TheMarketForIdeas

In 2016, the European Institute of Romania (EIR) released a study aimed at assessing the potential impact of the Juncker Commission Investment Plan upon the Romanian economy[1]. Following a tradition of over 10 years in drafting strategy and policy studies (SPOS) in order to support the decision makers in formulating the necessary positions required by different European institutions, EIR has published in 2016 a series of 5 studies, relevant for Romania’s evolution in the European context. 

Year on year, the research has concentrated on providing fundamental policy elements in various areas, and for the 2015 SPOS collection, the team of authors prepared studies on topics such as:

• The fight against Euroscepticism and extremism/radicalisation, and the consolidation of trust in European values;
• The cross-border cooperation between Romania and Ukraine, and between Romania and the Republic of Moldova. Opportunities and challenges over the 2014-2020 period;
• Creative industries: the development potential in Romania and at European level;
• The Juncker Commission Investment Plan and its potential impact on the Romanian economy;
• The impact of the new measures against terrorism, proposed at European level, on the freedom of movement. 

Nowadays, as an outcome of the 2016 SPOS edition, the European Institute of Romania is preparing to launch another three studies on relevant subjects for the European agenda:

• The energy diplomacy of the European Union and the potential for developing new infrastructure projects. Romania`s participation in the Energy Union;
• The relationship between the legal migration phenomenon and the labour market in Romania. Relevant developments, potential impact, policy recommendations;
• The future of the strategic partnership between Romania and the United States of America in the context of the Free Trade Agreement between the EU and the USA (TTIP – The Transatlantic Trade and Investment Partnership). 

As part of 2016 SPOS series - the study concerning Romania and the accession to the Eurozone: the question is UNDER WHICH CONDITIONS! was already released last year, and became available to the public. 

The framework of the Investment Plan 

In the research conducted by Acad. Lucian Liviu Albu (coordinator), Adrian Cantemir Călin, Oana Cristina Popovici and Daniel Ștefan Belingher, the focus was on analysing the Investment Plan’s implementation, its functional mechanism and the implications for the Romanian economy. 

As mentioned by the authors, the Investment Plan was launched in a critical moment for the European Union`s economy, related to the dramatic 15% decrease in investments in 2014 (compared to 2007), followed by an aversion to risk in the absence of private investment. In this respect, the aim of the plan was to mobilize investment funds totalling 315 billion Euro, from public and private sources, based on EU guarantees of 21 billion Euro, in order to relaunch the economic growth and to support the investment made within the real economy. In this way, the investment requirements of the economy will be covered in the long run, and the growth of the competitiveness will be stimulated. 

The investment plan is based on three main pillars: mobilizing finance for investments in EU strategic sectors and increasing the access to financing for SMEs and for medium-size companies with less than 3000 employees; supporting investment in the real economy (the European Commission has created the European Investment Project Portal to serve as a bridge between EU project promoters and investors worldwide, and the European Investment Advisory Hub for helping project promoters in the development of the financing application); improving the investment environment in the whole Union, by adopting measures that will be applied at a Community level. 

Building on the Investment Plan for Europe, the European Fund for Strategic Investments (EFSI) aims to overcome current market failures by addressing market gaps and mobilising private investment. It will support strategic investments in key sectors such as: strategic infrastructure, including digital, transport and energy; expansion of renewable energy and resource efficiency; environmental, urban development and social projects; education and training, research, development and innovation; support for smaller businesses and midcap companies. The eligible applicants are considered to be: companies of all sizes, including small and medium enterprises (up to 250 employees) and midcaps (up to 3000 employees); utilities; public sector entities; national promotional banks or other banks delivering intermediated lending; bespoke investment platforms. 

As showed in the study, EFSI is complementary to the existing financing sources and represents a necessary financing tool for the Romanian economy. To access the funds available through EFSI, Romania has to adopt public policy measures that can ensure the feasibility of public-private partnerships (PPPs), such as:

1. Supporting an efficient and functional regulatory framework for PPPs, in accordance with the European regulations, corresponding to the best practices of EU countries;
2. Building a specialized entity, which has the role to handle the process of PPP establishment and which is capable to select, to prepare, deliver and manage PPP projects. This entity may be built on the existing structure of Department of Foreign Investments and Public-Private Partnerships (DFIPP), which is part of the current governmental apparatus, but it must show a higher degree of visibility and be endowed with specific characteristics, so it can ensure PPP implementation;
3. Adding transparency to the projects that can be realized through PPP by supplying the private sector with a potential list of projects. The list should be made according to the country strategic objectives and must be permanently updated;
4. Administrating PPP programs that would coalesce several individual projects, which can be made through PPP, and to deliver them in a coordinated manner. 

Apart from the necessary measures that can favour the development of public-private partnerships in Romania, there is another important issue related to the danger of neglecting the task of financing innovative projects. Therefore, a series of policy measures are being recommended by the team of authors:

1. Building an investment fund with state capital, focused on real economy investments, which should target the priority sectors for the Romanian economy’s development and guide the investments in the strategic sectors. The state’s participation will give credibility and this will facilitate the contributions of private investors;
2. Establishing an investment fund owned by the state, through which the state can make capital contributions in cash to some companies as a shareholder, in order to maintain influence over them and to access further financing through EFSI;
3. Creating investment platforms (hubs) by using crowdfunding, in order to connect the financing supply with the demand for financing. This represents an advantage given lower bureaucracy. The state’s involvement can be realized by managing the online platforms that are used to facilitate the interaction between supply and demand, and supervising the companies’ integrity;
4. Adapting the regulatory framework in order to give incentives to the companies which are investing in this type of funds. 

The public policy measures which can be aimed at developing the investment funds and platforms are numerous and there is the risk that given the long timeframe require for the approval process through the regulatory framework, their implementation might be postponed. Consequently, Romania stands to lose the financing through EFSI and the training offered by EIAH (European Investment Advisory Hub) if it will not adopt urgent measures in order to secure the implementation of the Investment Plan in Romania. 

When it comes to the sectors that are in the need of investment and can generate the strongest effects on the Romanian economy, based on the authors` calculations, we have pinpointed three essential fields towards which the funds should be oriented: supporting industry (through investment in innovation, R&D and IT&C), developing the energy sector, and developing the transport infrastructure. By stimulating investment in the abovementioned fields, a series of direct effects for the economy can be forecasted: the creation of new jobs, the development of the transport and energy infrastructure and the expansion of the water and sewage network. Also, a sum of indirect effects can be anticipated: enhancing the educational level, the development of research and innovation and the development of the hospitality industry (tourism and related activities). 

What has happened in between? 

The team of authors completed the research by the end of 2015 and the study became available in April 2016. Not many things have changed by the release date in terms of accessing the funds available through EFSI. Romania continued to be one of the 3 countries that has not received funds for the projects sent to Brussels. In 2014, the Government sent a list of approximately 200 projects, but the Vice-president of the European Commission, Jyrki Katainen[2], stated that it was more a wish list rather than something that can become a reality, as the funds available through EFSI can cover only private projects or initiatives developed in a public-private partnership, and not governmental proposals. None of the projects sent passed the screening phase. 

However, by mid-2016, the situation seems to have changed, as the Government sent a list of 5 projects in the field of energy and transport, which have passed the screening phase[3] and entered the analysis process. The projects represent a total of 484 million euros and 3 of them are run by the state company Elcen Bucharest, while the other two are managed by private companies. A few weeks later, the Ministry for Transport announced that its team also submitted for evaluation a list of 16 projects to Brussels. On this new list, proposals such as building the Craiova-Pitești highway, the enlargement of the Otopeni and Băneasa airports, and the railway electrification system between Constanța and Mangalia were brought forward. 

For the first time since the Plan was launched, Romania was mentioned in the state of play from June 2016[4], marking this a great opportunity for preparing and submitting other projects that meet the eligibility criteria. Later on, in September 2016, the Minister of Economy issued a press release to announce that Romania has 8 projects related to the fields of energy efficiency, education and organic farming, submitted for evaluation, amounting to €570 million[5]. 

When it comes to the concrete results obtained by Romania in the field of EFSI financing[6], we have to mention the two projects which were approved and signed[7] in 2016:

1. Agricover Loan for SMEs [€ 15 million (1st tranche) EFSI financing] - it aims to facilitate the access to finance for small and medium-sized enterprises active in the agricultural sector; Romania is a unique beneficiary;
2. Arcelor-Mittal European R&D Programme [EFSI financing was not disclosed] - the project covers the promoter's research, development and innovation (RDI) as well as related capital expenditures in steel production. The project's RDI activities are carried out in the field of steel production process improvements and new products and solutions development. The countries involved in the project are: Romania, France, Poland, Czech Republic, Spain, Belgium and Luxembourg. 

Furthermore, two other Romanian projects have gained the approved status:

1. Digital Television Transition [ € 10 million EFSI financing] - the project aims to ensure that 96% of the population and 80% of the territory is covered by the national free-to-air television operator, in digital format. Romania is a unique beneficiary in this situation;
2. Transgaz BRUA Gas Interconnection Project [€ 10 million EFSI financing] - The project seeks to finance the first phase of the BRUA gas interconnection project, which is going to be implemented by Transgaz (Romanian natural gas operator). 

Thus, the most important thing Romania needs to have in mind is that EFSI is a very flexible instrument and fully demand-driven: there is no sectorial or geographical pre-allocation. Therefore, a feasible proposal based on strategic investment has a reasonable chance of accessing the available funds.

[1] Available at: http://www.ier.ro/publicatii.html.

[2] European Commission – desperate message to Romania: Use the Juncker Plan funds. You need irrigation. We will also give you technical guidance, Hotnews, 10th of June 2016, available at: http://economie.hotnews.ro/stiri-eurofonduri-21067575-exclusiv-comisia-europeana-mesaj-disperat-catre-romania-folositi-banii-din-planul-juncker-aveti-nevoie-irigatii-dam-indrumare-tehnica.htm;

[3] Declaration of the Minister of European Funds from 22nd of June 2016, available at: http://www.digi24.ro/Stiri/Digi24/Extern/Europa/Planul+Juncker+Esec+pe+linie;

[4] The Investment Plan For Europe State Of Play, available at: http://media.hotnews.ro/media_server1/document-2016-05-6-20979689-0-planul-juncker.pdf.

[5] Press communique - MECRMA, 2nd of September 2016, available at: http://www.agerpres.ro/comunicate/2016/09/02/comunicat-de-presa-mecrma-18-35-36.

[6] EFSI project list, available at: http://www.eib.org/efsi/efsi-projects/index?c=RO&se=.

[7] Signed projects are listed with the actual amounts agreed in the contract, which may differ from the amounts initially authorised by the EIB Board of Directors.