Progress in Investment Reform for Romania INVESTMENT REFORM INDEX

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Final Results
Progress in Investment Reform for
RomaniaINVESTMENT REFORM INDEX
25 January 2007 Investment Compact Country
Mission to Romania
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Agenda

• Introduction to the Investment Compact and the
  Investment Reform Index (IRI)
• Final IRI 2006 Results for Romania
• Dimension specific results for 2006
• IRI Results and Romania Country Priorities

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Introduction to the Investment Compact and the
Investment Reform Index (IRI)
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The OECD Investment Compact is a leading program
to improve the investment climate in SEE based on
OECD good practices
OECD Good Practices
REGIONAL FRAMEWORK FOR INVESTMENT
Measure and Evaluate Policy Reform
Coach in Implementation of Priorities
INVESTMENT REFORM INDEX
REGIONAL PROJECTS AND COUNTRY PROJECTS
Annual Process to Achieve Impact
Help Countries Define Priorities
COUNTRY PRIORITIES
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Structure and Organization of the Investment
Compact
Current operational offices Romania and
Bulgaria Offices to be set up Serbia and Croatia
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Based on the OECD Policy Framework for
Investment, the IRI measures reform in 10 main
policy dimensions
Main focus of evaluation in 2006
Part of a separate process conducted in
cooperation with the EC in the framework of the
European Charter for Small Enterprises
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The Investment Reform Index is organised to
involve all levels in the evaluation and input
process

• IC Core Team collects data and interviews OECD
  Experts to establish a preliminary level of
  progress for each country in each policy
  dimension
• Local consultants build from the first
  measurement by collecting primary data in the
  countries and conducting interviews with local
  experts. The results analysed by the IC Core Team
  and incorporated into the level of progress
• The Private Sector and the Country Economic Team
  evaluate the latest measure. This provides an
  opportunity to step back and analyse the
  measurements in a broader context. After
  consultation mechanisms are complete, all parties
  confirm a final measurement, which is published

Local Consultants Country Economic Team
IC Core Team
Private Sector
OECD Experts Local Experts
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Strengths limitations of the IRI methodology

• Main strengths of the IRI methodology
• Incorporates existing work already conducted by
  other organisations (e.g., World Banks Doing
  Business report) and combined with data collected
  by the OECD-IC
• Use of a common scoreboard facilitates
  public-private consultation helps public
  officials to communicate better with respect to
  policy progress and areas where more reform is
  necessary.
• IRI incorporates regional good practices from
  CEE countries, which are the most relevant recent
  examples for SEE countries to learn from.
• Indicators of the IRI have been structured to be
  fully compatible with the EU accession process in
  SEE, and to cover other dimensions important for
  the investment climate that are not included in
  the acquis communautaire - the dimensions of the
  IRI are based on a broad definition of policy
  areas that affect the business climate, based on
  OECD cumulative experience and Policy Framework
  for Investment.

• Limitations of the IRI methodology
• IRI does not cover all the policy dimensions that
  affect the business climate (eg financial
  services).
• Measuring the effective implementation of
  government policy can be difficult. The IRI
  combines available quantitative data (e.g.
  percentage of companies with ISO certificates)
  with qualitative data (e.g. private sector
  feedback through interviews) - countries are
  moved up on the scale of implementation only if
  there is concrete data to support doing this.
• Distinctions between scoring levels can be
  challenged and not all of the indicators have the
  same weight or importance. To address this issue,
  a simple weighting system has been incorporated,
  but the assigned weights can always be
  questioned.
• All dimensions are not equally important for each
  country, as they are at different stages of
  development. Each country therefore has to
  interpret the scores based on its specific
  development context.

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Timeline for the IRI Process
Phase I
Phase II
Phase III
Phase IV
Phase V
Phase VI
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Final IRI 2006 Results for Romania
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Final IRI 2006 Results for Romania

• Dimensions where policy reform is more advanced
  are
• Investment Policy
• Tax Policy
• Competition Policy
• Anti-corruption policy
• Trade Policy
• Human capital
• Dimensions where reforms have been slower are
• Regulatory Reform
• Investment Promotion and Facilitation

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Dimension Specific Results for 2006
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IRI results for each dimension
Overall IRI Scores For Investment Policy
SEE Average

• Scores for investment policy are high and there
  is little variation among SEE countries.
• Romania scores 4 for Investment Policy, leading
  the region together with Bulgaria.

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IRI results for each dimension
IRI Scores for Investment Policy - Breakdown by
Sub-dimension -

• Non-discrimination and international cooperation
• As with Bulgaria, Romania scores 4.5 on
  non-discrimination and international cooperation
  mainly due to equal treatment of foreign and
  domestic investors. Romania adhered to the
  Multinational Investment Guidelines of the OECD
  in 2005, introducing additional stability for
  foreign investors.
• Protection of property
• Romania scores 3.75 for protection of property.
  Even if the score is relatively high, Romania
  needs to put more emphasis on IPR enforcement.

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IRI results for each dimension
Overall IRI Scores for Investment Promotion and
Facilitation
SEE Average

• SEE scores for Investment Promotion are more
  uneven and lower than for investment policy, with
  an average of 3.
• Romania scores at the SEE average, as important
  reforms are still needed to improve the
  institutional structures for investment promotion
  and to define a clear investment promotion
  strategy.

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IRI results for each dimension
IRI Scores for Investment Promotion and
Facilitation - Breakdown by Sub-dimension -
Investment promotion and facilitation strategy
Only a few SEE countries have succeeded in
defining effective investment promotion
strategies. Romania still has to adopt an
Investment Promotion Strategy that includes a
strategic vision, has a sector and geographic
focus, identifies customer type, tailors measures
to improve the business environment and defines
marketing campaigns. Investment promotion agency
and programmes The IPAs in SEE countries outside
Bulgaria and Serbia are at the early stages of
operation. In Romania, the IPA is undergoing a
restructuring process a new investment law will
provide a new institutional framework for
investment promotion. Transparency of investment
policy and investment promotion and facilitation
framework Bulgaria and Serbia are ahead of
their peers in transparency, being closely
followed by Romania. Romania enforced a clear and
regular way of consultations, accompanied by a
transparent system of analyses and
recommendations.
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IRI results for each dimension
Overall IRI Scores For Tax Policy
SEE Average

• Significant improvements have been made for tax
  policy and legislation in SEE, with attractive
  corporate tax rates, although weak tax
  administration lowers the overall score for tax
  policy to 3.
• Romania scores above the SEE average, and more
  reform is expected in the field of tax
  legislation, tax administration, public-private
  consultations and tax inspections

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IRI results for each dimension
IRI Scores For Tax Policy - Breakdown by
Sub-dimension -

• Tax policy and legislation
• Most countries have put into place tax policies
  and legislation that are in line with
  international standards. Romania has a 16
  corporate tax rate, and tax legislation is
  generally well drafted and well implemented.
• Tax administration
• In general, countries are weaker in tax
  administration as compared to the tax policy and
  legislation sub-dimension. Romania scores above
  the SEE average, however more reform is needed in
  the field of tax inspections and in the revenue
  collection agencies.
• Compliance costs
• Compliance costs in SEE are high overall,
  including in Romania. Online tax filling is
  available only for some taxes in Romania it is
  expected to be extended at national level.
• Transparency
• SEE countries have generally implemented good
  consultation mechanisms and provide relatively
  easy access to information, although they are
  much weaker in monitoring and evaluation.
  Romania is among the countries showing the
  greatest progress in consultation mechanisms with
  private sector. However, Romania still requires
  significant improvements in monitoring and
  evaluation.

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IRI results for each dimension
Overall IRI Scores For Anti-corruption and
Business Integrity
SEE Average

• Romania leads the SEE region in anti-corruption
  and business integrity.
• Romania has made important progress in fighting
  corruption over the last year. More emphasis
  should now be put on implementation and
  monitoring of reforms in this field

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IRI results for each dimension
IRI Scores For Anti-corruption and Business
Integrity - Breakdown by Sub-dimension -
Anti-corruption strategy Romania has a clear
anti-corruption strategy and action plan with
evidence of implementation. Half of the 52
actions had been implemented in early
2006. Anti-corruption legal framework and
adoption of international conventions Romania
has signed and ratified the main international
conventions. An increase in investigations,
indictments and convictions has been registered
in 2006. Promotion of good governance and public
administration Public procurement and conflict
of interest are enforced in Romania and the
Romanian Government continues to improve the
legal framework related to implementation.
Important progress should be highlighted
mentioned for customs administration.
Transparency Romania has significantly
improved the public/private consultations, and is
among the leaders in the region in this area.
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IRI Results for Competition Policy
IRI results for each dimension
Scores for Competition Policy are not included
in the 2006 edition of the IRI evaluation.
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IRI results for each dimension
Overall IRI Scores For Trade Policy
SEE Average

• Along with investment policy, trade policy is one
  of the strongest policy dimensions in SEE,
• with an average of 3.50.
• Romania leads the region together with Bulgaria
  and Croatia, with a score of 4.

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IRI results for each dimension
IRI Scores For Trade Policy - Breakdown by
Sub-dimension-
Multilateral and regional bilateral trade
agreements Romania is a member of the European
Union starting with January 1st 2007 Romania is
a member of WTO since 1995. Trade
liberalisation Applied most-favoured-nation (MFN)
tariffs for industrial goods are in general
adjusted according to international standards by
most SEE countries. The average tariff rates for
industrial and agricultural products are still
high (15.1 and 20.3 respectively) and will be
lowered due to EU accession Technical barriers to
trade In general, most SEE countries scored lower
in sanitary and phytosanitary standards than in
technical standards and accreditation and
conformity assessment. Romania is one of the most
advanced countries in adoption of European
Standards in terms of food safety, the
transposition is almost complete however,
veterinary and phytosanitary standards
transposition has been slower. Administrative
barriers to trade Important progress has been
done in terms of number of days spent for import
and export in customs. Pro-active trade
policy Romania has a special department dealing
with Trade Issues, managed by a Delegated
Minister. An Export Strategy has been adopted and
a clear and regular system of consultations is in
place, due to the Export Council. It has regular
meetings and minutes of the meetings are posted
on the Trade Department Website. The Export
Promotion Strategy has for example been discussed
with the Council.
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IRI results for each dimension
Overall IRI Scores For Regulatory Reform
SEE Average

• There is a high degree of variation among SEE
  countries concerning regulatory reform.
• Romania - together with Bulgaria and Serbia - is
  clearly ahead of its peers in the region, with a
  solid strategy, a relatively strong oversight
  body and some use of Regulatory Impact Analysis.

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IRI results for each dimension
IRI Scores For Regulatory Reform - Breakdown by
Sub-dimension -

• Regulatory Reform Strategy
• Romania has a clear and formalised strategy
  covering all key components of regulatory field
  with solid evidence of implementation
• Institutional Framework
• The Business Environment Unit is in charge of
  regulatory governance, RIA and regulatory
  transparency the BEU is a strong centrally
  placed unit and minor improvements are to
  optimise its performance (e.g. the power of
  challenging low level legislation)
• Regulatory Impact Analysis
• RIA is still in an infancy stage in SEE. Romania
  however implements RIA for SME issues and for
  competition issues. Romania has also adopted a
  new strategy enforcing RIA for other fields of
  activity.
• Regulatory Transparency
• Romania has both the routine and the legal basis
  to use regular consultations with interested
  stakeholders Transparency Law, working groups
  and involvement of NGOs, social partners and
  employers organizations are daily/structured
  activities of the Romanian Government.

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IRI results for each dimension
Overall IRI Scores For Human Capital
SEE Average

• Romania, together with Croatia is the most
  advanced country in SEE for human capital, in
  particular in the areas of education strategy,
  workforce skills and civil servant training.
• Romania however needs to improve the Transparency
  in Education and Workforce Skills Development.

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IRI results for each dimension
IRI Scores For Human Capital - Breakdown by
Sub-dimension -
Education and workforce skills development
Romania has the most comprehensive education
strategy, well developed national training and
adult learning programmes as well as civil
servant trainings. Transparency in education and
workforce skills development Bulgaria, Croatia
and Montenegro are the best performers in SEE in
terms of transparency in education and workforce
development having introduced solid monitoring
mechanisms and effective public/private
consultation channels. Romania is still at early
stages in terms of monitoring and evaluation.
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IRI Results and Romania country priorities
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IRI Results and Country Priorities Romania

• OECD IC Recommended Country Priorities
• Investment Promotion Elaborate a comprehensive
  Investment promotion Strategy that includes
  priority sectors and concrete programs to tie
  foreign investment to local investment (SMEs).
  This IP Strategy should also be clearly linked to
  the industrial and export promotion strategies
• Investment Promotion Strengthen the investment
  Promotion Agency with additional staff and budget
  (aim to double budget from 500,000 Eur to 1
  Million Eur and increase staff to 40 from 19).
  The agency should intensify promotion to
  potential foreign investors through
  country/specific missions and offer clear and
  well-packaged on the ground services for
  potential and existing investors.
• Implement transparent and consistent standards
  for tax inspectors to impose sanctions and
  monitor the results with pre-defined indicators
  to reduce discretionary power.
• Regulatory Reform Introduce Regulatory Impact
  Analysis for all newly adopted legislation.
• Anti-corruption Introduce a system with
  indicators to monitor implementation of the
  public procurement law. This system can then be
  used as basis to monitor other area of
  anti-corruption (such as customs reform,
  professionalism of civil service).
• Human Capital Adapt the education strategy
  (including vocational training and adult
  learning) to reflect the specific needs of the
  labour market over the next ten years.