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TABLEOFCONTENTS

1. ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OF SMART,SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFIC MISSIONS

PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDING ECONOMIC, SOCIAL

AND TERRITORIAL COHESION (ARTICLE 14(1) (A) CPR) .........................................................5

1.1 ANALYSIS OF DISPARITIES, DEVELOPMENT NEEDS AND GROWTH POTENTIALS.........12

1.1.1 ANALYSIS OF DISPARITIES AND IDENTIFICATION OF THE MAIN DEVELOPMENT

NEEDS.................................................................................................................................................12

1.2 SUMMARY OF THE EX-ANTE EVALUATIONS OF THE PROGRAMMES OR KEY FINDINGSOF THE EX-ANTE EVALUATIONS OF THE PA ...........................................................................81

1.3 SELECTED THEMATIC OBJECTIVES, AND FOR EACH OF THE SELECTED THEMATIC

OBJECTIVES A SUMMARY OF THE MAIN RESULTS EXPECTED FOR EACH OF THE ESI

FUNDS.................................................................................................................................................82

1.4 THE INDICATIVE ALLOCATION OF SUPPORT BY THE UNION BY THEMATIC OBJECTIVE

AT NATIONAL LEVEL FOR EACH OF THE ESI FUNDS, AS WELL AS THE TOTAL

INDICATIVE AMOUNT OF SUPPORT FORESEEN FOR CLIMATE CHANGE OBJECTIVES............................................................................................................................................................102

1.5 THE APPLICATION OF HORIZONTAL PRINCIPLES AND POLICY OBJECTIVES FOR THE

IMPLEMENTATION OF THE ESI FUNDS ....................................................................................103

1.5.1 ARRANGEMENTS FOR THE PARTNERSHIP PRINCIPLE.........................................................103

1.5.2 PROMOTION OF EQUALITY BETWEEN MEN AND WOMEN, NON-DISCRIMINATION AND

ACCESSIBILITY (WITH REFERENCE TO ARTICLE 7 OF CPR) ..............................................1071.5.3 SUSTAINABLE DEVELOPMENT (WITH REFERENCE TO ARTICLE 8 OF CPR) ..................108

1.5.4 HORIZONTAL POLICY OBJECTIVES...........................................................................................113

1.6 THE LIST OF THE PROGRAMMES UNDER THE ERDF, THE ESF, THE COHESION FUND,

EXCEPT THOSE UNDER THE EUROPEAN TERRITORIAL COOPERATION GOAL, AND OF

THE PROGRAMMES OF THE EAFRD AND THE EMFF, WITH THE RESPECTIVE

INDICATIVE ALLOCATIONS BY ESI FUND AND BY YEAR ..................................................113

1.7 REQUEST FOR TRANSFER OF STRUCTURAL FUNDS ALLOCATIONS BETWEEN

CATEGORIES OF REGIONS, WHERE APPLICABLE (ARTICLE 93 OF THE CPR)................113

1.8 TRANSFER FROM THE EUROPEAN TERRITORIAL COOPERATION GOAL TO THE

INVESTMENT FOR GROWTH AND JOBS GOAL WHERE APPLICABLE (ARTICLE 85A OF

THE CPR) ..........................................................................................................................................114


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2.3 SUMMARY OF THE ASSESSMENT OF THE FULFILMENT OF APPLICABLE EX-ANTE

CONDITIONALITIES.......................................................................................................................123

2.4 THE METHODOLOGY AND MECHANISM TO ENSURE CONSISTENCY IN THE

FUNCTIONING OF THE PERFORMANCE FRAMEWORK IN ACCORDANCE WITH

ARTICLE 20 OF THE CPR...............................................................................................................124

2.5 MEASURES TO REINFORCE ADMINISTRATIVE CAPACITY .................................................125

2.6 ACTIONS PLANNED IN THE PROGRAMMES TO ACHIEVE A REDUCTION IN THE

ADMINISTRATIVE BURDEN FOR BENEFICIARIES.................................................................129

3. INTEGRATED APPROACH TO TERRITORIAL DEVELOPMENT SUPPORTED BY THE ESI

FUNDS OR A SUMMARY OF THE INTEGRATED APPROACHES TO TERRITORIAL

DEVELOPMENT BASED ON THE CONTENT OF THE PROGRAMMES (ARTICLE 14(2) (A)

CPR)...................................................................................................................................................131

3.1 THE ARRANGEMENTS TO ENSURE AN INTEGRATED APPROACH FOR THE TERRITORIAL

DEVELOPMENT OF SPECIFIC SUB-REGIONAL AREAS .........................................................132

3.1.1 COMMUNITY-LED LOCAL DEVELOPMENT / LEADER LOCAL DEVELOPMENT.............132

3.1.2 INTEGRATED TERRITORIAL INVESTMENT.............................................................................134

3.1.3 SUSTAINABLE URBAN DEVELOPMENT ...................................................................................135

3.1.4 TERRITORIAL COOPERATION.....................................................................................................136

3.1.5 THE INTEGRATED APPROACH TO ADDRESS THE SPECIFIC NEEDS OF GEOGRAPHICAL

AREAS MOST AFFECTED BY POVERTY OR OF TARGET GROUPS AT HIGHEST RISK OF

DISCRIMINATION OR SOCIAL EXCLUSION, WITH SPECIAL REGARD TO

MARGINALIZED COMMUNITIES, PERSONS WITH DISABILITIES, LONG TERM

UNEMPLOYED AND YOUNG PEOPLE NOT IN EMPLOYMENT OR TRAINING .................138

4. ARRANGEMENTS TO ENSURE EFFICIENT IMPLEMENTATION OF THE PARTNERSHIPAGREEMENT AND PROGRAMMES (ARTICLE 14(2) (B) CPR) ...............................................142

4.1 ASSESSMENT OF THE EXISTING SYSTEMS FOR ELECTRONIC DATA EXCHANGE AND

SUMMARY OF THE ACTIONS PLANNED TO GRADUALLY PERMIT ALL EXCHANGES OF

INFORMATION BETWEEN BENEFICIARIES AND AUTHORITIES RESPONSIBLE FOR

MANAGEMENT AND CONTROL OF PROGRAMMES TO BE CARRIED OUT BY

ELECTRONIC DATA EXCHANGE................................................................................................142

ANNEXES...................................................................................................................................................147


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LISTOFABBREVIATIONS

ACOP AdministrativeCapacityOperationalProgramme

APIA

AWU

BO

AgencyforPaymentsandInterventioninAgriculture

Annual

WorkUnit

BalanceofPayments

CAP CommonAgriculturalPolicy

CF CohesionFund

COMPOP CompetitivenessOperationalProgramme

CPR CommonProvisionRegulations

CSF CommonStrategicFramework

DIPFI DepartmentofInfrastructureProjectsandForeignInvestments

EAFRD EuropeanAgriculturalFundforRuralDevelopmentEC EuropeanCommission

EIF

EMFF

EuropeanInvestmentsFund

EuropeanMaritimeandFisheriesFund

ERDF EuropeanRegionalDevelopmentFund

ESF EuropeanSocialFund

ESIFunds EuropeanStructuralandInvestmentFunds

ETC EuropeanTerritorialCooperation

EU2020 Europa2020StrategyEU27

FEAD

EUofthe27MemberStates

FundforEuropeanAidtotheMostDeprived

FDI ForeignDirectInvestments

GDP

GHE

GrossDomesticProduct

Greenhousegasemissions

GVA GrossValueAdded

HCOP HumanCapitalOperationalProgramme

IB IntermediateBody

ICT

ILO

InformationandCommunicationTechnologies

InternationalLabourOrganization

IMF InternationalMonetaryFund

ITI IntegratedTerritorialInterventions

LAN

LPA

LocalAreaNetwork

LocalPublicAdministration

LIOP LargeInfrastructureOperationalProgramme

MA ManagingAuthority

MARD MinistryofAgriculturalandRuralDevelopment

MC MonitoringCommittee

ME MinistryofEconomy

MECC MinistryofEnvironmentandClimateChange

MEF Mi i t f E F d


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OP OperationalProgramme

OPFMA OperationalProgrammeforFisheriesandMaritimeAffairs

PA PartnershipAgreement

PARDF PaymentsAgencyforRuralDevelopmentandFisheries

PES PublicEmploymentService

RDA RegionalDevelopmentAgencies

RDI Research,DevelopmentandInnovation

RES RenewableEnergySources

ROP RegionalOperationalProgramme

SCF StructuralandCohesionFunds

SEA StrategicEnvironmentalAssessment

SME SmallandMediumEnterprises

SMIS

SO

SingleManagementInformationSystem

StrategicObjective

TAOP TechnicalAssistanceOperationalProgramme

TENT TransEuropeanTransportNetwork

TO

UAA

VET

ThematicObjectives

UtilisedAgriculturalArea

VocationalEducationandTraining


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BASEDOBJECTIVES,INCLUDINGECONOMIC,SOCIALANDTERRITORIALCOHESION(ARTICLE14(1)(A)

CPR)

OVERVIEW

During the period 20012008 the Romanian economy expanded by an average of 6.3 percent per year,

representingoneofthefastestgrowthratesintheEuropeanUnion.

During20092012, theGDPofRomania

had an oscillating trend. After a +7.2%

average annual growth in 20062008, a

sharp contraction of 6.6% was

experienced in 2009, due to the

economicdownturn.Growthreturnedin

2011 (+2.3%)but slowed 2012 (+0.6%),

duetothecombinedimpactsofasevere

summer drought affecting agricultural

outputandtheEurozonecrisis.

In 2013,Romania'sGDP1 grewby 3.5%over theprevious year. The year 2013 is the third consecutive yearof

growthand3.5%growthratein2013isthehighestraterecordedbyRomanianeconomyinthelastfiveyears.Note

thattheincreaseof3.5%ofGDPin2013,placesRomaniaonfirstplacebetweenEUmemberstates,theEUaverage

being1.0%.

Nevertheless, Romania is still lagging significantly behind the majority of European countries in terms of

economicdevelopment.GDPpercapitarecordedinpurchasingpowerstandard(PPS)wasjusthalfoftheEU27

averagein

2012

and

only

around

70%

of

the

average

GDP

per

capita

of

the

new

EU

Member

States.

Macroeconomicpolicy

TheStability,CoordinationandGovernanceTreatywithintheeconomicandmonetaryunionwassignedonMarch

2,2012,bytheheadsofstatesorgovernments inallEUMemberStates,exceptfortheUnitedKingdomandthe

CzechRepublic.ThepurposeofthistreatyistomaintainstabilityintheEurozone.

RomanianegotiatedwiththeECandtheIMFaprecautionaryeconomicadjustmentprogrammein2011.Afterthe

successful completion of the programme in June 2013, in July 2013 Romania requested a new precautionary

financialassistancefromEUandIMF.ThejointmissionfromEC,IMFandWBduringJuly1731,2013reachedan

agreement at staff level on the economic programme that could be supported by a 24month StandBy

Arrangementwith the IMF foranamountof1751.34bnSDR (approx.2bnEUR)andBalanceofPayments (BoP)

assistancefromtheEU inanamountof2bnEUR.Themainobjectivesoftheprogrammearesafeguardingsound

public finances, continuingmonetary and financial sector policies that preserve buffers and increase resilience

against external shocks, and reducing bottlenecks to growth through structural reforms. The programme was

presented to the IMF Board in September 2013 and to EU EFC and ECOFIN in October 2013


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increaseof2.12.2%ofGDP in2014.Moreover,according to theWinterForecastof theNationalCommissionfor

Prognosisitisexpecteda2.3%GDPgrowthin2014.

AccordingtotheNationalBankofRomania(NBR),in2013,thecurrentaccountofbalanceofpaymentsrecordeda

deficitofEUR1,505million,comparedwithadeficitofEUR5,843million in2012,dueto lowertradedeficit(with

3,956million), the increase in the surplusof the servicesbalance recorded (withEUR1,458million) and current

transfers (with287millioneuros).Romania'sexternaldebtat theendof2013amounts,according to theCentral

Bank,EUR96,4billion,ofwhich77,0billionmediumandlongtermdebt(down2.3%fromend2012)andEUR19,5

billionshorttermdebt(down6.8%from31.12.2012).

Inflationasexpressedby theConsumerPrice Index inDecember2013 compared toDecember2012was1.55%,

accordingtotheNationalStatisticsInstitute,fallingwithinthetargetsetbytheCentralBankin2012,at2.5%.Same

source, releasedon12February,announcing that the inflation rate in January2014compared to January2014 is

1.06%..

Employment,accordingtonationalaccounts,willincreasein20142017atanannualaveragerateof0.9%,andthe

numberofemployeesaugmentedby1.1%.Labourproductivitywill improveduetoamorerapid increaseofGDP

relative to the increase in employment. The unemployment rate was estimated at 7.1% in December 2013,

decreasedby0.2%fromthepreviousmonthand0.4%aboveitslevelinDecember2012.

MacroeconomicprojectionsforRomania

2013 2014 2015 2016 2017PercentageChanges%

RealGDP 3.5 2.3 2.5 3.0 3.3

Privateconsumption

expenditures

0.7

1.7

2.2

2.4

2.6

Publicconsumptionexpenditures 4.1 1.8 1.5 2.4 1.8

GrossFixedCapitalFormation 5.7 4.0 5.3 7.4 7.5

Exportsofgoodsandservices 10.0 7.3 7.2 7.3 7.4

Importsofgoodsandservices 1.0 6.6 7.3 7.5 7.7Source:WinterForecastoftheNationalCommissionforPrognosis

Territoriality

Romania's is endowed with a distinctive geography and many of the country's development challenges and

opportunities have a profound spatial character.Only one of Romania's eight regions is highly developed anddynamic.Withsomevariation,theremainingsevenregionshave largerruralpopulationsandagriculturallybased

activities,lackmodernisationandfullyfunctioningmarkets.Socialandeconomicinclusionvariesacrossspace,with

ruralareassignificantlydisadvantagedintheiraccesstoopportunitiesandtopublicservices.

Geographical position and features influence development pattern and opportunities. Of the less developed

regions,theNorthandNorthWestbenefit fromtheirrelativeproximity tomoredevelopedMemberStates;the

mountainsand forestsoftheCentralRegioncreatedistinctivedevelopmentopportunitiesandconstraints;some

regions are relatively more affected by physical isolation and peripherally, the North East confined by the

Carpathians,theSouthEastbythe lineoftheDanube;thewetlandsoftheDanubeDeltasupportonlyanarroweconomyandasparsepopulation.Whereastheseareaswerethemostaffectedbythestructuralchangesandhit

by the crisis, mainly characterised by low levels of GDP per capita, reduced share in the national GDP,

unemployment, limitedtransportinfrastructure,relative lackofopportunities,requiresaterritorialorientationto

adressbothplacebasedissuesandpeoplebasedchallenges. ThepolycentricstructureofRomania,withtheeven

distributionofurbanagglomerations, isanobviousasset.The roleofurbanareas ingeneratingand supporting


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GiventhegeographicpositionofthecountrythesynergiesbetweentheEUSDRandtheIntegratedMaritimePolicy

fortheBlackSea(BlueGrowthStrategy)shouldbebetterexploited;thelargevarietyofeconomicandenvironment

activitiestakingplaceintheDanubeDeltaandtheadjacentcoastalareasoftheRomanianBlackSeacoastshould

be better addressed in a more integrated manner seeking complementarities and cooperation mechanism

betweenbothstrategies.

In the contextof the twopolicies,basedon the Study to support thedevelopmentof seabasin cooperation

RomaniaCountryFiche,August2013,whichidentified6ofthemostrelevantandpromisingmarineandmaritime

economic activities, ESI Fundswill support threeof them, correlatedwith theCompetitiveness Strategy, inland

waterwaytransport,shortseashippingandcostaltourism.Inlandwaterwaytransportisoneofthecheapestways

totransportgoodsanditisfavouredinRomaniabytheDanubeandthetwowaterwaysbetweentheDanubeand

theBlackSea,theshortseashippingisoneofthemostimportantactivitiesoftheNUTS2coastalregionbeingnow

poweredbythe recentdiscoveryofnewgasfieldsintheBlackSeawhichcanstandasapromiseforemployment

increase intheareaandthecoastaltourismhasthesecond largestGVAcontribution inthearea,employment in

thecoastalzonebeingofamajorimportance .

Theprogrammingproposalssetoutbelowhavebeendevelopedtakingintoaccountthedistinctivespatialpattern

of needs and opportunities. A combination of steering from National strategies and masterplans, Regional

Development Plans, selection criteria and the use of territorial development instruments will ensure that

implementationoftheESIFundsisnotspatiallyblind.

Challengesfornationalgrowth

Romaniacontinuestofacetremendousdevelopmentchallenges.Thefollowingchallengesfornationalgrowthhave

been identified,needing strategic investments to removeobstacles todevelopmentand tounlock thecountry'seconomicpotential:

Thecompetitivenessandlocaldevelopmentchallenge

Theoverall levelof economic activity inRomania is still very low.Examinationof sectorial scale, structure and

performancemakesclearthechallengeforcompetitivenessinRomania:

thepresentdependenceforemploymentuponverylowvalueaddingsemisubsistencebasedagriculture

inabsenceofothereconomicalternatives,withaveryhigh shareof small farms (almost93%of total

farms)withlowmarketorientation,lowlevelofproductivityandtechnicalendowment;

thecharacterofenterprisecultureasreflectedbytherelativelylowbusinessdensityinallregionsexcept

BucharestIlfovanditsskewednesstowardslowvalueaddingactivity;

internationallyuncompetitivelevelsofproductivityinmanyareasofindustry;

thepresentunderrepresentationofhighervalueaddingserviceswithintheeconomy;

fragmentation, excessive standardization, inefficientuseof resources inRomanianR&D and academic

environmentsandtheabsenceofstrategyfordevelopingresearchintensiveinstitutions.

Thepeopleandsocietychallenge

Romania is subject togreatdisparities inwealth,opportunity,education, skills,healthand inmanyareas these

have intensified in the past decade. There is a profound territorial character to disparities, with pronounced

variations between regions, counties andbetween urban and rural areaswhich requires tailored and strategic

interventionsinordertofightagainstpoverty,socialexclusion,improvingaccesstoeducation.

In termsofemployment, in2012 theemployment rateof theworkingagepopulation (1564years)was59.5%,

with higher values for men (66 5% versus 52 6% for women) and for people in rural areas3(60 7% versus 58 7% in


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underlinedtheneedofusinganintegratedapproachindealingwithsocialinclusionissuesbyfacilitatingtheaccess

toeducation,employment,health,housingandsocialservicesforthosebelongingtodisadvantagesgroups.

Therearegreatchallengesinrestoringtheperformanceoftheeducationsystemand,inthecontextofadepressed

demand for labour in making education attractive and seen to pay. Apart from creating a modern and well

equipped educational infrastructure, there are challenges to overcome in extending access to early education,

combating early school leaving, increasing the relevance of education and training to the needs of the labour

marketandopeningaccesstotertiaryeducationandtolifelonglearning.

Theinfrastructurechallenge

Romania ishampered inpursuinggrowthbyunderdevelopedandoutdated infrastructure.AlthoughRomaniasits

onimportantroutesconnectingCentralEuropewiththeBlackSeaandtheCaucasus,itstransportinfrastructureis

underdevelopedrelativetothevolumeofgoodsandpassengersthattransitRomanianterritory,andaccessibility

remainsamajorbarriertoregionalgrowth.Connectivityviaalltransportmodesissuboptimalduetothebacklogof

investments, aswell as administrative deficiencies in themaintenance and operation of the infrastructure. AsregardsICTinfrastructure,basicbroadbandshouldbeuniversallyavailableby2015asaresultofexistinginitiatives,

althoughtakeupremainslow.However,RomaniafacesparticularchallengesinextendingNewGenerationAccess

inruralareaswhere,intheabsenceofpublicintervention,itisestimatedthatby2020lessthan50%ofhouseholds

willbecoveredwithspeedsover30Mbps.

Theresourceschallenge

Romania iswellendowedwithenergyresources,asignificantproportionofwhich isfromrenewablesourcesand

haspotentialforfurtherextension.Ithasamuch lowerrelianceon importedenergy(21.7% in2010)than inthe

EU27 (52.7%). The efficiency of Romania's electricity generation, transmission and distribution systems (fromrenewablesourcessuchaswind,solarandontheotherhandnuclearandgasturbines)isclosetotheEUaverage.

Theefficiencyinenergyuseispoor,notablyasaresultofbadlyinsulatedresidentialandpublicbuildingscombined

withinefficiencyinthedistrictheatingtransmissionanddistributionsystems.

Romania is confronted with a range of natural and manmade environmental risks which pose a threat to

Romania'scitizens,itsinfrastructureanditsnaturalresources.Risksarisingfromorexacerbatedbyclimatechange

havehadamajor impactoverthepastdecade;recurrentfloods,forestfiresanddrought,havecausedextensive

loss anddamage across the country. In some situations, thenational response capacitywasexceededby their

severity.

The extension andmodernization of thewater andwastewater infrastructure continue to beone of themost

importantprioritiesinimprovingRomanianlivingstandards,especiallyinruralareas.Wastemanagementisstillfar

shortofEuropeanstandardswith low levelsof reuse, recyclingandenergy recovery.Romaniahasas transition

perioduntil2017tophaseoutnoncompliantlandfills.

Romania iswell endowedwithnatural assets,which if sustainablymanaged, canoffer importantdevelopment

potential but environmental quality and biodiversity remain under pressure from both natural process and

economicactivity.Thereisaneedtoenhanceenvironmentalprotectionandtoshifttomoresustainablepractices

inareaswhere inagricultureproduction is intensifyingand inconstruction,extractive industriesand inbusiness

generally.

Theadministrationandgovernmentchallenge

Romania is still characterizedbyweak administrative capacityofpublic institutions and apredisposition towards

bureaucracy and disproportionate regulation that seriously influence the competitiveness of Romania's business


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Byusing amacroeconomicmodel calledRGREM, itwasexamined thepotentialof theRomanian economy to

respond to the European funds injection during the period 20142020, the impact on GDP trends being

emphasized.

Theprospective effects thatmay be generated by ESI Funds on the GDP growth are related to the amounts

planned to be spent under three categories of policy interventions: support for infrastructure, human capital

developmentandpromotingprivateinvestmentsininnovation.Theanalysiswascarriedoutintermsofcomparing

thewithoutEU fundsbaselinescenario relative towithEU funds scenario,undertakingasensitivityanalysis

basedondifferentratesofabsorption.

Inarealisticscenariothetotalamountspentrepresents40%oftheEUallocationandtheannualrateofGDPhas

an increasing trend,while thegrowthdynamic remainsvirtuallyunchanged compared to thebaseline, reaching

4.15%,almostdoublethegrowthratevalueestimatedforthebeginningoftheprogrammingperiod.

In thesecondalternativescenario (optimistic)theabsorptioncapacity is improved, theexpenditure ratebeing

80% of allocated resources and leads to a considerable increase in the rate of economic growth. Thus, the

estimatedrealGDPin2020is15.1%higherthaninthebaselinescenariowithoutEUfunds.

TherewereperformedaseriesofscenariosusingHEROMmodel inorderto illustratethe impactofEUfundsfor

theprogrammingperiod20142020upontheRomanianeconomyintermsofcombiningthevolumeofallocations

betweensectors.

InordertoachievethesimulationoftheimpactofEUfundsontheRomanianeconomywerebuiltfouralternative

scenarios where the total allocation (without EAFRD allocation) amounted to 22.54 billion was distributed

differentlyon the threemajorcomponents thatarekey inputvariables inHEROMmodel: (1) infrastructure, (2)

directsupportand(3)humanresources.Itaims,ontheonehand,toillustrateandquantifythepositiveeffectsofstructuralinterventionintheeconomy(eg.additionalgrowth,jobsandadditionalincome,etc.)andtoanswerthe

questionwhethertheseallocationsareoptimal.

Therewerefourscenariosdesignedforallocatingfundsasfollows:

Scenario1 Scenario 2 Scenario3 Scenario4

bd.euro % bd.euro % bd.euro % bd.euro %

(1)Largeinfrastructure,Regional,Territorial

cooperation 16.54 73.4 11.27 50.0 5.1 22.6 9.20 40.8

(2)Competitiveness, Technicalassistance 1.67 7.4 1.67 7.4 1.7 7.4 9.02 40.0(3)Humancapital,Administrativecapacity,YEI 4.33 19.2 9.60 42.6 15.8 70.0 4.32 19.2

Total 22.54 100 22.54 100 22.54 100 22.54 100Source:theNationalCommissionforPrognosis

Estimated impactbyHEROMwasachievedagainstabaselinescenario(withoutfunding)builttakingintoaccount

theprognosisandotherNCPestimatesconsideredassumptions(parameters,coefficients)for20142020.

Allthreetypesoffundingareneutralintermsofthedeficit,EUfundsareaccountedasexpensesandasrevenue as

well, recordingan increase inboth revenueandexpenditureand thedifference remains the same,however, in

reality,EUfundsrequiresaninternalcontribution.SimulationsofthesefundsshowsafurthercumulativeincreaseofGDPoverthe20142020periodcomparedtothe

baselinescenariobetween10.9and15.1percentagepointsthroughouttheperiod,scenario1,characterizedbya

predominantallocationininfrastructure,beingthemosteffective.

Realcumulativeimpactin20142020comparedtoascenariowithoutfunds

%


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Ifweconsider thecurrent levelofRomaniasGDP to theEU27by49%and forecastsobtained it shows that in

2020,theRomanianeconomywillbeatalevelof60%oftheaverageEU27usingscenariowithoutfunds,whilein

scenario1,willreachabout6570%oftheaverage.

In accordancewith the specific intervention through structural instrumentsHEROM revealed that investments

enjoysconsiderableadditionalintakein20142020:from24.7percentagepointsinScenario1to20.9percentage

pointsinScenario4inadditiontothedynamicsscenarioinwhichtherewouldbenostructuralandcohesionfunds.

The investment process has maximum intensity in scenario 1 where most of the funds are directed to

infrastructure.

Favourabledevelopmentofeconomicactivitywillbereflectedonthelabourmarketsothatonaverage7yearsof

theforecastperiodwillbeabout338,000morejobsinScenario1,comparedtothebaselinescenario.Ontheother

hand,theunemploymentrate in2020willbeabout4.4percentagepoints lowerthanthe levelthatwouldhave

beenthescenariowithoutfunds.Thepositiveeffectsoffundingoneconomicactivityanddomesticdemandwillbe

reflected in the budget,where budget revenuewill increasemore than costs, leading to shortages becoming

smallerandattheendoftheperiodevenpassingonsurplusinscenario1since2018.

InordertoachievetheeconomicgrowthaspirationsreflectedintheglobalobjectiveofthisPA,Romaniawillhaveamodern

andcompetitiveeconomybytacklingthefollowingfivedevelopmentchallenges:

I. Thecompetitivenessandlocaldevelopmentchallenge

II. Thepeopleandsocietychallenge

III. Theinfrastructurechallenge

IV. Theresourceschallenge

V.

The

administration

and

government

challenge

ActionunderthefivedevelopmentchallengeswillcontributetowardsRomania'sEurope2020targetsasfollows:

DevelopmentchallengesNationalEU2020targets Currentsituation

I II III IV V

70%ofthepopulationaged2064tobeemployed 63.8%(2012) * * *

2%ofGDPtobeinvestedinR&D 0.49%(2012) * * * *

Reductionofgreenhousegasemissionswith20% (compared

to1990level)49.54%(2011) * * * *

24%oftotalgrossfinalenergyconsumptionfromrenewablesources

22.9%(2012)5 * * * *

Reduction of 10 Mtoe (19%) in the primary energy

consumption

16.6%(2012)

(7.3Mtoe)6

* * * *

Lessthan11.3%ofchildrenshouldleaveschoolatanearlyage 17.4%(2012) * * *

At least26.7%of3034yearoldsshouldcompletethird level

education21.8%(2012) * * *

Reduceby580,000lesspeoplethenumberofpeopleatriskof

after social transfer by the year 2020 (compared to 2008levels)

164,000(2012) * * *

TheaboveeightchallengesarefoundalsointheCouncilsCountrySpecificRecommendationsfor2013,asfollows:

DevelopmentchallengesCountrySpecificRecommendations

I II III IV V

CompletetheEU/IMFfinancialassistanceprogramme * * * * *


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1.1ANALYSISOFDISPARITIES,DEVELOPMENTNEEDSANDGROWTHPOTENTIALS

1.1.1ANALYSISOFDISPARITIESANDIDENTIFICATIONOFTHEMAINDEVELOPMENTNEEDS

THECOMPETITIVENESSANDLOCALDEVELOPMENTCHALLENGE

General

Competitiveness iscommonlydefinedasthecapacityofabusiness,operating inthecontextofopenmarkets,to

retainitsmarketshare.Therearemanyfacetsofcompetitivenessofanindividualbusiness,including:

theentrepreneurialqualityandcapacityofitsmanagers;

thedistinctivenessandthequalityofitsgoodsandservices;

itslevelofinnovation;

itsphysicalandvirtualconnectionswithitsmarkets; theefficiencyofitsproductionprocess;

itsaccesstothefactorsofproduction land,labourandcapital.

The conceptof competitiveness can similarlybeappliedat the levelof countriesand regions, inwhich context

manyofthesamefacetsofcompetitivenessaremanifestedinamoreaggregatedform:

theextentofenterpriseculture;

areasofcomparativeadvantage;

resourceendowment;

researchandinnovationsystems

transportandcommunicationsinfrastructureandservices

availabilityofsitesandpremises

skillsavailability

functioningfinancialmarkets

TheDGENTRCompetitivenessScoreboardprovidesasummaryappreciationofRomania'srelativeposition.Inall

butafewmeasures,RomaniaisinaweakerpositionthantheEUaverage,andinathirdofmeasuresbya

substantialmargin,withlowproductivity,lowbusinessR&Dandsmallnumberofhighgrowthenterprisesprominent.

RomaniaCompetitivenessScoreboard DistancefromEUAverage(standarddeviations)

3 2 1 0 +1 +2 +3

InnovativeIndustrialPolicy

Labourproductivityperhourworked (2012) x

Labourproductivityperpersonemployed(2011) x

Labourproductivityperpersoninmanufacturing(2011) x

%ofemployeesinmanufacturingwithhigheducationalattainment(2012)

x

Tertiarygraduatesinscienceandtechnology(2011) x

R&Dperformedbybusinesses(2011) x

Shareofhightechexportsintotalexports(2011) x

SustainableIndustry


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ServiceSectors x

ElectricitypricesformediumsizeenterprisesexcludingVAT(2012) x

Infrastructureexpenditures(2011) x

Satisfaction with quality of infrastructure rail, road, port and

airport (201213)

x

%ofbroadbandlineswithspeedabove10MBps(2013) xPublicAdministration

Legalandregulatoryframework(2013) x

Burdenofgovernmentregulation(201213) x

Egovernmentusagebyenterprises(2012) x

Dataarepresentedsothatpositive(negative)figuresarealwaysbetter(weaker)thantheEUaverageSource: European Commission: Countryfiche Member States Competitiveness Performance and implementation of EU Industrial Policy Industrial

PerformanceScoreboard,2013

Challengingmarket

conditions

TheRomanianeconomyexpandedquiterapidlybetween2003and2008.Followingasharpdownturnin2009and

2011,growth returned in2011,butata lower rate.However, theoverall levelofeconomicactivity inRomania

remainsverylow.

Amajorconstraintongrowthisthelowlevelofdisposableincomewhichderivesfromtheemploymentstructure.

Ofthe8.365mjobsinRomaniaonlyjustover4mjobsaresalaried.Theveryhighlevelofselfemployment(2.1m,

25% of all jobs) is more associated with subsistence agriculture and a lack of alternatives rather than

entrepreneurship.Afurther1.4m(20%ofalljobs)isunremuneratedfamilylabour,acategorythatbarelyexistsin

themoredevelopedeconomiesoftheEU.There isaprofoundterritorialcharactertoeconomicactivity inRomania.Growthoverthepastdecadehasbeen

heavilyskewed infavourofBucharestIlfovwhichhasbecomeamainstreamfunctioningmarketeconomywitha

mixofmanufacturingandserviceemploymentandaGDPpercapitawhichexceedstheEUaverage.However, in

theothersevenregions,developmentgrowthanddiversityofeconomicactivity ismuch lowerandtheprospects

forbusinessgrowtharemuchmorechallenging:

lowlevelsofdisposableincomearisingfromthesmallnumberofsalariedjobsinhibitthedevelopmentof

internalmarkets; subsistence and semisubsistence agriculture, barter and black labour substitute for

formaleconomy;

consumercreditisunderdevelopedconsequently;

thehighlydispersedpatternofsettlementinruralRomaniaresultsinlocalmarketsthatarethin;

SMEsaredisadvantaged intheiraccesstopublicsectormarkets,whichrepresentasignificantproportion

ofaggregatedemandinthedevelopingregions.

Against this background themajority of SMEs are small, locally focused and have limited growth orientation.

Marketsanddistributionareunderdeveloped.

LowbusinessdensityRomaniahasthesecondlowestdensityofbusinessesintheEU27

7.In2011,thepopulationofcompaniesstoodat

452,010,withanoveralldensityper1,000populationof20.4.SMEscontribute53%ofGVA,fivepercentagepoints

belowtheEUaverage.

In terms of territoriality, across Romania's development regions there are significant variations in business

density8. BucharestIlfov is a significant outlier with almost 2.5 the average density of businesses. Four regions,


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Lesscompetitiveindustrialsectorsaccountforsome1.2mjobs,orcloseto70%ofalljobsinindustry.Thisdiverse

sector comprises extractive and primary processing subsectors, as well as utilities and manufacturing but is

weighted towards less advanced forms of manufacturing. Lower productivity in these sectors is variously

associated with low levels of investment, low levels of innovation and low skill levels among managers and

operatives.

Retailservices Commerce,motortrade,transport,hotelsand restaurants account foralmosthalfofthetotalbusinessunitsandjustoverafifthofalljobs,closetotheEU27average.ThecontributiontoGDPisjust13%and

labourproductivityisbelowaverage.

Within this Tourism directly supports about 193,000 jobs (2.3% of total employment) while its contribution

maintainingemploymentinrelatedsectorsisestimatedtobemorethantwiceashighRomania'stourismpotential

isconcentratedincertainnicheareas. Promisingsubsectorswithcriticalmassandhigheraddedvaluearehealth

tourism and ecotourism.Romaniahas around a third of the naturalmineral springs in Europeofferingdiverse

treatments. Investments to realise local development, may be supported in situations where local/regional

developmentstrategieshaveobjectivelydemonstratedtheexistenceofuntappedmarketpotential.

TheConstructionsector is largerthan inmostEUcountries.TheshareofbusinessunitsandGDP isfairlyevenat

justunder9%.

Highervalueaddingservices Informationandcommunications,Financialandinsurance,Realestate,Professional

andadministrativeservicesareunderrepresentedrelativetoEUaverage,accountingforjustover8%ofjobsbut

generatealmostaquarterofRomania'sGDP.

Intheperiod200811overallemploymentreducedby4.4%theextractiveandenergysectorsexperiencedsharpcontractions inemployment asdid the construction sector.Most retailingand related sectors sawonlya small

reduction inemployment,perhapsdue to theprevalenceofselfemploymentand familybusinesses.Realestate

wasbadlyaffectedandcontinuing reformsaw the lossof largenumbersofjobs in thepublicsector.Tourism is

reportedtohavedemonstratedresilienceandhavingcontractedsince2008tohavegrownsharplyin20129.

Sectors experiencing employment growth in 200811 were mainly in the higher value adding services group,

Logistics, ICTs, financial services and business services, all saw increases. Professional and scientific services

experiencedabelowaveragereduction.ThispatternsuggeststhatRomania'stransitiontoamodernservicebased

economycontinuedthroughtherecession.Agriculture, forestry, fisheries and aquaculture account for almost 30% of employment, almost five times the

average for theEUand itscontribution toGDP isalmost7%,but isnevertheless three times theEU27average.

Labourproductivity inagricultureis lessthanaquarteroftheaverageforallsectors inRomaniaandaquarterof

theEuropean average in agriculture (4,328.5euro/AWU, respectively14,967.0 euro/AWU, 2012).The indicator

displayedoneofthelowestgrowthrateascomparedtotherestofEuropeancountries(ofonly0.1%).

Romania'sagricultural landandwaters remainavastlyunderexploited resource.There isclear scope formuch

greaterdevelopmentandforgrowththoughtheirintegrationwiththeEuropeanfoodsystem.

Thepotentialinagricultureisconstrainedbyparticulardevelopmentchallengesrelatingtoapolarisedstructureofholdings.LargeandmediumfarmswhicharepotentiallycompetitivebutneedtobemoderniseandmeetEuropean

standardsaccountforjust7%ofholdingsbutmanagesome70%ofutilisedagriculturalarea(UAA).Some93%of

holdings of less than 5ha comprise the remaining 30% of UAA and are operated on a subsistence or semi

subsistencebasis,withlowornomarketorientationorcooperationtoachievescale,reducedlevelofproductivity

& technical endowment These holdings however represent an important buffer in Romanian society and in


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capacity isalso low,coveringonly14%ofproductioncapacity,affectingthesector'sabilitytoprovidefresh fruit

andrawmaterialsforprocessingunitsallyearround.

Theagricultural sectoroverall faceseconomic risksassociatedwithadverseclimaticeventsandclimate change.

Economicinstruments(insurance,riskmanagement)canhelptoaddressthesechallenges.

Aselsewhere,inEurope,Romania'sagriculturalworkforceisageingwithaparticularproblemofintergenerational

changeamongfarmmanagers.Beyond the farmgate,Romania'shighpotential toexpendexports into theEuropeanFoodmarkets ispresently

limited by lack of investment in primary processing and its alignmentwith European standards and consumer

expectations.

Althoughmaking amodest contribution toRomania'sGDP, fisheries and aquaculture,with fish processing and

trade infishandfishproductsarepresent inallregions.In isolatedareas,notablytheDanubeDelta,theDanube

Plain and the Danube Gorge, fishing activity is an important source of employment and income for the local

population.AquaculturehasawidervalueforRomaniathroughfoodresourcesproducedand itsrole increating

andmaintainingwetlandsandbiodiversityofmanyfishandbirdspecies.

FishproductioninRomaniafellbyathirdbetween2009and2011.However,theincreasingtrendonlongtermin

domestic consumption of fish and fish products, together with the present low share of Romanian produce

suggeststhatthereisscopetogrowthesector.

Thecompetitivenessof inlandfisheries ishinderedby lackoftargeted investments invessels,theexploitationof

viable ponds and in infrastructure. Although Romania has a large surface of aquaculture ponds, the range of

speciesfarmedisnarrowandcouldbebetteralignedwithmarketdemand.Management,includingenvironmental

management isweak;aquacultureproduction isunderreported.Processingandmarketingare inefficient,witha

high reliance on direct selling. Marine aquaculture doesn't benefit from favourable geographic and weather

conditions, limitingscope fordevelopmentanddiversification.Only fourareas fordevelopingshell farminghave

been identified. The development potential of Romania's Black Sea fisheries is ultimately constrained by the

sustainablefishstock.Overfishinghasledtoalowdiversityandquantityofhighvaluefish.Nevertheless,Romania

maintains thataspectsof theBlackSeamanagement regimedonotprovide for faircompetitiondue tothe fact

thatRomaniahastoobserveCFPrules,whilethelargestfleetsintheseabasin(Turkish,Ukrainian)arenotobliged

to.Lowcompetitivityismainlycausedbylowdiversityandquantityofhighvaluefish,inefficientandlownumber

ofvessels, inappropriatefishing infrastructureandrestrictionsrelatedtothefleetthreshold.Investmentsinbasicinfrastructurewouldhaveabroadcatalyticeffect.

Asmallnumberofstrongsectors

The draft of the National Competitiveness Strategy identifies competitive industrial and valueadding service

sectorswhichhavedemonstratedrecentgrowth10andgoodexportperformance:

automotive is high value adding, comprises some 500 large and medium companies, including

manufacturingandassemblybyFordandRenault; involvement intheirsupplychainshas improvedthe

productivityandcompetitivenessofRomaniancompanies;highlyexportoriented.

food and drink ismediumhigh valueadding andmedium technology; the sector includes some large

companies,buthasalongtailofsome7,000SMEs, itsfocusisprimarilytheRomanianinternalmarket;

organicfarminghasexpandedand ishighlyexportoriented;

textilesand leather is lowervalueaddingand lowmedium technologybutmay representscope to

increaseproductivityandaddedvalue through innovation; the sectorcomprises some4,000SMEsand


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The National Competitiveness Strategy also recognises the current and potential role of cultural and creative

industries,whichaccountforaround6%ofGDP, incontributingvalue inthesupplychainsofstrongandsecond

tiersectors,throughtheapplicationofdesignforexample,andincontributingtolocaldevelopment.

Culturalandtouristicactivitiesandlocaldevelopment

The enhancement of cultural activity, which is not delivered on a socially optimum level in Romania's less

developedregions,haspotentialtocontributetolocaldevelopment.Inadditiontoimprovingthequalityoflifeand

theattractivenessofRomania'stownsandruralareas,improvementstolocalculturalservicesandmultifunctional

infrastructuretogetherwithinvestmentsinecultureareahavepotentialtoenrichRomanianeducation,tovalorify

thespecific localtourismpotential,topromoteandtostimulatethe localdevelopmentbycreatingnewmarkets

availabletoSMEs.

Investment inculturalandtouristicactivities, includingrestorationofheritagebuildingsandmonuments,maybe

supportedwheretheprospectivecontribution to localdevelopment is identifiedasapriorityundertherelevant

RegionalDevelopmentPlan,isjustifiedonthebasisofprospectiveeconomicimpactandisinlinewiththeStrategyforCultureandPatrimony20142020.

Sourcesofnewbusinessactivity

Newbusinesses,ForeignDirectInvestmentandexportmarketsrepresentsourcesofnewbusinessactivityforthe

Romanianeconomy.

Newbusinesses

Boththesetupandclosureofbusinessesplayanimportantroleinimprovingthecompetitivenessofthebusiness

base.Thecreationofnewbusinessesisparticularlyimportant.InrecentbusinesscyclesintheEU,newSMEshaveaccountedforasignificantproportionofoverallemploymentgrowth.InRomania,theformationofnewcompanies

had been proceedingwell up to 2008 but stalled during the recession and has yet to fully recover. Romanian

businessesprovedtobelessresilientduringtherecessionthantheEU27average.

Bothchurnand survival rates inRomaniaareclose to theEUaverage11. In theperiod since1995, theoneyear

survivalratehasremainedbetween60%and70%withtheexceptionof2008,whenitfellto51%12.

Recentyearshaveseenaslightincreaseintheproportionsofnewbusinessesestablishedinindustry(16.8%,2011)

andConstruction(11.7%,2011)buttradecontinuestobedominantwithcloseto50%13.

Foreigndirectinvestment

Given the underdevelopment of domestic enterprise culture, foreign direct investment continues to play an

important role in thedevelopmentofRomania'seconomy,both in industryandhighervalueadding services. It

represents an opportunity to integrate Romanian companies into international supply chains and to support

improvements to their quality, level of innovation and productivity. Accordingly, future investments will give

precedencetosupportforFDIinhighaddedvaluesectorsbutwillnotberestrictedtothese.

FDIenterpriseshaveapositiveimpactonforeigntradeofRomania,contributingtototalexports 71.4%in2011.In

manufacturing,17ofthe23industrialsectorsaredominatedbymultinationals14

.In the period to 2011, Romania received 55.1bn in foreign direct investment

15. The distribution by sector is

significantlyalignedwithRomania'sstrongsectors. Manufacturing industryhasaccountedfor31.5%ofthetotal,

withinwhichChemicalsandplastics,automotivesandtransportequipment,MetalprocessingandFoodanddrink

havebeenprominent.Other largesectors includefinancialservices(11.5%),construction/realestate(10.7%)and

utilities(7.9%).ICTsaccountforjustover5%,underliningthecontributionofdomesticcompaniestothesector's


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the least attractive region for foreign investors,while SouthWest has potential to attract a bigger volume of

foreigninvestments18.

AnalysisofthecompositionofFDIsuggeststhatRomania'shasbeenattractiveformanufacturing industrieswith

lowembeddedtechnologyandhighenergyintensity.Partofthispatternreflectsthecharacteristicsofbusinesses

thatwereacquiredby foreign interestsaspartofRomania'sprivatisationprocess.However, italso reflects the

relocation of low valueadding activities from countries with a competitive economy, to take advantage ofRomania's available workforce and lower costs. For a small proportion, particularly Asian investments, the

motivationistopenetratenewmarkets.

Theopportunity forgreenfield investmenthasbeenanattraction forsome investorsandsuch investmentshave

hadasignificantimpactoncompetitiveness,buildingnewfacilities,bringingknowhowandnewtechnologiesand

creatingnewjobs.Intermsofterritoriality,mostFDIingreenfieldhasbeeninBucharestIlfov(60.5%),followedby

CentralRegion(11.0%),WestRegion(9.3%)andSouthMuntenia(6.3%).

The different level of attractiveness of Romania's regions to FDI reflects their relative proximity to European

markets,weaktransportandpoorbasicinfrastructurecompoundedbyanobstructivebusinessenvironmentanda

lackofentrepreneurshipintheprivatesector.

Exports

Althoughsubjecttoadownturnin2009,Romanianexportsincreasedbymorethan50%between2007and2011

when they stood at 45bn. Automotives have contributed most to the overall increase, but food and drink,

textiles/leather and chemicals have also seen significant growth. TheNational Export Strategy 20112015, also

highlights potential in sectors including industrial equipment,marine fabrication, furniture, electrical products,

pharmaceuticals,telecommunicationsequipment,softwareandITservices.Theevolutionofexportsintheperiod200711demonstratesthatRomaniahassectorsthatcancompeteinternationally.

Moreover, given the significance of foreign owned businesses in export sales, it demonstrates that global

businessescaninvestinRomaniaandbesuccessful.

Customs infrastructurehasan important impacton themovementofgoods,on foreign tradeand thereforeon

economicgrowth.Importedgoodsduring20112014period increasedbyanaverageof3.9%perannumand,for

thesameperiod,exportedgoodsincreasedbyanaverageof0.8%.Aonehourstopatcustomsisequivalentwitha

covereddistanceof70km.A stopof34hours isequivalent to210280kmcovered,delaying freight transport

arrivingtodestinations,withnegativeeffectsontransportutilization,business inventorycostsandonRomaniascompetitivenessasanexporterandasaconduitforforeigntrade.

Aninsufficientlysupportivebusinessenvironment

According to the World Economic Forum, the most problematic factors for doing business in Romania are

corruption, tax rates, government bureaucracy and inefficiency, access to finance, tax regulations, inadequate

infrastructure,inflationandaninadequatelyeducatedworkforce19.

Bureaucracy

Despite progress the Romanian business environment is still confronted by excessive bureaucracy, notably in

relationtofiscalmanagementandthecomplexityanddurationofprocedures20.Regulation lacksproportionality.

Administrative, accounting and reporting requirements are common to large and to micro businesses. This

contributestomaintainingahighrateofactivityoutsidetheformaleconomy.

Unnecessarilyrestrictivecriteria,highcostsofparticipationandtheinabilitytocontractonbasesotherthanprice

d t l d SME f bli t k t d d i R i j f i d SME


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Accesstofinance

Access to business finance remains problematic22 and recent surveys containmixedmessages onwhether the

situation is improving.Ononehand in2011, 15%ofRomanian SMEs reported access to finance as theirmost

pressingproblem inlinewithEUaverage reducedfrom27%in200923.Ontheother,againstanimprovingtrend

across the EU27, Romanian SMEs reported a deteriorating position in the previous 6 months in relation to

availabilityoffinancefrombanks(13%)publicsupport(47%)tradecredit(25%)equity(40%).ResearchcarriedoutbyEIF

24publishedin2009highlighteddifficultiesinaccessingfinancefacedbySMEs,andnew

startsups in particular. Bank finance was identified as the main source of external financing. Relatively few

propositionsareofascalewhereprivateequitybecomeseconomic;limitedpersonalassetvaluesconstrainaccess

tobankbasedloanfinanceoncommercialterms.

The JEREMIEFund (100m) is the largest financial instrument implemented in20072013.Althoughapproved in

2008, it was not active until 2011 that the first financial intermediaries were contracted for the Portfolio

Guaranteeproduct(68m)whichhadinJune2013anestimatedportfolioaroundof160m.The17.5mCatalyst

Fundproviding riskcapitalmade its first investment in June2013.However,microfinance initiativeshave so far

beenmoresuccessfulthanotherfinancialinstruments.Experiencehasalsohighlightedthenegativeimpactofthe

reimbursementmodeloninvestment,andwhichresultedinapprovedinvestmentprojectsnotproceeding.

Intermsofterritoriality,financialservicesareingenerallessaccessibletoruralbusinessesandtotheagricultural

sector.AlthoughtheRomanianbankingsystemhasdevelopedrapidly inrecentyearsandthebankshaveshown

greateropenness to financeSMEsandagrifood sector,mostEAFRDbeneficiariesareassessedashigh riskand

consequently their access to loans for cofinancing projects and supporting cashflow for implementation is

difficult. Moreover, theuseof landandother farmassetsasbankguaranteeshasbeendeeplyaffectedby the

volatilityofvaluesaccompanyingthecrisis.

Takeup in200713ofguaranteeschemessupportedunderEAFRDdesignedasnonStateAidschemeshasbeen

disappointingcomparedtosubsidised loanschemesusedunderSAPARD,duringthepreaccessionperiod.These

guarantee schemes have not overcome the barrier of accessibility to funding due to the last years' economic

situationinfluencinglendingpoliciesoffinancialinstitutions.Amongthevulnerabilitiesassociatedbylenderstothe

ruralareawementiontheaverageareaofagriculturalexploitationunderthelevelofeconomicviability,lowprofit

marginwheninvestinginsmallerbusinesses,doubledbyinsufficientinformationonruraleconomy.Anadditional

burdenaffectingbeneficiariesrelatestothecostoftheschemes.Asaconsequence,theamountallocatedtotheguaranteeschemeswas in2013reducedbyaprox.50%(from220mpubliccontributionto116m).Appropriate

designof instruments,balancingStateAid,easeof implementation,bankandbeneficiaryrequirementsandtheir

availabilityfromoutsetofnewprogrammes istherefore,akeytotheirsuccess.Theexanteassessmentrequired

beforeimplementationshouldidentifythetypesoffinancialinstrumentneededtocoverthemarketgaps,optimize

allocationandmaximizeresults.

Accesstosupport

A further lesson from 200713, relates to provision of information and other support business. In this area

fragmentation and the complexity of processes has also been a disincentive to takeup, resulting in reduced

effectiveness.TheseissueswillbeaddressedthroughacleardemarcationofactionsbetweentheCompetitiveness

and Regional Operational Programmes in 201420, Competitiveness OP will finance only research and/or

innovationforpublicandprivateentities,includingSMEswhileROPwillfinanceallactivitiesoftheSMEsrelatedto

businessdevelopment.


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growthinemployment25.Analysisbyoccupationalgrouprevealsthehighestvacancyratesforskilledworkersand

relatedworkers(3%),plantandmachineoperatorsandassemblersofmachineryandequipment(2.5%)andskilled

workers in agriculture and fishing (1.8%). Recruitment difficulties were highlighted particularly in occupations

requiringTVETqualifications.

The supplyof skills ispartly conditionedby the traditional requirementsofRomanian industrywith its focus in

labourintensiveandlowvalueaddingactivities.InmanufacturingtheshareofhighlyqualifiedlabourisabouthalfoftheEU27average.Nevertheless,thegradualincreaseintheshareofhighlyskilledinlabourforcesince2006is

indicativeoftheshifttoamoreknowledgebasedeconomyandanincreaseinmediumandhighlyqualifiedjobsat

theexpenseoflowskilled.

Availabilityofhighlevelskillshasbeenadverselyaffectedbythelargescaleemigrationofskilledworkforceinthe

past decade, a phenomenon that has also been reflected in the ageing of the workforce. Moreover, skills

availabilityisalsoaffectedbytheproportionofenterprisesprovidingvocationaltrainingtotheiremployeeswhich

isbelowtheEUaverage(40%vs.58%).Romanianmicrofirmsareeven less inclinedthantheirpeers inotherEU

countriestoensurethattheiremployeesparticipateinlifelonglearningactivities.

ICTsandcompetitiveness

InadditiontothepotentialofICTsasagrowthsector,ICTsplayanimportantroleinimprovingbusinessefficiency

andextendingmarketreach.

Considerablecaution isneeded in interpretingRomania'spositionon theDigitalScoreboardas regardsbusiness

useofICTsasitispotentiallymisleadingduetothedistinctivestructureofthebusinessbasewiththelargescaleof

selfemploymentandverysmallagriculturalholdings.Althoughonly36%ofRomanianbusinesseshaveawebsite

comparedwith71%onaEuropeanlevel,thisrepresentssubstantialtakeupamongbusinessesthatwouldbenefitfromhavingawebsite.

Asregardsecommerce,however,thereisacleardeficit26bothonthesupplyside(only5%ofSMEswith10 250

employeessellingonline,comparedwith13%atanEUlevel)andonthedemandside(5%allindividualsand11%

internetusersbuyingonlinecomparedwith45%and59% for theEU27 in2012)27.Although the largecompany

shareofturnoverfromecommercehasdoubledinthreeyears,at6%itislessthanathirdoftheEUaverage.

Thelowtrustofcitizensinelectronicsystemsisidentifiedasasignificantbarriertotheadoptionofecommerce28.

Inadditiontoimprovinginternetaccessandstimulatingcomputeruse,developmentofthedigitalmarketplacein

Romaniawill requireconsumerconfidence tobebuilt in thesecurityofpersonaldataand financialtransactionsandalsoconsumerlawaroundonlinepurchaseofgoodsandservices.

Thisneedstobecomplementedbydevelopmentoftheregulatoryframeworkoncrossborderecommerce,online

payment and delivery andwill be supported by a framework dedicated to easy resolution of the abuses and

disputesspecifictoecommerce.

ICTdevelopment in governmenthaspotential to improve the competitivenessof thebusinessenvironment, to

increasepublicsectorefficiencyandtoreducebureaucracy.In2011,only63%ofRomanianenterpriseswereusing

the Internet for interactionwithpublicauthorities,comparedwithaEU27averageof87%,whereasonly31%of

the citizenswereusing eGovernment services (the European target for the endof 2015 is 50%).However, to

significantlyimprovetheefficiencyandflexibilityofegovernmentenvironment,actionwillbeneededto:

improvetheinteroperabilityofelectronicsystems;

preparationofeidentity;

rationaliseandconsolidategovernmentICTandegovernmentsystemswhichhavehithertodevelopedina


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productsandservices;foodanddrinkprocessing.However,thesesectorsaccountforalimitedproportionoftotal

employmentandtheirgrowthpotentialisinsufficienttoovercomeRomania'svastemploymentgapinthemedium

term.

Reflectingtheiroverallinfluenceonemployment,stimulatinggrowthandsustainingexistingactivityinsectorsthat

havenotablepotential forgrowthand increasedaddedvalue health/pharmaceuticals;tourism;textiles/leather;

wood/furniture;creativeindustries;energy/environmentalmanagementandinagriculture,forestryandfishingwillalsobeimportanttoRomania'smediumtermdevelopment.

Forasustainableincreaseofnationalcompetitiveness,itisnecessaryforinvestmentsinthesesectorstobegiven

priorityatnational leveland to receivemost support fromESIFunds.At the same time,RegionalDevelopment

Planscanidentify,atlocallevel,othersectorswithgrowthpotentialthatmaybeasecondaryfocusforinvestment.

AsregardstheprimarysectorinvestmentsinrestructuringfarmsandcompliancewithEUstandards,renewalofthe

agestructureinagriculture,fosteringaccesstothemarketofagriculturalproducts, improvingtheagricultureand

forestry infrastructureand increasing theaddedvalueofagriculturalproductsthroughprocessing infrastructure,

areissuesthatneedtobeaddressed.

Subjecttotheoutcomeoftheexanteassessmentadequatefinancialinstrumentsforfarmersandforstimulating

the rural business environmentwill need to be established. Thiswould allow amore competitive purchase of

quality inputs, a better orientation of farms towardmarket demands, including short supply food chains, the

diversification of basic product and the improvement of general viability. Credits and guarantee funds are

important especially when agricultural and other micro and small enterprises need cofinancing for rural

developmentprojectsandforothertypesof investmentprojects.Riskmanagementtoolsforfarmersareneeded

tohelpthembettermanagetheeconomicimpactofadverseclimaticevents.

Analysisby sectorand regionhighlightswhere regionsenjoycomparativeadvantage30,variouslyon thebasisof

natural resource and other factor endowments, relative accessibility tomarkets and supply chains inWestern

Europe,etc.Futureinvestmentswillseektoconsolidatetheresultinglocalandregionalspecialisation,inorderto

ensure efficient use of regional development resources including by promotion of clusters (includingmaritime

clusters in line with the identified potentials of the BlueGrowth Sectors in Romania). Regional comparative

advantagesareidentifiedinrelationto:

highertechnologyindustrialsectors chemistryandoilprocessingindustry(Southregion)andautomotive

industry (South, SouthWest, West and Centre regions), energy (SouthWest, West and SouthEastregions);

lower technology industrial sectors textile and clothing industry (NorthEast, SouthEast and Centre

regions),leatherandfootwearindustry(NorthWestregion)andwoodprocessingandfurnitureindustry

(NorthEast,NorthWestandCentreregions);

high valueadded service sectors ICTs (BucharestIlfov, West and NorthWest regions), financial and

insuranceactivities(highlyconcentratedinBucharestIlfovregion,reflectingthemajorimportanceofthe

capitalcityfortheentireRomanianeconomy);

untapped potential for tourism, as a driver for local development, will be tackled, in a tailored basis,consistentlywiththeanalysisentailedintheregionaldevelopmentplans.

Agricultureand foodare identifiedas important inall regions,butwithrelatively lesscontribution inBucharest

Ilfov,CentralandinNorthWest.

Inpursuinglocalgrowth,thedirectionofRegionalDevelopmentfundswilltakeintoaccountbothnationalsectoral

priorities and regional strengths In particular the policies and instruments with an effect on the maritime


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The continued expansion and growth, including in internationalmarket of Romania's competitive

manufacturingandhighvalueaddedservicessectors,inparticular,automotives;ICTproductsandservices;

foodanddrinkprocessing;

The transformation of Romania's traditional sectors, health/pharmaceuticals; tourism;

textiles/leather; wood/furniture; creative industries; energy/environmental management and in

agriculture, forestry and fishingwhere there ispotential to grow, to increase added valueor to sustainactivity in themedium term through theexploitationof specialistnichesor to increasecompetitiveness

throughinnovationandmarketdevelopment;

The restructuring, consolidation and on farm diversification in order to improve competitiveness and

viabilityofagriculturalholdings;renewaloftheagestructureinfarmingandtheadoptionofmodernand

innovativeproductionandmarketingpractices;

Attractingyoungpeoplewiththeappropriatetrainingintheagriculturalsector;

Increasingthevalueaddedgeneratedbythefruitsectorthroughan integratedapproachacrossthe

valuechain;

Theimprovementtothecompetitivityandentrepreneurshipinthefisheriesandaquaculture.

Theradicalimprovementtothebusinessenvironmentintermsoftheavailabilityofinvestmentfinance,

thetransparencyandpredictabilityofpolicy,theproportionalityofadministrationandregulation,including

throughimprovementtogovernmentuseofICTs;

Theattractionof investment intoRomania's lessdeveloped regionsand into its ruralareas throughan

integratedapproachspanninginfrastructure,sites,skills,andinvestmentsupport;

Strengtheningthedigitalbusinessenvironment;Theneedtofocusoncreationofemploymentandgrowth

bytheblueeconomy.

Research,developmentandinnovation(RDI)activityinsupportofcompetitiveness

General

Science,technologyandinnovativebehaviouraretransformingforcesforbusinesses,individualandsocietywhich

facilitate:

enhancementof theaddedvalue inproductsand services, thus supportinghigher returns tobusinesses

andskills;theachievementandretentionofcompetitivenessinanincreasinglyglobalisedmarketplace;

approachestomanyofthebigchallengesconfrontingsociety.

TheEurope2020Strategyaimstofostersmartgrowthbysupportingsustainedinvestmentininnovation.In2012,

Romaniainvestedonly0.49%ofGDPinR&D,withmorethan80%accountedforbytheRomanianpublicsector.A

step change inbehaviour isneeded toachieve thenational Europe 2020 targetof2%ofGDPby202031.Some

studiespointtoarelativelyhighlevelofinnovationinRomanianbusinessesnevertheless32,andsuggestaneedto

lookbeyondformalR&Dexpenditureinordertofullycomprehendthesituation.

Objective2020

UE27

targets

Romaniaassumedtargets

throughNationalReform

Program

Romaniacurrentsituation(2012)

TotalinvestmentinR&D(frombothpublic

andprivatesources) %ofGDP3% 2% 0.49%

Country Specific Recommendations 2013:


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TheinnovationpotentialinbusinessiscloselylinkedtoRomania'seconomicstructure34:

largecompaniesaccountforjust0.4%ofallcompaniesbuttheycontribute47.3%ofGVAattributableto

companies;56.4%oflargecompaniesareassessedasinnovationactive;

mediumsizedcompaniesaccountfor1.9%ofcompaniesandgenerate20.5%GVAincompanies;38.7%of

mediumsizedcompaniesareassessedasinnovationactive;

smallcompaniesrepresent10.6%ofthetotaland17.8%ofGVA incompanies;27.5%ofsmallcompaniesareassessedasinnovationactive;

micro companies amount to87.1%of the total and14.4%GVA in companies,only a small fraction are

believedtohavecapacityororientationtowardsinnovation;

At present, investment in R&D is extremely concentrated in high and medium technology companies which

represent a small proportion of the total35. The large proportion involved in low or mediumlow technology

activitiesgeneratealowdemandforinnovationsupport.

Theshareofhighandmediumtechnologyindustriesingrossvalueaddedgeneratedbyallcompaniesinindustrial

sectorincreasedfrom20.8% in2008to25.9%in2011whichshowsabetterresistancetotheeffectsofthecrisis

and sustainability. The activity of hightech andmedium companieswas, naturally, supported by a significant

investment in research,development and innovation, these companies concentrating 84%of all industrialR&D

expenditurein2011.

Innovationpotential also reflects the focusof activity.Asdiscussed above,Romania's companybase is skewed

towardslowvalueaddingactivities.Almosthalfofthetotalisinretailingorclosetoretailingactivities.

However, beyond the structural factors which suggest that a very modest proportion of the business base

representsarealistictargetforinnovationsupport,additionalfactorshavebeenidentifiedasconstrainingprivateinvestmentinresearchandinnovation36:

the negative impacts of the international economic crisis which have increased risk aversion, reduced

liquidityandhadasignificanteffectonSMEaccesstofinance,includingtofundR&D37;

lackofventurecapitalgenerally,butmore specificallyanabsenceofventure capital fundsdedicated to

R&Ddriventechnologicalinnovation;

disruption in national public support to RDI activities since 2009 (National Programme calls become

irregularandthecallsbudgetsdecreasedsharply);

thecomplexityofrulesconcerningaccessandimplementationofpubliclysupportedRDIprojects;

decreaseinthenumberofR&Demployeesintheprivatesector;

many of the foreignowned companies (including former state companies) do not include research

activitieswithintheiroperationsinRomania;

weak connections between academia and Romanian private sector R&D, and the poor practical

applicabilityoftheresearchresultsgeneratedbythepublicsector;

high costs of patent registration at European level. Romanian institutions are determined to patent at

nationallevel.

In spiteofadiverseofferof financial support forRDI in theperiod20072013wasquitediverse,demand from

enterpriseswasnotparticularlyhigh.Accesstofinancialinstruments(loan,guarantees,riskcapital)waslimitedin

thisperiodandtheSMEs,especially,founditverydifficulttoensurearobustcashflownecessaryfortheirprojects.

LimitedalignmentbetweenprivateR&Dandsectorswithgrowthpotential

In 2011 business R&D expenditure was concentrated in the automotive (22%) chemicals (10%) ICT (10%) and


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AnalysisofthepublicdemandforR&DfundsshowsthatICTisactiveinseekingpublicfunding,whereasautomotive

andchemicalR&Disbasedmainlyonprivatefunding.

The pattern of private R&D expenditure is only partially correlated with sectors targeted under the National

CompetitivenessStrategyandNationalRDIStrategy38.

BasedontheanalysisoftheRDImarketinRomaniaandaccordingtothemethodologicalguidelinesspecifiedinthe

European Guide forResearch and Innovation Strategiesbasedon Smart Specialisation(RIS3) theNationalRDIStrategyidentifiesthefollowingthematicprioritiesforthepublicRDIinvestmentsintheperiod20142020:

bioeconomy (agriculture and forestry, fisheries and aquaculture, food, biotechnologies and bio

pharmaceutics);

ICT,spaceandsecurity;

Energy,environmentandclimatechanges;

econanotechnologiesandadvancedmaterials;

health.

The most important Romanian RD infrastructure, ELINP, its first phase financed under 20072013 period, is

expected to bring significant advances in basic sciences laser and nuclear physics, astrophysics aswell as

importantbreakthroughs inapplicationsofmajorsocietal interests inmaterialand lifesciences. Topromotethe

commercialexploitationofELINPfindingsandfacilities,anopen innovationassociationofresearchandbusiness

entitieshasbeenformed.

The existenceofELINPwillhave stimulating effectsonhigh tech industries,offering excitingopportunities for

companiestoperformfrontierresearchaswellasfosteringtheresearchtothebenefitof innovativecompanies,

havingdirectandindirecteffectsontheeconomicenvironmentatlocalandregionalscales.FragmentedpublicR&Dpoorlylinkedwithbusiness

Romania has an extensive public R&D infrastructure comprising 54 universities, 46 National Research and

Development Institutes, the Romanian Academy with 66 Institutes and Research Centres, the Academy of

AgriculturalandForestryScienceswith17 Institutes,ResearchCentresandanetworkof field researchunits. In

termsofterritoriality,althoughrepresentedinallregions,thereisparticularconcentrationinBucharest,followed

byIasiandCluj.However,theRomanianR&Dandacademicenvironmentshavebeenfoundtobecharacterizedby

fragmentation, inconsistent quality, excessive standardization, inefficient use of resources and the absence of

strategyfordevelopingresearchintensiveinstitutions39.

Private agricultural researchhas a low share in thenational agricultural research.Aparticularityof agricultural

researchinRomaniaisthefactthatresearchitselfisassociatedwithdevelopmentandinnovationactivity,aswell

aswithacommercialactivityon themarketofseeds,viticulture, forestry,animalhusbandryand fisherygenetic

material.

TheR&DinstitutesareunderassessmentandclassificationaccordingtotheirR&Dactivityperformance40.Themain

evaluation criteria are the quality of research results, the quality of human resources, the quality of the

infrastructureand its levelofexploitation,managerialefficiency,andthequalityofthe institutionaldevelopment

plan.TheinvestmentofESIFundsinR&Dpublicinfrastructurewillbeprioritizedonthebasisofthisevaluationand

thequalitycertificatesissued.

AnalysisofpublicationsandpatentapplicationsrevealsthatRomanianpublicR&D institutionspossessparticular

strengthsinthefieldsof:

Materialstechnologies,includingnanotechnologies;


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(including Aeronautics); Nanosciences, Nanotechnologies, Materials and New production technologies;

Environment;Health;Food,AgricultureandFisheries,andBiotechnology.

Thesestrengthsarewellalignedwiththesectorsthataredemonstratinggrowthandexportpotentialunderthe

competitiveness strategy (e.g. automotives, ICTs, food),with second tieropportunitieswhere innovation could

extendthelifeofmatureproductlinesandsupportrelateddiversification(e.g.woodandtextiles)andwithmajor

societalchallengesconfrontingRomania(notablyclimatechangeadaptation,andenvironmentalremediation).However,whilemuchoftheresearchundertakeninRomaniaisimpressive,itislargelydrivenbyacademiccuriosity

ratherthancommercialconsiderations.Connectionsbetweeneducation,researchandthebusinesssectorremain

weak41,with the result that few ideasare transferredandcommercialised

42.Suchcollaborativeactivityasexists

tendstobebetweenR&Dinstitutionsandlargecompanies.ThereislimitedparticipationbySMEs,althoughthisto

some degree reflects the relatively small scale and sectorial structure of the SME base. The public research

institutionshavenotdevelopedspecialmanagementandpersonalcapacitydedicatedtobettercommercialisation

ofresearchresults,bettermanagementofIPR,strongerdialoguewithenterprisesinsupportoftheirneeds.

Weaksystemsforprotectingandsharingintellectualproperty

LinkagebetweenbusinessandtheRomanianresearchbaseisfurtherimpededbytheframeworkofownershipand

sharingof intellectualproperty43arising from research.Thepresent low levelofpatent registrationandthe fact

that more than half of applications are filed by individuals rather than businesses, universities and research

institutes has militated against the development of systems of IPR protection needed in an open innovation

environment. With a low level of use, the technology transfer and commercialization channels, including IPR

advisoryassistanceare veryweak.Moreover, filing andmaintenance costsofpatents at international levelare

prohibitiveforindividualresearcherslackingcorporatebacking.Adraftlawregardingemployeesinventions,approvedbytheGovernmentispresentlybeforetheParliamentand

isintendedtoclarifyincomesharingrightsfromcommercializedIPamonginnovatingemployees,theiremployers

andcollaboratingresearch institutions.Thiswill incentivize innovativebehaviouramongthesegroupsandshould

enablepublicsupportforIPRprotectiontobemuchmoreefficient.Also,aproposaltoamendIPRlegislation(the

LawNo84/1998 isunderpreparation inorder toclarifysomeaspectsresulting from the implementationofthe

Law.

Shortageofresearchskills

The research skillsbase inRomaniahasexpanded substantially since1993,particularly in thehighereducation

sector.However,uncompetitivewages and research facilitieshave seen talenthaemorrhage frompublic sector

researchinrecentyears,withmanyyoungresearchersmigratingabroad.AmongtheEUcountriesRomaniahasthe

lowestshareofR&Dpersonnelasapercentageofallpersonsemployed(0.4%in2010)whichisaboutaquarterof

theEUaverage.Intermsofterritoriality,onlyBucharestIlfovisclosetotheEUaverageof1.7%.

In2011only25.8%oftheeconomicallyactivepopulationintheagegroup2564hadeithersuccessfullycompleted

tertiary education in science and technology or was employed in an occupation where such an education is

normally required, in comparison to the EU27 averageof 42.3%. In termsof territoriality, there are significantregional varianceswithBucharestIlfov (46.7%)exceeding theEU27average, and the remaining regions varying

from17.7%inNordEastto25.1%inWest.

LessonsLearned

Thereareatpresentfewevaluationresultsavailablethatprovideinsightintotherelativeeffectivenessofspecific


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Theabsenceofthefinancial instrumentstailoredtotheneedsofR&Dsectorand itsconnectionwiththe

productivesector/technologictransfer.

Theimportanceofthesimplifiedrulesregardingaccessandimplementationofprojects.

Maindevelopmentneeds

In response to the foregoing analysis, investment in 201420willbeprioritized in the frameworkofRomania'sNational Competitiveness Strategy, the National RDI Strategy and the National Agricultural Strategy and the

principles of smart specialization and will emphasize support leading to the commercial application of RDI

activities.Acomplementaryfiscalenvironmentwillincentivizecompanies,includingmultinationals,tolocatetheir

researchactivities inRomania.Ataxdeductionof120%ofR&Dexpenses forundertakingswhereR&Dactivities

accounting forat least15%of their totalyearlyexpenditurewas introduced in2010andhasbeenupgraded to

150%in2013.

InvestmentofESIFundsininstitutionswillbeprioritizedonthebasisofthefindingsofthenationalassessmentof

R&Dinstitutionsasfollows: stronginstitutions/welllinkedtoprioritizedsectors mainfocusofsupport;

lessstrongbutcapableofimprovement/welllinkedtoprioritizedsectors secondarypriorityforsupport;

weakinstitutions/notlinkedtoprioritizedsectors notapriorityforsupport.

For the agriculture sector, knowledge transfer, innovation support and research that iswell correlated to the

practicalneedsof farmerswillbe important for increasing farm competitiveness andperformance. Inorder to

facilitatetheintroductionofnewtechnologies,afocusingofresearchunitsonpracticalapplicationsatfarmlevelin

thecontextofpartnershipagreementsforinnovationwillbeessential.InformedbythefindingsoftheanalysisofDevelopmentChallengesandtheSWOTAnalysis(AnnexI),themain

developmentneedsare:

The creation of amore compact andmodern R&D environment that is focused on businesss needs,

societalchallengesandtechnologieswhereRomaniahasworldclasspotential,informedbytheprinciples

ofsmartspecialisationandinordertoincreasethecommercialisationandinternalisationofresearch;

Thepromotionofanenterpriseandinnovationculturethroughouttheeducationsystemandinbusiness

networkedwith all necessary forms of support, financial, managerial, technical, creative, in order to

realisethelatentpotentialinRomania'speopleanditsbusinesses;

Adaptingresearchactivitiestotheneedsoffarmersandfacilitatingtheiraccesstoresearch, innovation

resultsandqualityadvisoryservices.

THEPEOPLEANDSOCIETYCHALLENGE

Employmentandlabourmobility

General

Romaniaisconfrontedbyacomplexofissuesinthelabourmarket.Principalamongthese isagrossdeficiencyin

demandwhichisreflectedinalowemploymentrate44domesticallyandinmassivemigrationtotakeadvantageof

betteropportunitiesinternationally.Thiscreatesaverypoorplatformforprogressivelabourmarketpolicy.Insuch

asituationofverylowdemand:

employeesareforcedtoacceptlowlevelsofremunerationandpoortermsandconditionsofemployment;


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ProgressundertheInfrastructureandResourcesChallengesmayalsohelpinpromotinglabourmarketdemandin

the target areas, as well as creating the prerequisites for economic growth. Other factors, such as a more

favourable fiscal policy, could also help in achieving the set targets for employment, by bringing some of the

informaleconomytolight.

The importance of a high level of labourmarket participation and employment to sustainable development is

reflected in the Europe 2020 objective of a 75% employment rate by 2020. As part of itsNRP, Romania hasassumedasanationaltargeta70%employmentrate(agegroup2064)by2020.Thistransformationwillrequire

anet increase indemand for labourof at least10%anda considerable improvementof thepositionofyoung

people,womenandolderworkersintheRomanianlabourmarket.

Objective2020 UE27Targets(%)RomaniaassumedtargetsthroughNRP

(%)

Romaniacurrentsituation

(%)

Employmentrate

(agegroup2064)75 70

63.8(2012)

71.4male

56.3

female

CountrySpecificRecommendations2013:

- tofightundeclaredwork;

- topromotetheemployabilityofolderworkers;

- to improve labour market participation, as well as employability and productivity of the labour force, by reviewing and

strengtheningactivelabourmarketpolicies,toprovidetrainingandindividualisedservicesandpromotinglifelonglearning;

- toenhancethecapacityoftheNationalEmploymentAgencytoincreasethequalityandcoverageofitsservices;

- tofightyouthunemployment,implementrapidlytheNationalPlanforYouthEmployment,includingforexamplethroughaYouth

Guarantee.

AgrossdeficiencyindemandforlabourRomaniahasasignificantly loweremploymentrate(63.8%forage2064in2012)comparedwiththeaveragefor

theEU27 (68.5%), althoughactivity in the informaleconomy45maymean thatofficial figuresunderstate actual

employment.Theinformaleconomyhasbeenestimatedasrepresentingasmuchas28.4%ofGDP46(2013)much

in the form of undeclared and informal work or underreporting of earnings by people identified as in

employment47.Asaresultofthecrisis,theemploymentratedecreasedby1.6%during2008to2012.

Unemployment remained relatively lowduring the recession, rising from 5.8% in 2008 to 7.4% in 2011before

easingto7.0% in2012,some2.5percentagepointsbelowtheEUaverage.However,thisreflectsa tendencyof

long term unemployed people tomigrate off the unemployment register into inactivity once theGovernmentunemploymentsupportfinishes.Some30%ofthepopulationinthe2064agerangeiseconomicallyinactive.

Boththeunemploymentandinactivityratesneedtobeconsideredinthecontextofthequalityofemploymentin

Romania.Justunderhalfofthe8.3mjobsintheeconomyaresalaried.Oftheremaining:

1.4m (17%) are unremunerated familymembers a category that is virtually nonexistent in themore

developedMemberStates;

2.1m (25%) are selfemployed this is averyhigh levelof selfemployment relative tomoredeveloped

MemberStatesand ismoreassociatedwith subsistenceagricultureand lackofalternatives than innate

enterpriseculture.

Thissituation isevenmorepronounced inruralareaswhereselfemployedandunremunerated familymembers

accounted for42.6%oftotalemployedpopulation in2012.Therefore,thesupport fornonagriculturalactivities

willleadtoeconomicgrowthinruralareasandincreaseofpopulationemployedinsecondaryandtertiarysectors.

Together, these phenomena are indicative a gross shortage of employment opportunities in the Romanian


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those with more dynamic labour markets and those with the lower unemployment rates dominated by the

unsalariedasidentifiedabove(i.e.NorthEastregion).Thelevelofemploymentandtheunemploymentratesdo

notcorrelatewiththedisparityandpovertyintheregions48.

The reduction in the employment rate through the recession was concentrated in rural areas, while urban

employmentcontinuedtogrow.

A trend analysis on the employment, during 20052012, shows decreases for the 20 to 64 years old ruralpopulation(with1.2%,reaching65.7%in2012)andinparticularfortheprimaryandsecondaryeconomicactivity

sectors (with2.6% in agriculture and4,4% in industry and constructions),but also an increaseby14.5% in the

tertiarysector(services)employment.Therefore,thediscrepancybetweenRomaniaandtheEU27average isstill

toohigh, requiring theengagementofRomaniapopulation inothersectorsoftheeconomy,than inagriculture,

giventhat30.5%ofpopulationwasemployedinagriculturein2012comparedtotheEU27averagewhichrecorded

5.2%inthesameyear.

AsregardspopulationemployedintheRomanianfoodindustry,in2011itrepresented2.1%(Eurostat)ofthetotal

employed population, this percentage being 34% below the new EU12 average of 2.8%. The ratio betweenpopulation employed in agriculture and the one employed in food industry is 12:1 (the highest in Europe), as

comparedtothenewEU12averageof5:1.

Asalreadystatedinthecompetitivenesssection,theincreaseofthecompetitivenessoftheagriculturalsectorwill

leadalsotosignificantlossofjobsmakingahighrequirementforabsorptionoflabourespeciallyamongtheyoung

andothersfromsubsistencefarms.

Certainfisheriesandcoastalareashavehighunemploymentrates,forexample,TeleormanCounty(10.04%,2012)

andGalai (9.14%). However, forthemostpart,unemployment in fisheriesandcoastalareas isnotdistinctively

high.

Alackofenterpriseculture

Entrepreneurship inthesenseofmotivationtoestablishandgrowabusinessasdistinctfromselfemployment

has importantbenefits,botheconomicallyandsocially. Itcreatesemploymentandwealthwhilecontributing to

personalfulfilmentandtheachievementofsocialobjectives.InRomania,entrepreneurshipisstillweakandinrural

areasisalmostnonexistent.Inrecentresearch49,74%ofRomanianrespondentswouldprefertoopenabusiness,

comparedto8%whowouldliketobeemployed.Only25%ofrespondentshadinitiatedtheprocessofstartinga

business,thelowpercentagebeingexplainedbyanumberofbarriers,ofwhichthemostimportantare:difficultyofaccessingfinance(93%)andfearofgoingbankrupt(56%).Accordingtothestudy,aboutaquarterofRomanian

businesseshavedisbandedafterthreeyears.

Youngpeoplefacebarriersinbreakingintotheworkforce

SignificantdiscrepanciesbetweenRomaniaandEU27areregisteredintheemploymentrateamongyoungpeople

(aged1524).In2012,theaverageinRomaniawas9%lowerthantheEUaverage(23.9%inRomania,against32.9%

inEU27);foryoungwomen,thegapwas10.7%.

Moreover,in2012,theshareofyoungpeoplenotinemployment,education,ortraining(NEETs)

50

was3.6%abovetheEUaverage (16.8% inRomania,against13.2% inEU27)andamongyoungwomenwas18.6%compared to

13.5%inEU27.

Youngpeoplefacedifficultiesbreakingintostableemployment,foravarietyofreasons:

competitioninalabourmarketwherethereisanoverallshortageofemploymentopportunity;established

workers hold onto positions;

h l b k f l h d d h h h d f h h h


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Thelabourmarketsituationofyoungpeoplehasdeterioratedthroughtheperiodoftheeconomiccrisis,withthe

unemploymentrate increasingfrom18.6%in2008to22.7%in2012.However,thehighunemploymentratepre

recession reveals persistent difficulty of transition for young people in a labourmarketwith a gross deficit in

employmentopportunities.Reflecting territorialdisparities, three regionswillbeeligible forYouthEmployment

Initiative, having a youth unemployment rate higher than 25%: Centre (31.7%), SouthEast (31.3%) and South

Muntenia(30.2%).

Lowemploymentamongolderworkers

Romania'slowemploymentrateisstronglycorrelatedwithgenderandage51.

The employment rate decreases rapidlywith age. Skills obsolescence and perceptions of reduced productivity

disadvantageolderworkers in competing ina labourmarketwhere there isageneral shortageofemployment

opportunities.In2012,theemploymentrateamongthoseaged5564stoodat41.4%,comparedwith63.8%inthe

2064agerange.Thisis7.5%lowerthantheEU27averageforthesameyear.Intermsofmajorstructuralchanges

inthe labourmarket,olderworkersareconsideredmorerigidto fluctuations inthemarket,considering itmore

difficult to integrate them in the lifelong learning courses, retrainingand thereforehardly to integrateon the

labourmarket.

Barriersfromtheperspectiveofemployers52:

productivityofolderworkersislowerthanthatofotheragegroups;

arelessorientedtonewtechnologiesandmoredifficulttoaccommodateinnewproductionprocesses.

Anotherpossibleproblemcouldbethegreatestshareofolderworkers insectorsfacingrestructuringmeasures,

makingthemmorevulnerabletounemploymentperspective.

Another apparent cause is the poor legislation on disability retirement limiting the right to work for certaincategoriesofdisabilitypensioners(seconddegreeofdisability).(Forthiscategory,legislationprohibitstherightto

workasopposedtothirddegreedisabilitywhichallowedtowork4hoursperday).

Itcanbenoticedthehighpercentageofelderlylabourforceinagriculture,wherepeopleover45yearsaremore

than50%ofthetotal(comparedto36.7%atnational levelandpeopleover64years,almost15%(comparedto

4.5% national average). Basically, almost the entire employed population over 64 years (98.3%) is working in

agriculture,thiscategoryofworkershavingalowereducationlevel.

In terms of territoriality, there are notable regional disparitieswith 23.8% difference between BucharestIlfov

(32.4%)andNorthEast (56.1%). Inpartthis reflects the relativestabilityof (self)employment intheagriculturalsector/ruralareas;salariedemploymentwhichismoreprevalentinurbanareasappearstobemoresubjecttoage

relateddisadvantage.

Low employment of olderworkers is amatter for concernwhen coupledwith extended longevity, raising the

prospectofpovertyamongtheelderlyandincreasedpressureonthenationalsystemforsocialprotection.

Asignificantnumberoflongtermunemployed

Duringtheperiod20082011therewasacommontrendofincreasinglongtermunemploymentbothinRomania

andintheEU27,morepronouncedintheEU27.In2012,thelongtermunemploymentrateregisteredinRomaniawas3.2%,1.4ppbelow theEU27average.To someextent the relatively lowproportionof recorded longterm

unemploymentreflectsthe limiteddurationofunemploymentbenefits inRomaniaandatendencyamongthose

whosebenefitshaveexpired tomigrate into inactivity. InRomania, longtermunemployment

Ap_31 Martie 2014_official Version Acordul de Parteneriat

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