Executive Summary Title
Romania welcomes all forms of foreign investment. The government provides national treatment for foreign investors and does not differentiate treatment due to source of capital. Romania’s strategic location, membership in the European Union (EU), relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets. U.S. investors have found opportunities in the information technology, automotive, telecommunications, energy, services, manufacturing, healthcare, consumer products, insurance, and banking sectors.
Since the 1989 revolution, Romania has embarked on an uneven, but ascending economic growth path. Due to the COVID-19 pandemic, Romania’s economy declined by 3.9 percent in 2020, and rebounded with a 5.9 percent real GDP growth rate in 2021. As of February, the European Commission (EC) projected 4.2 percent real GDP growth for Romania in 2022. However, spillover effects from Russia’s invasion of Ukraine, rising global energy prices, and an ongoing COVID-19 pandemic have led several international financial institutions to adjust the growth rate downwards, predicting closer to 3 percent GDP growth in 2022.
On March 9, 2022, Romania lifted all COVID-19 pandemic restrictions. During the COVID-19 pandemic, the Government of Romania supported businesses and workers by broadening eligibilities for unemployment benefits, enabling employers to adopt flexible work models, and instituting a temporary credit and lease payment moratorium.
Romania stands to receive 27 billion EUR in grants and loans from “Next Generation EU” funding via the National Resilience and Recovery Plan (NRRP). The NRRP funding, which will be disbursed between 2021 to 2026, aims to support Romania’s green transition, digitalization efforts, and health system resilience. However, a demonstrated lack of administrative capacity to absorb and implement projects using EU funding may impact Romania’s ability to absorb the funds and dampen the NRRP’s impact.
As an EU member state, Romania’s climate objectives align with EU strategies, including the 2030 Agenda and the European Green Deal. However, legacy environmental issues limit Romania’s ability to deliver on biodiversity and clean air goals. Environmental challenges include poor air quality, inadequate waste management practices, and insufficient protective measures for natural areas. Illegal logging remains a concern despite progress towards improved traceability of extracted wood.
The investment climate in Romania remains a mixed picture, and potential investors should undertake due diligence when considering any investment. The European Commission’s 2020 European Semester Country Report for Romania pointed to persistent legislative instability, unpredictable decision-making, low institutional quality, and corruption as factors eroding investor confidence. Frequent reorganizations of public institutions also contributed to a significant degree of instability.
The government’s sale of minority stakes in state-owned enterprises (SOEs) in key sectors, such as energy generation and exploitation, has stalled since 2014. In 2020, the Romanian government enacted a two-year ban on the sale of state equities of SOEs. Successive governments have weakened enforcement of the state-owned enterprise (SOE) corporate governance code by resorting to appointments of short-term interim managers to bypass the leadership requirements outlined in the corporate governance code. Instability in the management of SOEs hinders the ability to plan and invest.
Consultations with stakeholders and impact assessments are required before enacting legislation. However, these requirements have been unevenly followed, and public entities generally do not conduct impact assessments. Frequent government changes have led to rapidly changing policies and priorities that serve to complicate the business climate. Romania has made significant strides to combat corruption, but it remains an ongoing challenge.
|TI Corruption Perceptions Index||2021||66 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||48 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country historical stock positions)||2020||$3.93B||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$12,580||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
According to the World Bank, Romania has approximately 1,200 state-owned enterprises (SOEs) of which around 300 are majority-owned by the Romanian government. There is no published list of all SOEs, as some are subordinated to the national government and some to local authorities. SOEs are governed by executive boards under the supervision of administration boards. Implementation of the Corporate Governance Code (Law 111/2016) remains incomplete and uneven.
SOEs are required by law to publish an annual report. Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited. Many SOEs are currently managed by interim boards, often with politically appointed members that lack sector and business expertise. The EC’s 2020 European Semester Country Report for Romania noted that the Corporate Governance Law is still only loosely applied. The appointment of interim boards has become standard practice. Administrative offenses carry symbolic penalties, which do not change behavior. The operational and financial results of most SOEs deteriorated in 2019 and 2020. Successive governments have resorted to distributing the dividends of profitable SOEs to increase state budget revenues.
8. Responsible Business Conduct
Romania adhered to the OECD Declaration on International Investment and Multinational Enterprise in 2004. The government regularly sends representatives to the working sessions of the OECD Investment Committee and its Working Party on Responsible Business Conduct. Romania established an OECD National Contact Point in 2005 to promote the OECD Guidelines for Multinational Enterprises. Romania’s investment promotion agency, InvestRomania, currently serves as the contact point.
Several NGOs in Romania monitor, advocate, and raise concerns on RBC issues. No high-profile cases of private sector impact on human rights were recorded in 2020. However, the National Council for Combating Discrimination (CNCD), the government agency responsible for applying domestic and EU anti-discrimination laws, imposed several fines on companies for discrimination against their own staff or prospective employees. The cases involved discrimination based on gender, disability, HIV status, or ethnicity and harassment over labor union membership and childcare leave. The government has not fully implemented a law which prohibits discrimination against persons with physical, sensory, intellectual, and mental disabilities in employment, education, transportation, and access to health care. Romania does not participate in the Extractive Industries Transparency Initiative (EITI) but has adhered to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas since 2012.
Organized crime investigators conducted inquiries related to lack of due diligence and non-transparent supply chains for timber and other wood products. In 2021, prosecutors investigated non-compliant wood shipments transitioning the port of Constanta. Violence against environmentalists and journalists monitoring the forestry sector has been well-documented. On September 16, 2021, a group attacked two journalists and an environmental activist while they were documenting illegal logging in Romania. Forestry worker unions claimed that more than 650 rangers and technical workers were attacked, threatened, or had their property destroyed between 2017-2019, and that six died during the same period.
Romania’s fight against high- and medium-level corruption, a model in Southeastern Europe over the past decade, suffered significant setbacks between 2017 and late 2019 due to a concerted campaign under a previous Social Democratic Party (PSD)-led government that aimed to weaken anti-corruption efforts, the criminal and judicial legislative framework, and judicial independence. Professional associations, NGOs, the EU, and NATO-allied governments raised concerns about legislative initiatives that furthered this trend during that period. In Transparency International’s 2021 Corruption Perceptions Index, Romania placed 45 out of 100, up one spot since 2020, placing Romania among the lowest ranked of the EU member states. The current governing coalition lists justice reform and the fight against corruption among its official priorities, but it remains to be seen whether it will achieve tangible results.
Domestic and international rule-of-law experts and law enforcement observe that many of the amendments to the criminal code introduced by the former PSD-led government between 2017-2019 remain in place today and continue to weaken the investigative tool kit in the fight against corruption. The current governing coalition (PSD-PNL-UDMR) has said it hopes to bring the new “Justice Laws” to parliament for debate in 2022 with the aim of reversing most of these provisions of the 2017-2019 Justice Laws.
The European Commission under the Cooperation and Verification Mechanism (CVM), and the Council of Europe’s (COE) Group of States Against Corruption (GRECO) prepared 2021 reports that leave some room for optimism. The June 2021 CVM report, which covered activities from October 2019, noted the GOR committed to reaching all CVM objectives in 2020, but progress has been limited. A May 18, 2021, ruling by the EU’s Court of Justice confirmed that the recommendations of the CVM are mandatory for Romania. GRECO’s 2021 report, while acknowledging some progress, assessed Romania’s compliance with its recommendations for fighting corruption as “very low.” The OECD 2022 economic survey also warned that corruption remained a major problem in Romania, arguing that past modifications of Justice Laws and the pressures targeting DNA prosecutors have weakened anticorruption efforts.
A major issue signaled by the CVM, GRECO, and the Venice Commission remains the controversial Section to Investigate Offenses in the Judiciary (SIIJ). The DNA’s 2020 performance report for the National Anti-Corruption Directorate (DNA) showed that the failure to incorporate Constitutional Court decisions in the legislative framework has negatively affected the agency’s efficiency. The existence of the SIIJ continued to be a source of discontent for DNA and civil society. In March 2022, President Iohannis signed into law a bill passed by Parliament that aimed to dismantle the structure. The Venice Commission published a subsequent opinion criticizing the GOR’s hasty adoption of the bill. Against international recommendations, the law dismantled the SIIJ and created a new structure to handle the cases, rather than returning the corruption and organized crime files to DNA and DIICOT. Civil society representatives and the main opposition party, Save Romania Union (USR), warned that the new structure envisioned to take the place of SIIJ could be even more damaging to judicial independence. The Romania chapter of the EC’s 2020 report on rule of law within the EU, mentioned in the 2021 CVM, noted that in 2020 the government continued to affirm its commitment to judicial reform after the reversals between 2017 and 2019.
In December 2021, the Government adopted an Anticorruption Strategy for 2021-2025. The document represents a political commitment to support all relevant institutions fighting corruption and was also a milestone in Romania’s National Recovery and Resilience Plan. The strategy focuses on asset recovery and strengthening the National Agency for Managing Seized Assets (ANABI). Conflicts of interest, respect for standards of ethical conduct, and integrity in public office remained concerns for all three branches of government. Individual executive agencies enforced sanctions slowly, and agencies’ inspection bodies were generally inactive.
Romania implemented the revised EU Public Procurement Directives in 2016 by passing new laws to improve and make public procurements more transparent. The National Agency for Public Procurement (ANAP) has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities. State entities as well as public and private beneficiaries of EU funds are required by law to follow public procurement legislation and use the e-procurement system. Sectoral procurements, including private companies in energy and transportation, must follow the public procurement laws and tender via the e-procurement website. The April 2021 EU Country Report for Romania, which included data on the public procurement system in Romania for the period between 2018-2020, noted that the practical application of innovation-driven public procurement solutions remained a challenge.
In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency (ANI) for ex-ante checks of conflicts of interests in public procurement, was signed into law. The mechanism aims to avoid conflicts of interest by automatically detecting conflicts of interest in public procurement before the selection and contract award procedure. According to ANI, between January-December 2021, the system checked over 7,800 public procurement procedures to prevent conflicts of interest.
National laws prohibit bribery and other acts of corruption, both domestically and for Romanian companies doing business abroad. The judiciary remains mostly paper-based and inefficient although digitization progressed some during the pandemic. Romania loses several cases each year in the European Court of Human Rights (ECHR) due to excessive trial length. The National Agency for Fiscal Administration (ANAF) has a mandate to ensure that all taxes are collected and prevent fiscal and customs frauds. Asset forfeiture laws exist, but a functioning regime remains under development.
While private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the government has rolled back corporate governance rules for state-owned enterprises and has repeatedly resorted to profit and reserves distribution in dividends to bolster the budget. U.S. investors have complained of both government and business corruption in Romania, most frequently naming the customs service, municipal officials, and local financial authorities. According to the EC’s February 2020 European Semester Country Report for Romania, corruption continued to be a major problem for the business environment in Romania. A 2019 business Eurobarometer survey showed that 88 percent of businesses consider corruption to be a serious problem for their company when doing business in Romania. Since 2013, the share of companies that perceived corruption as a problem increased in Romania by 23 percentage points, the largest increase in the EU and in stark contrast with the EU average which continued to decrease (to 37 percent). Overall, 97 percent of businesses thought that corruption was widespread in Romania and 87 percent said it was widespread in public procurement managed by national authorities.
Romania is a member of the Southeast European Law Enforcement Center (SELEC). NGOs enjoy the same legal protections as any other organizations, but NGOs involved in investigating corruption receive no additional protections. The United States welcomes participation from private and public sector entities on anti-corruption programs and trainings.
10. Political and Security Environment
Romania does not have a history of politically motivated damage to foreign investors’ projects or installations. Major civil disturbances are rare, though some have occurred in past years. In 2021, the extreme-right party Alliance for the Unity of Romanians (AUR) capitalized on widespread discontent with the government’s response to the pandemic, a sluggish economy, and surging energy prices to organize a series of protests. The current coalition, one in a series of coalitions over the past two years, supports economic reform and a business-friendly environment, but it is uncertain how much progress the coalition will make on its goals.
11. Labor Policies and Practices
Romania has traditionally boasted a large, skilled labor force at comparatively low wage rates in most sectors. The labor pool has tightened in highly skilled professions, in particular the information technology and health sectors, due to emigration and a deteriorating primary and secondary education system that fails to adequately prepare many graduates, particularly in rural areas, for university. The university system is generally regarded as good, particularly in technical fields, though foreign and Romanian business leaders have urged reform of outdated higher education curricula to better meet the needs of a modern, innovation-driven market. Payroll taxes remain steep. As a result, an estimated 25 to 30 percent of the labor force works in the underground economy as “independent contractors” where their salaries are neither recorded, nor taxed. Even for registered workers, underreporting of actual salaries is common.
The total unemployment rate in Romania increased during the COVID-19 pandemic from 4.9 percent in 2019 to 6.1 percent in 2020, and was 5.3 percent as of Q3 2021. The registered unemployment rate, which covers jobless individuals registered with the labor offices, stood at 2.8 percent in October 2021, down from 3.3 the previous year. At 69.2 percent in 2020, the labor force participation rate – the portion of the working age population (15-64 years) who are employed or actively seeking employment – remained among the lowest in the EU. Romanian employers in the engineering, machinery, IT services, and healthcare sectors reported difficulties in hiring and retaining employees as Romania faces a shortage of medium- to high-skill workers. As Romania’s emigration crisis deepens, other industries, including food service and construction, also face worker shortages. According to the EC, Romanians were the largest working age group of EU citizens residing in other member states in 2020 (18.6 percent of the working age resident population, up from 11.5 in 2010). Many emigrants are young and well- qualified, constraining the supply of skilled labor remaining in Romania. The World Bank estimated that between 2000 and 2018, Romania’s population fell from 22.5 million to 19.5 million with emigration accounting for more than 75 percent of the decline. Romania faces a shortage of healthcare staff as doctors and nurses continue to seek work abroad, motivated not only by the higher salaries, but also by the country’s antiquated medical system. According to the Ministry of Health, roughly 10,000 doctors left Romania between 2017 and 2018.
The government lacks a comprehensive strategy to remedy labor shortages despite taking steps in recent years to attract and retain talent. Employees in some sectors benefit from fiscal incentives. For example, IT professionals are eligible for certain income tax exemptions. In 2018, the GOR introduced an additional income tax and social contributions exemption for a period of ten years for construction sector employees. The provision also introduced a specific minimum wage of RON 3,000 (USD 728) for construction workers. In 2017, the GOR adopted a unitary wage law to establish a more consistent framework for wages across the public sector. The law provided for a salary increase of at least 25 percent for most public sector employees; wages for some workers in the healthcare sector doubled in nominal terms as of March 2018. Unions and businesses continue to debate specific applications of the Unitary Wage Law.
The Labor Code regulates the labor market in Romania, controlling contracting, jurisdiction, and the application of regulations. It applies to both national and foreign citizens working in Romania or abroad for Romanian companies. As an EU member state, Romania has no government policy that requires the hiring of nationals, but it has annual work permit quotas for other non-EU nationals. As of 2020, employers are exempt from obtaining General Immigration Inspectorate (IGI) approval for nationals from Moldova, Ukraine, and Serbia for full-time labor contracts of up to nine months per year. For 2022, the government increased the annual work permits to 100,000, up from 50,000 permits approved for 2021. Work permits are valid for one year and are renewable with an individual work contract. Employers pay a EUR 100 tax for most foreign workers, except for seasonal workers and those present in Romania on student visas, for whom the tax is EUR 25. The government also reduced the cost of employing non-EU citizens in 2018, no longer requiring employers to pay a minimum wage equivalent to the gross average wage. Normal minimum wage law applies with the exception that highly skilled non-EU workers must receive at least twice the gross minimum wage. Foreign companies still resort to expensive staff rotations, special consulting contracts, and non-cash benefits.
Since the 1989 revolution, labor-management relations have occasionally been tense, the result of economic restructuring and personnel layoffs. Trade unions, much better organized than employers’ associations, are vocal defenders of their rights and benefits. Employers are required to make severance payments for layoffs according to the individual labor contracts, company terms and conditions, and the applicable collective bargaining agreements. The Labor Code discerns between layoffs and firing; severance payments are due only in case of layoffs. There is no treatment of labor specific to special economic zones, foreign trade zones, or free ports.
Romanian law allows workers to form and join independent labor unions without prior authorization, and workers freely exercise this right. Labor unions are independent of the government. Unions and employee representatives must typically notify the employer before striking and must take specific steps provided by law before launching a general strike, including holding discussions and attempting reconciliation with management representatives. Companies may claim damages from strike organizers if a court deems a strike illegal. Labor dispute mechanisms are in place to mediate any conflicts between employers and employees regarding economic, social, and professional interests. Unresolved conflicts are adjudicated in court according to the civil code. An employee, employer, or labor union may initiate proceedings. In 2021, employees from auto manufacturing, transportation, and the medical sectors went on strike or protested publicly. They sought higher pay, better working conditions, and sufficient staffing.
Union representatives allege that few incidents of anti-union discrimination are officially reported because it is difficult to prove that employers laid-off employees in retaliation for union activities. The government has generally respected the right of association, and union officials state that registration requirements stipulated by law are complicated, but generally reasonable. The current law permits, but it does not impose, collective labor agreements for groups of employers or sectors of activity. Companies with more than 21 employees may use collective bargaining, which provides for written agreements between employees and the employer or employers’ association. According to the Ministry of Labor, companies and employees had finalized 3,829 collective labor agreements as of Q3 2021 compared to 5,742 in 2020. Since 2014, parliament has periodically considered reintroducing collective bargaining nationwide, a practice that previously established minimum pay and working conditions for the entire economy, but which the Social Dialogue Act eliminated in 2011.
As an EU and International Labor Organization (ILO) member state, Romania observes international labor rights. National law prohibits all forms of forced or compulsory labor, but enforcement is not uniform or effective. As penalties are insufficient to deter violations, reports indicated that such practices continued to occur, often involving Roma, disabled persons, and children. The minimum age for most forms of employment is 16, but children may work with the consent of parents or guardians at age 15, provided the tasks correlate with their abilities. Employment in harmful or dangerous jobs is forbidden for those under the age of 18; the government maintains a list of dangerous jobs in which the employment of minors is restricted.
Romania does not waive or derogate labor laws and regulations to attract or retain investments. Since 2011, employers have had more flexibility to evaluate employees based on performance, and hiring and firing procedures have been significantly relaxed. Romania aims to ensure that its labor market is dynamic, sustainable, resilient, pro-active, and based on social innovation by 2027 with a 75 percent employment rate for of people aged 20-64. As of March 2022, Romania had yet to finalize its National Labor Strategy for 2021-2027.
The minimum wage has more than tripled in nominal terms since 2012, rising from RON 700 (USD 170) to RON 2,550 (USD 583) per month in 2022. Romania no longer requires a differentiated minimum wage for employees with a university degree. Starting in 2022, employers can only pay the minimum wage for the first two years of an employment contract. The measure has a transition period of two years, and employees currently paid the minimum wage will be eligible for wage growth in 2024. Despite these measures, Romania had the highest rate of employed persons at risk of poverty among EU member states: 14.9 percent in 2020.
Wage increases have outpaced productivity growth since 2016. This led to a marked growth in hourly labor costs, which posted a 6.39 percent nominal increase in Q3 2021 as compared with the same period in 2020. On January 31, the Romanian Competition Council opened an investigation into unlawful wage setting practices by the automotive industry. The Council investigated informal “no-poach” agreements that decreased competition among companies and created artificial labor market access barriers, particularly for automotive engineers.
In December 2017, the GOR shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees. To avoid reductions in employee net pay and retain labor in a tight market, many companies increased salaries to offset employee losses. Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending employee contracts.
Separately, in December 2019, parliament reduced payroll taxes for part-time workers. The bill reversed 2017 provisions when, in an effort to curtail underreporting of work, the government increased the minimum payroll taxes that employers must pay for their part-time employees to equal those for a full-time employee earning minimum wage. Coupled with the change in the legal tax incidence of social contributions described above, the law had the unintended consequence that some employees owed more in social contributions than their monthly earnings. In February 2018, the GOR issued an ordinance allowing part-time workers to pay social contributions for their actual gross income only, mandating that the employer make up the difference. Effective January 1, 2020, part-time employees are taxed based on their actual earnings, and employers do not cover additional charges. In 2018, the GOR passed new legislation specifying how the labor code applies to companies employing teleworkers and defining the distinction between teleworkers and employees who work full-time from home.
In response to COVID-19 restrictions, the GOR extended the categories of employees eligible for unemployment benefits to independently registered businesspeople, lawyers, and individuals with income deriving from copyright and sports activities. In August 2020, the GOR adopted a flexible work scheme model that required employers to cover half of full-time wages. In turn, the GOR paid 75 percent of the difference between the gross wage and the basic wage paid to the employee based on actual working hours. The law also allows for one caretaker of school-age children to receive paid days off during school closures. As of 2022, the GOR had extended furlough provisions for businesses affected by COVID-19 restrictions. The GOR has announced plans to ensure that additional medical staff hired on temporary contracts since the onset of the pandemic can remain in the medical system in the long run to cover staff gaps. On March 9, 2022, Romania lifted all COVID-19 pandemic restrictions.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data|
|Host Country Gross Domestic Product (GDP) (USD)||2020||$249B||2020||$249B||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data|
|U.S. FDI in 2020 partner country (stock positions, USD)**||2020||
|2020||$3.93B||BEA data available at https://apps.bea.gov/international/factsheet/|
|Host country’s FDI in the United States (stock positions, USD)||N/A||N/A||2020||$80M||BEA data available at ttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % of host GDP||N/A||N/A||2020||0.93%||UNCTAD data available at|
* Host Country Data Sources:
** The BNR calculated 2020 U.S. FDI in Romania at USD 1.26 billion when using the immediate investor origin principle, and at USD 7.52 billion when using the final investor origin principle. Separately, the Romanian National Trade Register Office (ONRC) calculated 2021 U.S. FDI in Romania at USD 1.22 billion when using only registered capital.
|Direct Investment from Counterpart Economy Data|
|From Top Five Sources (US Dollars, Millions)|
|Inward Direct Investment (as of December 31, 2020)|
|1. The Netherlands||$24,392||22.0%|
|“0” reflects amounts rounded to +/- USD 500,000.
* The BNR estimated the United States to be #5 when accounting for investments made by foreign subsidiaries of origin country companies.