EMCC European Monitoring Centre on Change

Romania: ERM Comparative Analytical Report on ‘Public policy and support for restructuring in SMEs’

  • Observatory: EMCC
  • Topic:
  • Published on: 13 May 2013



About
Country:
Romania
Author:
Luminita Chivu
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

In Romania, the small and medium enterprise sector accounts for more than 99% of all active companies, provides jobs to some 2/3 of the overall number of employees, and contributes over 53% of the gross added value. The small and medium size company sector is now struggling with difficulties in finding sources of finance. What the Government has done for them was mostly to create the conditions for their creation and development, with less input for their restructuring, a concern primarily centred on the big state-owned companies going to be privatised.

QUESTIONNAIRE

Under Act 346/2004, regarding the stimulation for the establishment and development of small and medium enterprises (the SME Act 346/2004), as subsequently amended and supplemented, the definition of a small and medium enterprise under national law is the same as the one under the European legislation.

In 2009, the small and medium enterprises (SMEs) formed the bulk (over 99%) of the entire number of all companies operating in the manufacturing, construction, trade and market services sectors. They generate work places for 65.6% of the employees, and their share of contribution to the gross added value on cost factors is 53.6%.

In the reference year above, SMEs provided some 49% of all investment volume in the national economy.

The largest majority of active SMEs - more than 77% - operate in commerce and services, compared to only 22.8% of those doing business in the manufacturing and construction sectors.

Part 1: Overall policy context

1.1. Has there been public or policy debate on the specific challenges for SMEs and/or their employees in restructuring before the global recession of 2008/09? Please specify, for example:• If so, since when (e.g. up to 3 years before, 3-10 years before, longer), at which level (national, regional, sectoral, all of them) and in which form (‘real’ policy debate mirrored in policy documents or rather public debate mirrored in media, or both)?• Which policy areas (for example, SME policy, entrepreneurship policy, employment policy, social policy, regional policy etc.) were involved? Particularly: Does SME policy specifically deal with restructuring? Does ‘restructuring policy’ specifically deal with SME issues?• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?

Almost ten years ago, when the SME Act 346/2004 was adopted, the content of the act was widely debated in public, as it was going to supersede Act 133/1999, the previous SME legislation.

In the years that followed its enactment, each modification brought to it (by way of two acts and three ordinance until 2007) was also submitted to public debates and consultations, with the participation of not only the representatives of employers' associations, but also of public administration bodies , chambers of commerce and industry, non-governmental organisations representing SME interests, and entrepreneurs.

According to law, the Government approves annual measures aimed at stimulating the establishment and development of SMEs, based on proposals forwarded by the Agency for the Implementation of SME Projects and Programmes (Agenţia pentru Implementarea Proiectelor şi Programelor pentru IMM, AIPPIMM), in consultation with the SME representative bodies.

The institutional framework created to discuss developments in the SME sector is formed of the Advisory Committee for SME Development (Comitetul consultativ pentru dezvoltarea IMM), which brings together representatives of the AIPPIMM, chambers of commerce, SME employer organisations, NGOs, and central and local public administration.

Debates are held at national, sectoral and regional levels, especially from entrepreneurship policy perspective.

The State Budget Annual Act lays aside 0.4% of the country's gross domestic product (GDP) to finance support measures for the SMEs, which are part of the Government's strategy. Prior to the onset of the economic crisis, the 'Strategy for the Development of Romania, covering the period 2004-2008', was debated not only in point of where and what the funds should be allocated, but also in respect of other problems that are specific for the SMEs and on which their integration on the European Single Market is contingent.

Generally, restructuring with all its complex features has been of topical interest, but mostly for the large companies. In the SME sector, the restructuring issue did not attract the same amount of attention.

• Which were the issues/contents that have been discussed? Which specific characteristics of SMEs in restructuring were considered in this context? Was the specific case of SMEs as subcontractors a topic for discussions?

In most cases, in the period before the crisis, the regular subjects had to do with tax policies, with the issue of reducing the large number of taxes, the bureaucracy surrounding the establishment, transfer, and dissolution of small-scale businesses, the advantages and disadvantages of SMEs in a competitive market, the relations between SMEs and the banking sector, access to loans, including loans via the National Credit Guarantee Fund for Small and Medium Enterprises (Fondul Naţional de Garantare a Creditelor pentru IMM, FNGCIMM).

• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?

As a rule, the debates regarding SME sector are both from enterprises and employees' perspective.

1.2. Did the global economic and financial crisis of 2008/09 cause any change in focus of the above (for example, increased/decreased focus on SMEs and their employees in restructuring, change in policy areas or issues covered)?

The Romanian authorities admitted the country had been touched by the world economic and financial crisis as late as the end of 2009, and the beginning of 2010. Then, the social partners and the Government cooperated towards putting in place a package of anti-crisis measures, some of which were proposed by the National Council of Private Small and Medium Enterprises from Romania (Consiliul Naţional al Întreprinderilor Private Mici şi Mijlocii din România, CNIPMMR), an employer organisation representative at national level.

During the first year of crisis, 2009, the number of SME incorporations dropped to 116,000 (from 142,000 in 2007), shut-downs more than doubled (43,600, from 20,400 in 2007), and the SMEs forced to suspend business amounted to 133,000 (from 12,000 in 2007).

The 'Government's Strategy for the Development of the Small and Medium Enterprises, 2011-2013', dedicated the SMEs a project included in the Operational Programme for the Development of Administrative Capacity (Programul Operaţional Dezvoltarea Capacităţii Administrative, PODCA) 2007-2013, which received cofinance from the European Social Fund (Fondul Social European, FSE), and created the conditions for a large number of public debates. The project was phased for two time spans: 2011, as a year for the application of supportive measures to help the SMEs out of the crisis, and the period 2012-2013, focused on measures favouring a comeback to economic growth.

The studies conducted then and the debates purported to making an analysis of the new strategic planning tendencies in the European Union (EU) in the SME sector; taking stock of the then situation of the SME sector in Romania, and the evolution of their access to funding; getting a picture of the degree of technological innovation and entrepreneurial training activities, etc.

The debates made possible a SWOT analysis of the SME sector, which revealed the sector's weaknesses: an overwhelming concentration of businesses in commerce and services (over 77% of all SMEs); low technological and competitive levels; high degree of indebtedness, and precarious funds of their own; poor entrepreneurial abilities.

The same analysis revealed the following threats: a drop in direct foreign investment, and loss of demand on the market; the growing debt of the state to the SMEs; sharpening of competition as an effect of Romania's accession to the EU, and of globalisation of the world economy; banks' low interest in opening their loan policy to the SMEs; excessive taxation, and growth of prices for fuels and utilities.

In addition to aspects mentioned above, the main attention is now attached to both the Small Business Act for Europe (SBA), launched by the European Commission (EC), and to the achievement of the priorities in the 'Strategy Europe 2020' (smart, sustainable, and inclusive growth).

The transposition of the SBA guidelines requires the amendment of Act 364/2004. For this purpose, a number of proposals have been made, and opened to public debate since May 2012.

Some of the most important ideas proposed are: a gradual growth up to 1% of the GDP quota allocated to financial support schemes for SMEs; increased efforts to reduce bureaucratic barriers regarding establishment (for example, shortening to three days the deadline for completion of the incorporation procedure), development, transfer, or dissolution (an expedient receivership procedure, except for unfraudulent bankruptcy) of SMEs, etc.

1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?• If so, which (types of) organisations and at which levels?• What are their opinions, perspectives, recommendations?• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?

One of the most influential voices on the employers' side is the CNIPMMR.

During the past ten years, the most heated topics have been related to incentives to encourage the creation and development of SMEs (2003); non-taxation of reinvested profits (2004); SMEs’ access to non-refundable finance (2005); the competition barriers faced by SMEs on the market of automotive parts and accessories (2005, 2006); the access of SMEs to the public utilities networks and services (2005); the increment of the GDP quota allocated to the SMEs (2007); proposals to be included in the anti-crisis package of measures (2009); urgent approval of state aid to help SMEs to cope with the economic crisis (2009); measures to regulate the relations between SMEs and the large chain stores (2009); proposals and initiatives regarding taxation, and the Code of Taxation Procedure (2010, 2011); the amendment of the Labour Code and the Social Dialogue Act (2010, 2011); the difficulties encountered by SMEs in their relationships with the banking system (2010, 2011).

Some of these issues and demands were included on the agenda of the public administration bodies.

Starting from 2005, the CNIPMMR has been publishing, every six months, a 'SMEs White Book', which makes an assessment of the entrepreneurial environment in Romania, based on specific indicators, and interviews with representatives of the SME sector.

Trade unions are few in the micro and small enterprises sector, due to the condition set in the Social Dialogue Act 62/2011 that a trade union may be formed only if at least 15 employees of the same company adhere to it.

However, the national trade union confederations cooperate with the employers' organisations on matters that concern small entrepreneurs as well.

Part 2: Support instruments

2.1. Please provide an overall assessment about how accessible and suitable public and social partner based restructuring support for companies in general are for SMEs or their employees.• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?• Are there specific (types of) instruments (for example, targeting specific types or phases of restructuring, offered at specific administrative levels) that are more/less accessible and suitable for SMEs and/or their employees that for larger firms? If so, why?

Most of the public instruments designed to help companies undergo a restructuring process fall within the scope of the regulations regarding state aid, which have both an anticipatory component and a management of change approach, by monitoring the results.

State aid for restructuring purposes was afforded in Romania both prior to the country's accession to the European Union (1 January 2007), and after, particularly to the big state-owned companies going to turn private.

A company of less than 250 employees that was put up for privatisation enjoyed the same rights to state aid for restructuring purposes as any of the big companies.

The state aid schemes do not expressly refer to assistance for SMEs subject to restructuring.

The rate of the state aid apportioned to SMEs from the overall national funds earmarked for horizontal targets was 11.45% in 2006, 0.14% in 2007 (the first year after accession to the EU), 0.01% in 2008, and 8.19% in 2009 ('Report on the State Aid Granted in Romania, 2007 – 2009', Competition Council, Consiliul Concurenţei, CC, Bucharest, 2012).

In the same reference period, the state aid having as horizontal target the safeguard and restructuring of companies accounted for: 58.89% in 2006, 32.93% in 2007, 14.72% in 2008, and 6.9% in 2009, of the overall national state aid.

To conform with the EU state aid regulations, the Government approved, by Decision 1164/2007, a de minimis aid (maximum € 200,000/recipient, for a period of three consecutive years), in order to help small and medium companies develop and upgrade, irrespective of their scope of business, diversify and improve the quality of their products and services, maintain and/or create jobs, gain access to investment finance.

During the time between 2008 and 2011, a number of 821 applicants received in the region of € 100 million.

At the end of 2009, when the economic crisis had already struck, the Government of Romania (Guvernul României, GR) proposed, and the European Commission (EC) approved, a temporary framework state aid scheme tailored to meet the needs of companies affected by the economic and financial crisis.

This temporary scheme provided financial assistance to companies that needed to pay off debts to trade partners or to employees, or to keep their business going and further invest in production until the end of 2010.

The scheme was also opened to the SMEs, provided that the applicants could prove that they had not been in financial constraint prior to 1 July 2008, and that they met with difficulties after that date, due to the economic crisis. The total budget for this scheme was € 220 million.

This instrument was complemented with special provisions in Act 76/2002, regarding unemployment benefits and stimulation of employment, aimed at companies and their employees, such as free assistance and advisory services to those who wish to start a business or work as independent entrepreneurs; loans to entrepreneurs who create jobs, at 50% of the National Bank of Romania (Banca Naţională a României, BNR) interest rate, or at 25% of the BNR interest rate, if the business is developed in an area where unemployment stands above the national average unemployment rate; subsidies for jobs assigned to fresh graduates and unemployed persons (consisting of a twelve month exemption from payment of dues to the unemployment fund, and an amount payable to each such employee pro rata to the social reference indicator, and the level of education completed).

2.2. Do there exist specific public or social partner based support instruments explicitly targeting at SMEs and/or their employees in restructuring? Please specify, for example:• If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?• Are the activities of different support service providers coordinated? If so, how and how well does this work?• Which phases of restructuring do they target?• Which types of restructuring do they target?• Do they target SMEs in general, or specific size classes, sectors, regions, legal forms, roles (for example, as subcontractors) etc.? Do they target employees of SMEs in restructuring?• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?• Is there some information about how well they are known among SMEs and their advisors and about how they are generally assessed by the SME sector? What are their strengths and weaknesses? Are there recommendations for improvement?

Romania has devised support instruments that explicitly target SMEs, without making them conditional on restructuring. However, the measures that these instruments have put in place can create the conditions for restructuring. Most of the support programmes have been initiated and developed by AIPPIMM.

Several funding schemes are in progress at present under the Sectoral Operational Programme Increase of Economic Competitiveness (SOP IEC), in parallel with the application of the measures laid down in the Small Business Act Europe (SBAE).

In 2008 and 2009, for example, these schemes used to provide non-refundable aid in the amount of approximately € 250,000 and € 1,750,000 (RON 920,000, and RON 6,450,000)to SMEs (own calculations based on the amounts in RON and the annual average exchange rate RON/€, published by National Bank of Romania); aid for access to new markets and internationalisation; aid for the introduction of international standards; and aid for the acquisition consultancy services.

In June 2012, several funding schemes were available for innovative and eco-efficient production systems (financial aid of up to € 240,000 for one SME, for investment purposes); sustainable development of entrepreneurship (business support structures, support for consultancy services, and for the SME's integration in supply chains or clusters); improvement of competitiveness by way of research, development and innovation, access of SMEs to RDI activities in partnership with academic institutions; assistance to SMEs to take on innovative start-ups and spin-offs, develop their RD facilities, and innovate their business; encouragement of the use of IT solutions (broadband networks), development of e-economy (e-trade, and electronic business solutions), etc.

Romania has eight national programmes to encourage SMEs: an annual SME trade fair (since 2005); a programme to keep open the access of SMEs to training and consultancy services (2006-2012); support to investment in newly established enterprises and micro enterprises, and in upgrading and restructuring of SMEs (2006-2012); support to the development of SMEs through UNCTAD/EMPRETEC; access of SMEs to EU financing schemes; enhancement of their competitiveness through innovation of products and services offered to the market; development of entrepreneurship among women performing as SME managers.

Other five national programmes are in place for the development of entrepreneurship and business environment: development of crafts and folk art (2006-2013); the START programme for the development of entrepreneurial skills among young entrepreneurs, and access to sources of finance (2005-2012); development of trading marketing products and services (2006-2013); creation and development of technological and business incubators (2002-2013); the national fair of craftsmen's cooperatives.

All the support measures under the national programmes and the SOP IEC are published on the sites of the AIPPIMM and of the eight regional SME agencies. All these support schemes and measures have generated a high interest among potential beneficiaries, which is why the demand for such funds is by far greater than the allocated amounts.

Part 3: Good Practice

  • Name of the instrument in national language and English:

POS CCE, Axa prioritară 1 – Un sistem de producţie inovativ şi eco-eficient, Domeniul major de intervenţie 1.1.1 'Investiţii productive şi pregătirea pentru competiţia de piaţă a întreprinderilor, în special a IMM'; sprijin financiar acordat IMM-urilor

SOP IEC, Priority Axis 1 – An innovative and eco-efficient production system, Key Intervention Area 1.1.1 - Productive investment, and preparation for the market competition of companies, particularly SMEs; financial support granted to SMEs

  • Justification for selecting this measure as Good Practice:

This is the most appropriate support measure, capable to sustain both the technological restructuring, the broadening of the range of products, and enhancement of their quality in order to increase the competitiveness of SMEs on the market.

  • Date of launch of the instrument and end date (if applicable):

The first call for projects was launched in 2008, and the measure will be in place until 2013.

  • Initiator/administrator (organisation):

The Government of Romania

  • Other involved actors and their roles:

The Management Authority of the SOP IEC (MA SOP IEC) is the Ministry of Economy Trade and Business Environment (Ministerul Economiei, Comerţului şi Mediului de Afaceri, MECMA), and the implementing authority is the Intermediate Body for SMEs (Organismul Intermediar pentru IMM, OIIMM)

  • Source of funding:

EU funds, the national budget, and the recipients' contributions

  • Target group/eligibility/coverage:

SMEs

  • Phase of restructuring targeted:
  • Type of restructuring targeted:

Anticipation

Business expansion, internal restructuring

  • Purpose/content/characteristics/description of services provided:

Support the sustainable development of SMEs for the improvement of Romanian products’ representativeness on external markets, in line with the principles of sustainable development and reducing the gap from the EU average productivity.

Offer non-refundable financial support for expansion of business and upgrading of technologies in SMEs, by purchase of new know-how (consultancy), equipment, licences, and by innovation of production processes.

  • Outcome of the instrument (e.g. number of beneficiaries, effects):

Between 2008 and April 2012, a number of 823 SMEs received financial aid in amounts of up to € 250,000, and 129 SMEs received amounts ranging between € 250,000 and EUR 1,500,000.

  • Strengths/success factors of the measure:

Cofinancing by the recipient project initiator is often a constraint, but also an incentive for him/her to make the most to ensure the profitability of the investment.

The rule is that the recipient must contribute a minimum of 30% of all eligible costs of the investment, if a small company, and a minimum of 50%, if a medium enterprise.

  • Weaknesses/bottlenecks of the measure:

To qualify for these sources of finance means ample document preparation, with a touch of bureaucracy, for which not all SMEs have the required skills and staff.

  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.)

MA SOPIEC and OIIMM do the regular monitoring and assessment of the progress of all the projects so financed, and keep track of their results.

  • Weblink:

www.fonduri-structurale.ro/

www.minind.ro

http://poscce.mimmcma.ro/

  • Information sources used for filling this section:

www.fonduri-structurale.ro/

www.minind.ro

http://poscce.mimmcma.ro/

Commentary

The economic and financial crisis of the past four years befell the business of the small and medium enterprises, pushing a large number of them out of the system after 2009.

A sectoral analysis shows that the greatest losses were sustained in manufacturing, construction, and commerce, where the number of SMEs dropped considerably. In the market services sector, their number continued to rise.

Both during the pre-accession, and post-accession phases, the financial assistance coming from EU funds has balanced the shortage of national sources of finance, through programmes like PHARE, ISPA, SAPARD, and the sectoral and regional operational programmes like SOP IEC, SOP HRD, ROP, etc.

Generally speaking, the social partners and the SME representatives have often voiced their discontent at the lack of Government support during the crisis, at the Government's measures that all but deepened the effects of the recession, at the instability of the taxation system and the unbearable number of taxes and charges, at Government's often ignoring and excluding from a coherent anti-crisis programme the proposals coming from the SME sector.

References

  • National Institute for Statistics, (2008, 2009, 2010, 2011), 'Small and Medium-Sized Enterprises in Romanian Economy' (Întreprinderile mici şi mijlocii în economia românească), Bucharest;
  • National Institute for Statistics, (2006 - 2011), 'Romanian Statistical Yearbook', Bucharest;
  • Romanian Government (2010), 'Government's Strategy for the Development of the Small and Medium Enterprises, 2011-2013';
  • Competition Council (2012), 'Report on the State Aid Granted in Romania, 2007 – 2009', Bucharest;
  • CNIPMMR, (2005-2012), 'SMEs White Book'(Cartea Albă a IMM), Bucharest;
  • Lege4, legislative programme;
  • www.aippimm.ro;
  • www.bnro.ro;
  • www.insse.ro;
  • www.cnipmmr.ro;
  • www.fonduri-structurale.ro/;
  • www.minind.ro;
  • http://poscce.mimmcma.ro/.

Luminita Chivu, Institute of National Economy, Romanian Academy

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