in the past two years and do not plan to do so for the next 2 years after the execution of the initial investment

Eligibility Criteria • Net profitability for existing companies: • Net profitability for existing companies: for Companies > 0% >1% (separate) • Equity for new companies: >= RON • Equity for new companies: >= RON 100,000 30,000

• In the case of GD 2014/ 807, payout occurs after all or part of the eligible expenses have been covered • In the case of GD 2014/ 332, payout occurs on a quarterly basis, after all or part of eligible expenses have been covered

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 45 3.3 STATE AID

There are also eligibility criteria pertaining to the project itself, such as its value and viability over the short, medium and long term

GD 2014/ 807 GD 2014/ 332

Eligibility Criteria • To be considered initial investments for Investments • In the case of large companies in the Bucharest region, investments must also develop new economic (common) activities within the local ecosystem

• Minimum value: EUR 10 million • To lead to the creation of 10 new jobs per • To be viable and determine the operational investment location, out of which 3 Eligibility Criteria efficiency of the company positions to be covered by unfavored for Investments • To prove the stimulating effect of state aid workers (separate) • To generate contributions to regional • To be viable and determine the operational development efficiency of the company • To facilitate extra investment in the region

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 46 3.3 STATE AID

The intensity of state aid varies according to the region, varying from 15% (in Bucharest) to 50% in most of the country

State aid intensity, according to development North-West region: 50% North-East • North West – 50% 50% • North East – 50%

Center • South East – 50% West 50% 35% • South – 50% South-East 50% • South West – 50%

South-West 35% • West – 35% 50% South • – 35% 50% 15% • Bucharest – 15%

• State aid intensity is established as per EU and national regulations and is subject to change according to EU law on the matter • Development regions of Romania represent a split of counties into larger regions in order to technically better target development programs and policies

2016 The Government of Romania Sources: Ministry of Public Finance, InvestRomania 47 3.3 EU NON-REFUNDABLE STRUCTURAL FUNDS

European Structural and Investment Funds (ESIF) offer support for risk averse investors targeting low volatility sectors

Budget distribution on programs [%] • ESIF will be provided through 5 programs – European Agricultural Fund for Rural Development (EAFRD) 14% – European Maritime and Fisheries Fund 23% (EMFF)15 2% – European Regional Development Fund (ERDF) 4% – European Social Fund (ESF) 1% – Cohesion Fund (CF)

8% • More than €1 billion allocated to R&D and innovation (TO1), supporting the national target of 2% of GDP 1% 22% invested in R&D (against 0.49% in 2012)

• €3.9 billion to be invested to support the shift to low 26% carbon economy • €22.4 billion for Cohesion Policy (ERDF, ESF, Cohesion Fund) In total more than €30 billion in funding will be provided during the 2014-2020 Partnership Agreement • Cohesion policy will be delivered by 8 operational programs

ERDF CF ESF+YEI ESF ERDF Comp ERDF TA ERDF REG EARDF EMFF

2016 The Government of Romania Sources: European Commission, EIB, InvestRomania 48 3.3 INVESTMENT PLAN FOR EUROPE – LOANS

The Investment Plan for Europe (Juncker Plan) can be a very effective financing tool for riskier projects through the EFSI*

EFSI investment thesis outline

SECTORS COMPANIES POLICY

• The EFSI will target specific • The companies targeted by the EFSI for • Companies will also have to sectors, including: investment must fall into one of the facilitate the following objectives: – Infrastructure following two categories: – Promote job creation – Education – Small and medium enterprises – Long term growth – Research (250 employees maximum) – Competitiveness – Innovation – Mid-caps (250 to 3000 – Renewable energy employees) – Energy efficiency

• Besides the three filters, the criteria on which investment decisions are based include: – Economic viability with the support of the initiative – Sufficiently mature character in order for the business to be appraised on a global or local basis – Consistency with EU policy priorities and value adding character at European level – Maximization of private sector financing • Projects do not have to be cross border * EFSI = European Fund for Strategic Investment is a EUR 21 billion guarantee fund and core of the Investment Plan for Europe dedicated to facilitating private investment across the EU

2016 The Government of Romania Sources: European Commission, EIB, InvestRomania 49 3.3 INVESTMENT PLAN FOR EUROPE – LOANS

However, it is not only companies that can apply for EFSI financing; investment funds, public sector entities or banks are also welcome

Entities that can apply for EFSI financing

Large entities such as Public Sector Entities (except Member States • Utilities themselves) • Special purpose vehicles • Project companies Banks to deliver intermediated lending (incl. National Promotional Banks) EFSI SMEs (up to 250 employees) Investment funds Mid-caps (up to 3000 employees) Bespoke Investment Platforms

• There are two main ways to apply for ESFI financing: – Through direct contact of the EIB with the proposal, following the usual application on the EIB website for the strategic investment window – the government is not a gatekeeper in this process – Through the EIF financial intermediaries (dedicated to SMEs and mid-caps)

2016 The Government of Romania Sources: European Commission, EIB, InvestRomania 50 4. Life in Romania and key takeaways 4

More than 10 nationalities have developed expat communities in Romania, particularly in its large urban centers (Bucharest, Cluj)

Expats networks in Romania by home country and main originating cities

• Toronto • London • Rome • New Delhi • Warsaw • Vancouver • Birmingham • Milan • Mumbai • Katowice • Montreal • Glasgow • Turin • Kolkata • Krakow • Ottawa • Liverpool • • Bangalore • Lodz

• New York • Berlin • Paris • Madrid • Amsterdam • Chicago • Hamburg • • Barcelona • Rotterdam • Houston • Munich • Lyon • Valencia • The Hague • Los Angeles • Cologne • Lille • Seville

2016 The Government of Romania Sources: InterNations, InvestRomania 52 4

Life in Romania is good: the culture, the people and the places make it rich in great experiences for expats

In Bucharest, you need a … to maintain the same … with a salary of: monthly salary of… standard of living from…

46 580 Czech Koruna Prague 57 000 Czech Koruna

7 381 Zlotys Warsaw 8 800 Zlotys

1 700 Vienna 3 300 Euro

1 365 Pounds London 4 500 Pounds

1 714 Euro Berlin 3 100 Euro

1 738 Euro Paris 4 400 Euro

538 500 Forints Budapest 610 000 Forints

2016 The Government of Romania Sources: Numbeo, InvestRomania 53 4

Compared with other EU capital cities, the standard of living in Romania is high considering the differences in living costs

BUCHAREST vs. BERLIN BUCHAREST vs. LONDON

Consumer Prices • 41% lower in Bucharest • 57% lower in Bucharest

Rent Prices • 56% lower in Bucharest • 86% lower in Bucharest

Restaurant Prices • 38% lower in Bucharest • 64% lower in Bucharest

Groceries Prices • 44% lower in Bucharest • 55% lower in Bucharest

Standard of living equivalency • EUR 3,100 net salary in • EUR 5,707 net salary in (EUR 1,700 net Berlin ensures the same London ensures the same salary in standard of living standard of living Bucharest)

2016 The Government of Romania Sources: Numbeo, InvestRomania 54 Romania – a stable business climate, great investment opportunities, competitive workforce and outstanding lifestyle options

Investing in Romania

An important domestic market and One single corporate tax level of 16% stable/safe country Potential market of over 20 million 43 billion EUR European funds consumers assigned before the end of 2020 One of the most dynamic Tax exemption for reinvested profit economies in Central and Eastern A competitive tax policy and state Europe support for businesses

2016 Talented and skilled workforce More than 10 nationalities have developed expat communities Few cultural and linguistic barriers High living standards and lifestyle University graduates are flexible, Rich experiences for expats innovative and future-oriented High life standards, great lifestyle and rich personal experience

2016 The Government of Romania Sources: InvestRomania 55