On Wednesday, the 1st of July 2020, the Romanian government announced an economic recovery plan designed to help society overcome the current crisis caused by the COVID-19 pandemic. The proposed plan aims to support Romania's key areas for growth and proposes a new model of economic growth based on the stimulation and development of the capital and the competitiveness of Romanian companies. The plan promises certain measures that amount to almost 100 billion euro and targets various areas, such as economy, infrastructure, education, health, etc.
The document published by the Government is only a governance plan, which describes both the measures already adopted by the Government to support companies in the recent months, as well as its intentions for the coming period. For each measure described in the plan, normative acts must be adopted in order to regulate and implement the proposed facilities. Thus, the facilities are not yet granted, they will materialize later, through normative acts developed by the Government.
Among the most important measures adopted by the Government during the state of emergency/alert are the SME Invest program, the possibility of postponing loan instalments, the technical unemployment benefit, deadline extensions for paying taxes, etc. Further, we aim to address the most significant future measures proposed by the government to stimulate Romanian economy without exhaustively enlisting them.
1. Support grants for companies
The program provides funding sources in the form of grants for all types of companies, from microenterprises to large companies in Romania.
In the case of micro-enterprises, a state aid scheme amounting to EUR 100 million has been proposed, which consists in granting SMEs with a single partner/administrator, with no employees, and affected by the coronavirus crisis, a grant of 2,000 euros for current expenses or delays of payments. The grant will be paid if the recipient has a turnover of at least EUR 5,000 in the previous year, has been active for at least one year, has been profitable in one of the last two years, has no tax liability as to the filing date and it has not benefited from the legal provisions regarding the technical unemployment.
The plan also provides for a special measure for SMEs in HORECA, tourism, transport services, as well as for SMEs in the field of event organization. The grant amount offered to these companies differs depending on the turnove, but will not exceed 15% of the company’s turnover. The minimum grant provided by the plan amounts to EUR 5,000 and is offered to companies with turnovers between EUR 5,000 and EUR 50,000. The maximum value is EUR 125,000 and targets companies with a turnover between EUR 900,001 and EUR 1,000,000. The facility will be granted to companies that, among other conditions, were required to or decided to suspend their activities and recorded a decrease in turnover of at least 30% in March, April or May, compared to the same months in 2019. It is important to note that 15% of the grant will be borne by the beneficiary.
Among the activities severely affected by the COVID-19 pandemic are the activities of economic operators located in large shopping centres, which have been completely closed for a long time. For these operators, the Recovery Plan provides a facility that consists of payment of an amount equivalent to 3 months of rent. The government estimates that this measure will help about 2,000 economic operators.
The plan also contains a program for according grants to SMEs for investment and economic conversion, grants with a total value between EUR 50,000 and EUR 200,000, with 15% financed by the Romanian state, but also requiring a co-financing of 15% from the beneficiary. Main areas for investment in production include the food industry, the automotive industry, construction, transportation services, the pharmaceutical industry, information technology and others. The facility will be granted to companies which have been operating for at least 1 year and which have registered a profit in one of the last two fiscal years. The beneficiary company must ensure the sustainability of the project for at least 3 years after the expiration of the implementation period, and must achieve at least 50% of the revenue planned in the cost-benefit analysis in the first two years of activity after the expiration of the project's implementation period. The Grant covers expenses such as construction/acquisition of equipment, purchase of equipment, expenses with land acquisition (maximum 10% of project value), promotional expenses and others.
The well-known Start-Up Nation program will be resumed under the name of Star-Tech Innovation, with the objective of financing innovative start-up companies. The value of the grants is 42,000 euros, the same as in previous years, but the plan estimates that this time about 7,000 new SMEs will be able to benefit from the grant, compared to 5,000 in previous years. A number of changes to the eligibility criteria have been proposed in a recent draft law, now before the Constitutional Court, following a complaint of unconstitutionality by the Government.
The plan proposed by the Government also includes a measure for according grants for investments in renewable energy. The measure is also addressed to SMEs, provides grants amounting to a maximum of 30,000 euros and does not involve co-financing from the beneficiary. Grants will be awarded for the installation of photovoltaic panels or for the purchase and installation of electric charging stations for vehicles, and the indicative investment areas mentioned are the hotel industry and the automotive industry.
Moreover, another area aims to be supported is the agriculture and the agri-food industry, where the grants to be awarded cover the purchase of irrigation equipment, rural entrepreneurship, direct support for non-agricultural activities, activities processing and distributing products obtained by small producers from carrying out individual agricultural activities or supporting young farmers.
2. Guarantee scheme for large companies
Besides the IMM Invest Program, a long-awaited measure is the provision of state guarantees for large company loans, a measure similar to the SME Invest Program for small and medium-sized companies. The plan proposed by the Government provides for a maximum budget of RON 8 billion for such a facility, and the facility administrator will be Eximbank. The facility comprises 4 types of measures, as follows:
The beneficiaries of the facilities are SMEs with a turnover of more than RON 20 million, large companies and affiliated or partner companies with over 250 employees. The facilities described in the four measures will be granted by the end of 2020.
3. Measures to increase equity
Currently, a large number of companies have negative equity (their net assets are negative). In order to determine the increase of equity in Romanian companies, the Government provided certain fiscal facilities regarding the profit tax. The plan aims to provide a 5% reduction in corporate profit tax for equity higher than 0 or for increasing equity for the period 2020-2025, compared to the previous years.
4. Employment measures
In order to protect jobs sectors which were negatively impacted by the pandemic, the measure granting the technical unemployment benefit to employers whose activity is still closed will be extended.
In addition, for the employees of the companies that resume their activity, a financing scheme was proposed to help those which have had their work schedule reduced. The scheme involves granting employees, for a period of 3-6 months, an indemnity of 75% of the difference between the previously registered gross salary (unreduced) and the salary paid by the employer after the reduction in working hours. The measure applies to companies with a turnover at least 10% lower compared to the same month in the previous year.
Furthermore, in the context of the COVID-19 pandemic, working remotely is encouraged, so the plan also proposes an incentive of 500 euros per employee for the purchase of IT equipment for employees working remotely during the state of emergency/alert.
5. Infrastructure investment measures
Regarding infrastructure, the Government proposes investments for all types of transport: road, rail, underground, naval and air. Regarding road transport, it proposes the completion of undergoing works on highways and express roads and connecting the provinces of Romania with highways. Regarding railway transport, in addition to the modernization of the already existing network, the introduction of the concept of “metropolitan train” is also foreseen.
The government also announces important investments for the modernization of seaports, especially for the port of Constanța, but also for waterways and river ports. Regarding air transport, investments are proposed in the Romania’s airport network, such as the extension or construction of terminals for passengers and cargo areas. The Recovery Plan includes integrating different types of transport (air, rail and road), so as to create an intermodal link.
6. Establishment of new institutions
The plan provides for the establishment of the Romanian Investment Fund (RIF) and the National Development Bank (NDB).
RIF is designed as an equity investment fund, with an initial capitalization of EUR 300 million. Its activity will be realized, mainly, by participating in the share capital of Romanian companies and by direct management of investments or by granting mandates to specialized entities. The Government's intention is to create a state-owned private equity investment fund to support activities in areas with economic potential for Romania, such as agriculture, which will be later joined by other institutional forms of economic support. FRI will attract financing of any type in Romanian enterprises with majority private capital.
In order to overcome certain market dysfunctions, generated by, among others, the lack of sufficient financial knowledge, the impossibility of preparing acceptable business plans by banks and, implicitly, the restricted access of small companies to financing, the Government proposes the establishment of a new banking model, as self-standing entity. The NDB, in the Government's view, will be a state-owned entity that will facilitate the access of SMEs and viable infrastructure projects to financing, will act as a financial intermediary in order to attract other private sources and will provide advice and technical assistance to companies. Among other objectives, the NDB aims to increasing the competitiveness in Romania and to improving the absorption of European funds.
As the general objective of the NBD will be the economic and social development of the country by boosting sustainable economic growth, the bank will address only Romanian enterprises and other public and private sector entities and will not attract deposits from the population. In addition to the income generated by interests and commissions, the NBD will be financed by state-subscribed capital, loans on the interbank market and international financial institutions, and bonds issues to institutional investors.