BANCA MONDIALA BIROUL ROMANIA

  |  08.09.2015

Transforming Romania’s competition architecture to make markets work

Romania identified competition as a key area to reach an effective economic development and is positioning the Romania Competition Council (RCC) to be a more visible and effective player.

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Romania made significant progress in opening its markets to competition and integrating its economy with the EU’s internal market. In preparation for EU accession in 2007, Romania was one of the fastest reforming countries in Europe. The reforms were driven by requirements to bring national laws in line with existing EU norms and regulations that form the acquis communautaire. The reforms were aimed at adjusting regulations to make Romania’s regulatory framework consistent with that of the EU and its competitive market economy.

 

They made it easier for businesses to get credit, employ workers, protect investors, obtain licenses and trade across borders, and close down. But after EU accession in 2007, Romania suffered from ‘reform fatigue,’ and many planned reforms never took place. This was most apparent in the energy and transport sectors and in modernizing state institutions (World Bank, 2013).


Romania’s growth reveals a vulnerable competitive environment and the need to enhance its export competitiveness in order to achieve greater economic convergence with the rest of the EU. Per capita GDP increased from 31 percent of the European average in 2000 to 55 percent in 2014 (IMF, 2014). Much of this growth was driven by a reallocation of labor from less productive sectors like agriculture, to more productive sectors like services and construction. The global financial crisis of 2008 stalled Romania’s economic growth. In 2009, Romania’s economy contracted by a stunning 6.6 percent; in 2010 it contracted by 1.5 percent.


More recently, Romania’s economy has slowly begun to recover from the economic crisis of 2008. In 2014, Romania recorded one of the highest GDP growth rate in the EU at 2.4 percent. This placed GDP per capita at about half of the EU average in 2014. According to the World Bank (2014) this growth was driven by export performance and a strong year for agriculture.(1) However, Romania’s competitive environment still compares unfavorably with that of other EU countries, for several reasons, notably restrictive regulations, barriers to FDI and widespread state participation in the market.
 

Romania’s ability to prosper in the EU’s common market requires a stronger competition policy framework. This rests on two complementary pillars: opening markets to competition by addressing sector specific constraints; and enforcing competition policies (Figure 1). Both pillars rely on an institutional setup that can foster and guarantee healthy market conduct. The independence – that is, autonomy of decisions – of the competition authority and promoting competition rather than consumer protection, seem to drive total factor productivity (TFP) growth. In a study using cross-country evidence, Voigt (2009) estimates that the de facto independence of the competition authority in a developing country can translate, on average, into a 17 percentage point reduction in the TFP gap with the United States.

 


The 2010 functional review of the RCC highlighted the need for a whole-of- government approach to integrate competition principles into Romania’s public administration. The review of the RCC was part of a broader strategic and functional assessment of Romania’s central public administration by the World Bank on behalf of the Government of Romania(2). Compared with counterparts in the EU, several areas of competition policy enforcement required improvement, particularly improving cartel enforcement. The conclusion of anticompetitive business practice cases more timely was a priority that needed to be addressed. Workloads focused primarily on merger review procedures with few resources available for conducting advanced economic analyses. Systematic monitoring of state aid rules was key given wide-spread state support to State Owned Enterprises (SOEs). And there were few internal targets to track the performance of the RCC’s enforcement and advocacy.

 

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