Episode 1: Why Do Business in Romania ?
Romanian business short history
Speaking about a country that survived over some tough decades during a communist regime in which everything was centralized, including the economy, we must agree on something from the beginning: Romania had to reinvent itself after democracy took power. The main problem with this identity challenge was that the power had been taken in the early 90’ by some people who just pretended to be democrats in seek of the common good well-being of the citizens.
Instead, they did everything in their power to gain as many financial advantages as they could, no matter the consequences. Sadly, they were disastrous for the average early businessmen who just tried to understand how capitalism worked.
Fortunately, those days are gone, years have passed and people got more and more educated and started to think for themselves instead of buying every lie that those leaders tried to sell so those cons are gone now and finally Romania is ruled by some professionals in their fields which hopefully will put the general interest, including the economic development of the country, before the personal one.
Romanian business field - land of oportunity
Everywhere and every time a country needed to grow economically, faster than its more developed neighbors in order to catch up the gaps and to reach financial equality, the opportunity arose for the wise ones.
In particular, Romania has been part of the European Union (EU) since 2007. At the time of joining the EU Romania’s GDP was 123 Billion EUR, foreign investments totalled 3,3 billion EUR and and the highway infrastructure totalled only 261 km.
Since then, the GDP reached 223 Billion EUR, the foreign investments rose to 5,2 billion EUR and the highway infrastructure is close to 1000 km.
Moreover, the FTSE Russell Association has analyzed Romanian economic behaviour and put Romania on the watch list for a possible reclassification from Frontier market to Secondary emergent market and this change got into force in September 2020. This reclassification could have a big impact on investors, signalling the potential of future growth for the Romanian capital market.
As the numbers look better and better, foreign partners start to gain confidence in the Romanian economy increasing their willingness to invest in the country and the only requirement for doing business in Romania is the ability to see opportunities and take profit of them.
Best investment areas for a Romanian Company
While the Economy of a country tends to grow evenly there are always some fields that catch the eye of the investors faster or that are favoured by regulations; Romania makes no exception.
Therefore, here are some top business areas that you might target for your investments:
Real estate development has gone through different stages of development since the early days of capitalism when most real estate assets belonged to the Romanian Government and nowadays when the real estate developers build and own new neighborhoods or business quarters every year, especially in big cities like Bucharest, Cluj, Iași and Timișoara.
Taking advantage of the lack of modern buildings that were available on the market, investors started to build residential neighborhoods near big cities outskirts and step by step the city borders expanded, including these newly built suburbs. The average buyer behavior indicates that small 4-5 stories apartment buildings and American type projects with small houses built one close to another are most sought of by young families looking for their first home.
Maybe you did not know but the percentage of the Romanian people who own a property is nearly 95% so to conclude, Romanians enjoy the sense of ownership. That being said, considering that the average cost of real estate development/square meter is 500 EUR and the price of sold real estate square meter is between 1000 EUR and 3000 EUR, you could say that real estate business can assure you a Return of Investment of at least 100% of the invested money.
Speaking about the office real estate market, this niche has been getting a great deal of attention lately, especially in the biggest cities, considering the rising interest of the foreign corporations to extend their activity in Romania. Unlike the residential development business, the office development area has two main differences, more exactly, the budget and the return of investment particularities.
As previously said, in the Romanian biggest cities business quarters have developed lately but the first main difference to the residential real estate development is the allocated budget, which is around 10 million EUR for an office building.
The second big difference is the way building owners collect the revenue from their clients, because big corporations prefer to rent the office spaces rather than to buy them. Speaking of the average rent price for office spaces the market floats around 10-20 EUR/ rented square meter + facility taxes which is a great deal considering that an office building hosts at least 10.000 square meters ready to be rent which could conclude to a yearly revenue of over 1.000.000 EUR for an office building.
One of the biggest growth drivers in Romania is the IT industry due to i) education (more and more young students choose to specialize in this domain attending IT profile universities) and ii) tax incentives (0% tax on income in IT sector).
Seeing the opportunity, big corporations like Oracle, Microsoft, IBM, SCC, Amazon, Samsung, and so on opened offices in Romania hiring thousands of highly trained employers with the help of which big developing projects were fulfilled with nearly half the budgets which they would have spent with western European employees.
Having over 60.000 professionals who own an IT degree, the Romanian companies as well as individual software developers started to compete with the abovementioned corporations and reached a market share of over 30% but the growth is continuous. Having the advantage to work remotely, the IT industry does not require big financial initial investments and can be put together relatively easy by ones who intend to start a business.
Another business area that deserves every wise investor’s attention is the healthcare one. Having one of the least developed public medical systems within the EU countries, private investors invested in medical infrastructure such as hospitals, clinics and medical centers bringing together cutting-edge technology and one of the best doctors Romania has, providing similar medical services as every developed country does.
Having said that, the middle and upper class Romanians started to pay monthly subscriptions for the services offered by these private clinics avoiding the bad conditions that, unfortunately, the public system offers. This habit generated big customers databases of health packages subscribers.
Romanian private medical services have developed, got recognized and looked for even by foreign citizens regarding expensive matters such as plastic surgery, dentistry, implantology, cardiology and oncology.
Known for its historical vineyards, well-placed in the heat of the sun, Romania is placed no. 5 in EU and no. 11 worldwide on the vineyards cultivated surface so we could say that this type of business is well developed but there is still a place under the sun for everybody interested in long-lasting investments.
One of the biggest features that this kind of business has is that an investor starts to make money after 4-5 years of investing, while the young vineyard grows into a mature one so it could produce enough grapes for mass production. Anyway, there is plenty of time for building infrastructure, gathering workforce and making strategies.
Seizing the opportunity, more and more foreign investors start developing wine brands in Romania and then export the products all around the world. Moreover, there are plenty of EU funded projects that investors could apply to develop this type of business.
Also, Romania has plenty of wine experts like enologist engineers who could handle the technical challenges that come along with the wine production process.
Following the previous chapter, which is linked somehow with the agriculture area, this business deserves the investors’ attention mainly because Romania is one of the EU countries with the highest agriculture potential having the 6th biggest arable area within European Union. Also, Romania is one of the biggest grain exporters from around the world with over 10 million tons exported annually.
There is plenty of space for investors willing to enter the agriculture businesses in Romania as only 60% of the arable area is exploited. Having one of the most fertile soils and good weather conditions, plenty of rural workforce who are willing to find a secure job around their premises, agriculture has been and will be considered one of the main pillars in the national economy.
According to the European Agricultural Fund for Rural Development, issued by the European Commission, it is stipulated that the co-finance rate will be situated between 65% and 80% from the entire project cost which could prove to be a great deal considering the simplified methods of obtaining EU funds and the fact that there are plenty of EU consultancy companies that can assist you in drafting the necessary documents to acquire funding and implement the approved projects.
One more advantage if you decide to move to Romania and start a business is the cost of living which is still acceptable while the wages went up in the past few years. With approximately 1500 EUR/month one can make a nice living even in big cities like Bucharest or Cluj, including a decent rent and some additional expenses from time to time.
Also, people moving in Romania should consider taking University degrees which by the way, are also taught in English by University teachers, at reasonable costs considering the tuitions requested by western Europe Universities.
Tax advantages for starting a business in Romania
As previously mentioned, Romania is one of the lowest tax treatment countries in European Union with the Income tax between 1% and 3% and dividend tax 5% plus an easy Company set up procedures lasting 3 working days on average.
More information regarding the Tax subject will be presented in Episode No. 2. Stay tuned!