I usually do not keep in touch with the mob representatives that decapitalized Romania, even if some of them were sources of information for me in the last 24 years.
Taking that into account, I have a strong admiration and determination to help in any way and anytime I can Romanian entrepreneurs who have managed to remain standing despite the hostile environment in which they evolved and succeeded to grow. Incidentally: those who managed to grow and consolidate were those who understood – without animosity and resentment – what happens to them.
Today we address the pressing topic of domestic and foreign capital, from 3 perspectives:
1-, the foreign capital problem (and the perception with this regard)
2-, the domestic capital problem (and the perception with this regard)
3-, Romania’s capital and the solution to mobilize it
There are actually four approaches: we shall start with the zero-degree approach: how the political class (without distinction between left and right) uses a perverse positioning thanks to which they are the only ones to win. „Capitalists” (domestic or foreign), especially the Romanian economy, are those to lose something.
(I cannot help but wonder what it will happen when the foreign and domestic capital will finally understand that they are in fact in the same boat?)
So:
0): Mr Liviu Dragnea – the de facto Prime Minister of Romania and the king of parliamentary decisions on any kind of policies – keeps firing statements and populist actions into the foreign capital.
Liviu Dragnea is not the only one – they all did that and the last one was Victor Ponta (the Ciolos government had a balanced attitude, because they had no elections to win based on the voters’ weaknesses and lack of understanding) since Mr Vacaroiu: „We do not sell our country” was NOT an economic principle (although BEWARE – it could have been), but a principle expressing a political will: We have not sold it, but they did it for increasing fees as the street was shouting more loudly that we do not sell it.
The problem is this: instead of raising and solving the issue of discrimination between the foreign and local capital, the current parliamentary majority resuscitates – the same as it did for 27 years – the rudimentary form of segregation of the capital issue and uses it for a political purpose at the expense of Romania’s economy and development.
The equation is perverse: Each of the two types of capital receives something from the political class in exchange for something else. And here is what we are talking about – we get to the core issue:
1-) Foreign capital: constantly cursed, but always positively discriminated
I insist not to be too specific because that would deviate the relevance from its natural course:
The foreign capital currently represents about 50-55% of the total turnover in the economy.
With this money, it generates about a quarter of taxable income in Romania. The rest represents the „transfer pricing” – moving the profits abroad – in a nutshell, sending the money back to where they came from – a link here.
Beware: Three-quarters of the taxable profits are obtained by local companies, although the policies (of all parties) focus on the foreign capital. The same goes with the jobs.
Perversity of (all parties) policies consists of:
a-, almost all the state aid support for development and investment goes to the foreign owned companies
b-, government policies – CLAIMED to have been decided for the benefit of “the Romanians”, they favour the foreign capital, in the end:
an excellent example: lowering VAT in the recent years, starting from the general rate to the rate applied to food products, favoured the large foreign retailers that own about 70% of the local retail sector – as the VAT decrease did not have effects at the domestic production level, but has been shared between retailers and many of the distributor layers:
while Mr Victor Ponta (as a politician) pretended that taxes have been cut „for the Romanians”, he actually promoted the retail sector, about which it is impossible that he could not have known that owns nearly 3 quarters of the Romanian market.
This is what Mugur Isarescu was trying to explain: Beware, we create jobs in Poland, Hungary, the Czech Republic. But neither PSD nor PNL (which has, under Mrs Alina Gorghiu’s influence, some personal and not economic interests to defend) was listening to him.
c– abuses against foreign capital are punishable by the embassies that intervene, ask for information and push for facilities: when Angela Merkel met with Emil Boc, the request was clear and of common sense: pay the arrears, German companies have money to collect.
d-, the ability to offer export markets and technology (be it a second-hand one) has generated an additional discrimination:
state aids for development granted – is not it? – by the state. Of a list of 100 „helped companies” only a few had local owners – cursdeguvernare.ro wrote about it HERE – LINK.
e-, The foreign capital is therefore in the following situation:
- State aid
- Protection from embassies against the Romanian state’s abuses
- „tricks” in calculating the transfer prices
- Economic policies that, although invoked in the name of the general welfare, are in fact favouring the companies
and the BIG disadvantage:
- As many swear words as possible against foreigners
- Pressure for these policies up to the point where financing schemes to support policies in Romania are established
An example: when Schweighoffer – Holzindustrie (connections to the Austrian left wing) contributed to arranging the meeting between Liviu Dragnea and the leftists from Vienna – nobody thought about the economic side anymore: it was going to come by itself with two components: the swear words in the public space + placing the public problem of the „undeclared” wood on the opposition’s back (Klaus Iohannis’s back – in this case):
f-, the political class in its entirety trod underfoot the foreign capital in exchange for the financial incentives granted to these companies.
g-, and YES: the fees obtained by the Romanian political class from privatizations and these companies’ entry onto the Romanian market exceeded sometimes the value of the assets made available for investment – this is the Mafia-like structure, very Romanian, which I mentioned above: in fact, a very political structure.
(Also here – a discussion from this morning with a specialist in the „real economy”: how much a foreign-owned oil company pays as a bribe to open new gas stations in Romania …)
And one last NOTE: Let us imagine that what I wrote above with 2000 characters reached in the last 25 years the chancelleries of the European governments summarized in 500 characters …).
f-, a sure thing: foreign companies, despite the diminished profit, arrive with a pre-existing market, ensure the exports that keep our currency in balance, bring some technology/productivity and know-how, and have a key role in the macroeconomic balance of Romania: without them, we would be dead. DEAD! We would be in a more desperate situation than Greece.
2- Domestic capital: Caressed, but used, abused and negatively discriminated: thrown in the same pot together with the foreign capital
Here is where the problem becomes even complex and holds Romania down:
a-, Domestic capital does NOT benefit from the large state aid grants for long-term investment. As I wrote above, the hundreds of millions of euros that reach the large foreign investors are planned to avoid the local contribution to the economy.
b-, when it comes to public contracts, the major contracts end up in the segments controlled by the intelligence services – namely the strategic ones: IT, manufacturing, large trade of agricultural and grains and feasibility studies for any bullshit.
c-, when it comes to collecting money to the budget, ANAF does not rush into the transfer pricing files from the multinational companies: instead they go and put pressure on, abuse and squeeze every last penny from the local entrepreneur: it is small and vulnerable, no embassy calls to support it and nobody know if it dies – moreover, the killer even gets a bonus and promotion (link).
d-, with rare exceptions, the „domestic capital” is „flexible”: it contributes not at the central level – as the multinationals do – but locally – where the political pressures are substantial:
- Financing for an election campaign
- A pressure for an entrepreneur to win – using his own money, of course! – a mandate in the Parliament or to keep around the house 2-3 members of the Parliament „made” by his own money
- A hostile competition supported by the decision maker based on „the need to attract foreign capital” – we saw that at Ploiesti, where a foreign-owned company could afford to take employees from a Romanian owned company just because it received a financial aid from the Romanian state…
Beware: all these are not made by „foreigners” but genuine Romanians – political and administrative decision-makers and even Romanian managers of multinational companies – therefore no one can complain that „foreigners” do this and that to us….
e-, Well:
For all these, the domestic capital gets in exchange caresses, violent anti-foreign capital discourses from politicians and the pro-Romanians metaphors that the Romanian decision-makers reheat whenever they are in difficulties and throw them into the market to keep people warmed up. Worse is when they throw them into the economy: statistics show that Romanian and foreign companies avoid each other and cannot find a way to have a dialogue and sometimes even despise each other.
In fact, this is the problem and the success of the Romanian economic policy – created not for the economy (economy!), but for the temporary triumph of some political incompetents:
3- Romania’s capital (wait: no „Romania’s”, but „from Romania”) and solution to mobilize it:
Some „truths” (verifiable!) to date:
a-, now, most of Romania’s private capital is abroad:
fees from privatization, those from the billion euro contracts with the Romanian state and those from the actual Romania’s development have been redirected towards external bank accounts.
When Gabriel Biris tried to draft a tax amnesty law – which aimed at making the Romanian money go back to the Romanian economy – his proposal has been instantly crushed (two clarifying LINKS here and explained here).
b-, Any sane politician should seek the decision-making formula to reintegrate in Romania the GDPs that have been moved „out” (by the mafia system to which I was referring in the first lines) following the privatizations and all sorts of fee charging from the last 25 years: the local money are there, the MONEY are there. If we fail to bring them back, let us look for them at the „foreigners”.
c-, the Romania policy making structure creates and then maintains the tension between the foreign and local capital: they swear the first in exchange for the financial facilities granted and praise the latter while robbing it.
d-, the foreign and local capital are totally complementary – neither of them could survive without the other: the foreign capital supports the trade balance and provides some well-paid jobs, while the domestic capital provides stability (STABILITY!) and development to the economy without which the foreign capital could not be operating.
e-, the domestic capital is discriminated because the political decision-makers are NOT able to create and manage an economy unless they despoil it and makes it their subject.
f-, The policymakers permanently create – and when they fail, legislate, so there to be no doubt – a tension between the two sides which should cooperate: and, in fact, this is where many of the adventures that we see on TV start.
An example: the half price offered by the IT companies from abroad for the Romanian digitization collides with the interests that the intelligence services have in the same area of economic interest – from Ghita and UTI, to Microsoft and other economic players – this is what came out…
g-, the foreign and domestic capital are in the exactly same situation:
- NO infrastructure
- NO predictable legislation
- NO adequately qualified workforce
- NO independence from this deeply and permanently corrupt administration – where a multinational company pays a bribe to open a gas station and a pretzel producer from Mizil pays a bribe to be given the permission to operate.
h-, the domestic and foreign capital have one chance only: to cooperate – especially since in most cases their managers are Romanian who know how the things stand (as they do not really move) in Romania:
- When a Romanian private company encountered the ANAF’s abuses, it could not have been able to get justice unless the foreign companies affected by the same abuses had a contribution and got involved.
- When a foreign-owned company encountered the unpredictability of the tax system (remember the “pole tax”) it would not have been able to make itself heard without the Romanian – owned companies exasperated and turned upside down by an aggressive and unpredictable measure of Ponta government.
The Romanian political decision-maker (either on left or right – in fact, this is just the nickname by which they call each other) „will screw all of them over”:
- When it will torpedo the domestic capital, it will get on the foreign capital side: good decision, as we are the only ones who know (in fact „even we know as well”) how they have been „privatized”.
- When it will torpedo the foreign capital, it will speak for the “natives”: good decision, as they move their profits out and leave here only the salaries and some technology that we do not understand anyway and have job cuts.
*
Ladies, Gentlemen – sisters and brothers in living on the beautiful lands of Miorita:
Would not it be more productive for us to ignore the speeches and actions of politicians who take both from the living and the dead, from the foreigner and the Romanian, from the widow and the orphan, from the left and the right – and find a way to communicate „directly”? In the end – something that politicians who use our votes and money have no idea about – „is just business”! The Romanian politician will always move the healthy tension existing in the economy beyond the healthy competition of the market economy: there always must be „something” in it for him.
I would say that we should not go by what they say …
