Americans confirm: red tape stifles Romania

Romanian small and middle-sized enterprises (SMEs), which are expected to generate economic growth, are stifled by the bureaucracy jungle and operate in a harmful economic business environment, as they are compelled to bear with high costs in money and time so as to be able to observe contradictory regulations, amid a confuse and unpredictable landscape, reveals the study “Regulations and Bureaucracy in Romania”, drawn up by The Center for Institutional Reform and Informal Sector (IRIS) and by the US Agency for International Development (USAID).

The study, financed by the United States and published on the Internet at the address www.iriscenter.ro, will be presented today during a press conference by the US ambassador to Romania, James Rosapepe.

It was drawn up based on information collected from ruling authorities and on a poll involving over 200 SMEs.

The document starts from the observation that, while in 1996 70.7 percent of Romanian SMEs registered profit, two years later their number decreased to 47.4 percent, which suggests that during this period the Romanian business environment deteriorated and as a result the economic activity within the private sector, instead of being boosted, is impeded.

The study shows that this decline may have been influenced by other factors as well, but launches the hypothesis that red tape in economy has a significant contribution, a hypothesis that is solidly sustained by the gathered data.

Small and middle-sized enterprises are required to observe a wide variety of laws and regulations that are incompatible and overlap, which illustrates a lack of vision or consensus as to direction, purpose and strategy from the part of Romanian authorities.

US analysts note that regulations’ issue is marked by the “selfishness” of ministries or governmental agencies that pursue their own interests, and not the interests of social groups.

“It is high time that the effort of companies to cope with regulations were replaced by authorities’ effort to introduce regulations in a responsible manner,” the study suggests.

Naturally, there are several fundamental domains where regulations justify a certain amount of bureaucracy: company registering, personnel, environment protection, labour protection. In this sense, the most sensitive domain as regards “rule” settling is competition, where, behind conditions for getting a licence, barriers can be created against competitors.

In Romania, the bureaucracy of regulations related to companies extends to far more domains than the above-mentioned ones. The result? An unsuccessful and harmful business environment, where firms fail to grow or avoid contributing to the “surface” economy.

Each bureaucratic or legislative barrier eventually becomes an implicit tax, expressed under the form of money or time, the US analysts notice, adding that all these obstacles finally turn into “an unbearable financial burden.”

An idea about the dimensions of this burdensome assembly of regulations can be conveyed by the poll conducted by IRIS among small and middle-sized enterprises.

In 1999, a “typical” Romanian company was required to get between 23 and 29 different approvals, authorisations, licences and permits from various ministries and local agencies.

These “papers” cost the company between 11 and 64 million lei, and, to fill in the forms necessary for approvals, the typical company spent between 49 and 102 working days.

After filling in each application, the company had to wait between 49 and 102 working days to get the required approval. Regulations include not only approvals, but also investigations that take time and generate costs.

Even ministries and agencies interviewed by IRIS confirm that the typical firm was checked 11 to 23 times. Following investigations, the standard-firm had to spend between 3 and 17 million lei.

Time spent for preparing the documents necessary for the investigation varied between 14 and 38 days for the standard firm. Finally, the time spent awaiting the necessary certificates in the wake of inspections ranged between 13 and 20 days.