Romania an emerging auto hub - Guvernul Romanieiinvestromania.gov.ro/web/wp-content/uploads/2016/... · Romania –an emerging auto hub. ... • The evolution of the main automobile

Romania – an emerging

auto hub

22016 The Government of Romania

1. Industry overview

1.1 Automobile production

1.2 Automotive components

2. Romania’s promise as an automotive hub

2.1 Human capital

2.2 Labor costs

2.3 Energy prices

2.4 Government support

Contents

1. Industry overview

1.1 Automobile production

1.2 Automotive components


5.4 6.07.6

9.210.7

12.62.62.9

3.5

4.1

5.2

5.4+18%

2013 2014

15.9

18.0

2012

8.0

2009

8.9

11.1

2011

13.3

2010

Market evolution [EUR billion]

Sursa: ACAROM; Ministry of Finance

Automotive ComponentsAutomobile Production CAGR

The local automotive industry has risen at an average of 18% per year since 2009, reaching EUR 18 billion in 2014 backed by exports

• The industry has grown strongly since 2009, more than doubling since 2009 (125% growth)

• The evolution of the main automobile producers has driven growth of the automotive components sector, although the shares have remained constant

32.5%

67.5%

ComponentsAutomobiles

30.0%

70.0%

2009 total: EUR 8 bln 2014 total: EUR 18 bln

1

Industry split by products [%]


Automobile production – evolution [‘000 units]

Sursa: ACAROM

The number of cars produced in Romania almost doubled in the past 10 years, reaching 387 000 in 2015 through two top producers

1.1 AUTOMOBILE PRODUCTION

2005 2013201020092007

+7%

201420122006 2008 2011

214

296

195

245242

351 335

391 387

338

2015

411

CAGR

• The economic crisis in 2009-2012 did not negatively influence automobile production, registering growth after 2008

• Two major passenger car manufacturers - Dacia and Ford - operate in Romania

• After an EUR 2.2 billion investment program as well as an intensive transfer of know-how, Dacia became one of

Renault’s most outstanding achievements and is one of the top technologically developed companies in Southeastern

Europe


Producer profiles

Sursa: Ministry of Finance

Dacia and Ford are the backbone of the local industry, hiring over 17000 people and accumulating over EUR 5 billion/ y in revenue


Mioveni, Arges

Craiova, Dolj

4.2 89 14

0.9 6 3

2014 Revenue [EUR bln]

2014 Net profit[EUR mln]

2014 Employees[‘000]


National production and export [# units]

Sursa: ACAROM

In 2014, 93% of local production of automobiles from the two producers was exported, with Ford selling next to 0% locally


2013

14.0%

86.0%

Local market Export

92.0%

8.0%

Total production: 338 593Total production: 342 620

0.0%

100.0% 100.0%

0.0%

Total production: 52 829Total production: 68 339

2014Production evolution

-1%

-23%


Mapping of horizontal sectors developed as a result of the evolution of automobile production

Sursa: ACAROM

Local industry has catalyzed the development of horizontal sectors, ranging from production of tires to electronics and optical devices

1.2 AUTOMOTIVE COMPONENTS

Export markets for components

Local automotive component integrators

• Tires

• Cables and conductors

• Plastics

• Aluminum and metal manipulation

• Rubber technical components

• Bearings and transmission components

• Electronics/ Mechatronic equipment

• Optical devices

• Batteries/ Accumulators

• Recycling


Automotive components production [EUR bln]

Sursa: ACAROM; Mational Institute of Statistics

There are approx. 600 OEMs producing automotive components in Romania, directed at the local producers as well as to export

1.2 AUTOMOTIVE COMPONENTS

5.4 6.0 7.6 9.2 10.712.6

2009 2010 2011

+18%

2013 20142012

31.5%

68.5%

31.0%

69.0%

2009 total: EUR 5.4 bln 2014 total: EUR 12.6 bln

Automotive components exports [EUR bln]

3.74.9 5.9 6.6

8.1 8.7

+19%

20142009 2010 201320122011

Share of exports out of total production [%]

Local marketExport

• Exports have grown at a faster pace than the industry itself, signaling an increasing demand both from the two local producers as well as from the export markets

• This is owed to the Romanian quality of work and diminished cost base with energy and specialized labor

2. Romania‘s promise as

an automotive hub

2.1 Human capital

2.2 Labor costs & taxes

2.3 Energy prices

2.4 Government support


Enrolment in professional education has risen constantly, which translates to a shorter transit from the classroom to the workplace

49

2014

81

2013

+19%

156

86

2012

129

2011

1892

2

8

2

95

73

7

1

7

10

26

113

98

Special post-secondary schools – Cycle 2 Vocational schools Foremen Schools Post high school institutionsSpecial post-secondary schools

2.1

Source: NIS, Eurostat, InvestRomania

Students enrolled in professional schools in Romania [‘000]

HUMAN CAPITAL


Over a 25% of graduating students will have a technical degree, followed by approx. another quarter in business and economics

• The quality of education in Romania is

recognized internationally, local students

consistently ranking in the top 10 in

International Olympiad competitions in math

and informatics, better than any other

country in the EU

• The focus on technical subjects is

significant, with the number of engineers/

capita – higher than the US, India, China or

Russia

• With 5 polytechnic universities, 59 domain

specific universities and 174 private

colleges, the most successful students tend

to pick high tech industries, such as IT – the

local education system supplies over 7,000

IT&C engineers every year

• 99% of Romanian students learn two or

more languages in upper secondary

education

10%

23%

11%28%

2%

26%

433

112 134

8

80 5743

Number of students by subject of degree [‘000, 2014]

* Includes: mathematics, physics, biology, chemistry, geography, journalism, history, political and administrative science, philosophy

Economics

Science and humanities

Medical

Arts

Technical

Law

Source: NIS, Eurostat, InvestRomania

University grads by subject of degree in 2014 [%]

2.1 HUMAN CAPITAL


9 out of 10 university students are proficient in English, as a result of the fact that almost all students study 2 languages in high school

Source: ABSL, NIS, Eurostat, InvestRomania

97%• 97% of Romanian high school students study 2 or more foreign languages while in secondary education

• The predominant languages are English, French, German and Spanish, yet initiatives for teaching Japanese, Nordic

languages or the entire Latin language family (Spanish, Italian, French) exist

University students in Romania are proficient in [% of total]:

90% 26% 17% 8% 5%

2.1

Language studied by Romanian high school students (2014 data)

HUMAN CAPITAL


The top university centers in Romania are Bucharest, Cluj – Napocaand Iasi, followed by Timisoara, Sibiu, Brasov and Constanta

Bucharest - 33 UniversitiesCluj - 10 UniversitiesIasi - 10 Universities

CJ

10

B

29

SB

3

AR

3

BVDJ

4

CT

5 49 6

TMIS

Number of graduates by University Center [‘000]

Sources: NIS, World Economic Forum, InvestRomania

= City 50,000 – 100,000 inhabitants

= City >100,000 inhabitants

Arad

Bacau

Baia Mare

Botosani

BrailaBrasov

Bucuresti

Buzau

Cluj-Napoca

Constanta

Craiova

Drobeta-Turnu Severin

Focsani Galati

Oradea

Piatra Neamt

Pitesti

PloiestiRamnicu Valcea

Satu Mare

Sibiu

Suceava

Targu Mures

Timisoara

Alba Iulia

Birlad

Bistrita

Calarasi

Deva

Giurgiu

Hunedoara

MediasOnesti

Resita

Roman

Sfantul Gheorghe

Slatina

SloboziaTargovisteTargu Jiu

Tulcea

Turda

VasluiZalau

Iasi

Human Capital Index 2015 - Rank 39Upper-middle income Country - Rank 3

Age group rankings

Human Capital Index

Top 3 University Centers

15 – 24Rank 45

25 – 54Rank 36

55 – 64Rank 29

2.1 HUMAN CAPITAL


Romanian labor costs are some of the lowest in the EU, maintaining a competitive position relative to member states

2.2

National minimum wages in the EU [EUR/ month, 2016]*

PLEE

12131516

SLCY

16

RO

5

HUHR

10

GR PTES

21

MT LT

7

LV BG

689

CZ

9

SK

104

7

31

ATNL

36

SE UKDK

4034

30

LU DE

32

BE

3935

32

FR FI

37

28

IE

22

IT

Estimated average hourly labor costs [EUR/ h, 2014]**

1,923

1,5461,5291,5081,5021,4731,467

791764728684618431430408405370366353350

233215

ROBG LT LUIEUKMTGRPTPL DE BEFR NLSLESHRSK EELVHU CZ

* Denmark, Italy, Cyprus, Austria and Finland have not implemented a national minimum wage; ** Enterprises with 10 or more employees

Other labor costs Wages and salaries

Source: Eurostat

LABOR COSTS


Social Security

With the local taxes already low compared to European peers, the government plans future tax cuts through the new fiscal code

VAT

Individual Tax Rate Corporate Tax Rate

2.2

EmployerEmployee

16%

• The government is committed to

reducing the tax burden – 2016

marked the drop in VAT to 20%,

which will be followed by

another drop to 19% in 2017

• VAT on food products is 9%

• The individual tax rate does not

have any planned cuts for the

near future

• However, the new fiscal code

planned a reduction of the

dividend tax from 16% to 5%

• The government’s

commitment to lower the

tax burden covers the

corporate tax rate as well,

with a reduction to 14%

planned for 2019

Tax System of Romania

Source: InvestRomania

Overview of the Romanian tax system

16%

20%

16%

23%

TAXES


The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (1)

2.2

Source: KPMG

VAT in the EU [2015, %]

171819192020202020202021212121212122222323232324252527 25

FREEATLV BGLT UKRO DECY MTSK LUES NLFISEHRDKHU ITPLIE SIPT BE CZGR

10131315151617191919202020202122222425252829293031333435

LTRO LV IE BGCYSIDK UKEEHRSKSEATNLESGR HULU PL CZFIPTFR ITBEMT DE

Corporate tax rate in the EU [2015, %]

10151616202223253235354042434445454547484850505052525557

SE DK PTSIBENLFI AT FRESIE DE UK ITLU LTHUEECZCY BGLV ROSKPLHR MTGR

Individual tax rate in the EU [2015, %]

TAXES


The taxes are some of the lowest in the EU, with planned policies aiming to reduce them even further in the favor of businesses (2)

2.2

Employee social security in the EU [2015, %]

0224

678810101011111112131313141616

181819202022

28

CZLUHU GRSI BG PTSKPLFRATDENL BEROHR LV EESE UK DKIEESLTMTIT FI CY

Employer social security in the EU [2015, %]

0

1011121415161718181921222323242425293030313134343535

45

DKMTIEAT SIBGFI NLDE CYRO LUPL UKGRHU HRLVPTEEBE LTSEFR ESCZSK IT

Source: KPMG

TAXES


Romania has some of the lowest energy prices in the EU, marginally diminishing the cost base for energy intensive manufacturers

2.3

Source: Eurostat

Electricity prices in the EU [EUR / 1000 kWh, 2015]

616264687171727376767678818283848790919499104108112129132

144156

ROSI DKSEFIBGNLLTPL DEBE ATHRLVIT EEHULU FRCZCY ESUK IE SK PTELMT

Medium sized industry - electricity prices

6888888999999991010101010101010111111

NLBELTCZ DK ROPL ATSIIT BG FILVSKUKEEFRHUELLU SEIEESHRPT DE

Medium sized industry - gas prices

Gas prices in the EU [EUR / gigajoule, 2015]

ENERGY PRICES


Number of payments required to cover tax costs per year

Source: World Banks, Doing Business Report 2016

8891014

999911

2829

20082006 20142004 20122010 20162007 2009 2011 2013 20152005

11-21

1414

3941

113113113113108108108

20142013 20152009 2010 20122008 201620112006 2007

-99

2.4

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (1)

Number of days required to start a business in Romania

• From a tax perspective, the number of

payments/ year required to fulfil fiscal

obligations has dropped dramatically, from

113 in 2012 (historic maximum) to just 14

in 2016

• Coupled with a tax system that is one of

the most friendly in the EU, a more

accessible tax system is the next step for

growth

• In order to support entrepreneurs, the

Romanian government has also simplified

the process of opening up a business,

reducing the necessary time from 29 days

in 2004 to a little over a week in 2016

• For the short, medium and long term, the

government is committed to aiding

emerging entrepreneurs

GOVERNMENT SUPPORT


0.60.70.70.80.80.90.91.11.51.6

1.92.2

2.9

20152014 2016201320122007 2009200820052004 20102006 2011

- 2.3 p.p.

2.02.12.42.83.02.62.83.54.54.45.3

7.4

10.9

2007 200920082005 2006 20102004 20152014201320122011 2016

- 8.9 p.p.

2.4

The government is showing more and more support to the private sector, implementing pro-growth policies to support entrepreneurs (2)

Paid-in minimum capital [% of income per capita]

Cost to start a business [% of income per capita] • Overall, the cost to start a business in

Romania has decreased by about 9

percentage points every year since 2004,

reaching 2% in 2016, the lowest recorded

value

• The pro-growth policy is still being

implemented, with further tax cuts and aids

being developed by the government

• The pro-growth policy has further

implications in the Romanian business

environment, with the necessary paid-in

minimum capital decreasing by 2.3

percentage points since 2004, reaching a

minimum historical value of 0.6% of

income per capita

Source: World Banks, Doing Business Report 2016

GOVERNMENT SUPPORT


Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (1/2)

• 16% profit tax exemption for the reinvested profit in new technological equipment used for business purposes

• Eligible R&D expenses include: depreciation of R&D equipment, salaries for R&D personnel

• 50% of these expenses can be deducted from the taxable income

• A deduction of 50% from the fiscal value of the assets during the first year of use, while the remaining value may be depreciated linearly along the expected remaining lifespan

• Accelerated depreciation can be used also for equipment and/ or for research and development activities

• If a company benefits from exemption of the income tax for reinvestment it will not benefit from accelerated depreciation

Fiscal incentive Short description

Exemption from

profit tax

Income tax exemption for IT&C employees

Deduction of R&D eligible

expenses

Accelerated depreciation of machinery, equipmentand real estate used for R&D purposes

• An exemption on the 16% income tax is available in Romania for employees activating in IT, under conditions including:o Bachelor’s degree in one of the 14 technical specializations availableo Employee is hired on a software engineer/ programmer/ software analyst

positiono Annual revenue per exempted employee must be over USD 10 000

Sources: Ministry of Public Finance, InvestRomania

2.4 GOVERNMENT SUPPORT


Fiscal incentives are aimed at leveraging the local technology and R&D capabilities by incentivizing investors and employers (2/2)

• Income received by people with serious disabilities can benefit from income tax exemption (e.g., for salary income, income from freelancing activities)

• Investors that set up manufacturing locations or offices in an industrial, scientific or technological park benefit from o Exemption on land, building and urban planning tax o Taxes charged for changing land destination

• International income derived by Romanian residents is tax exempted under the following conditions:o There is a valid tax treaty between Romania and the relevant jurisdiction

(from where the income is derived by the Romanian resident) o The interested party (taxpayer) can demonstrate that income tax was paid

abroad on the respective incomeo The tax credit cannot exceed the Romanian tax applicable for the respective

income

Fiscal incentive Short description

Foreign tax credit

Facilities for people with

serious disabilities

Industrial parks

incentives




In a competitive market employment incentives are designed to maximize productivity of the available human resource

For both types of incentives the employers will have to take into

consideration that they have to maintain working relations for 18 months.

In case of termination the employment contract before this period, the

employer will return the incentive if the contract was terminated in the

following conditions:

• Termination of the employment contract due to cancellation of

the employees position in the company for reasons which are

not related to the employee;

• In case the employee does not correspond professionally to the

job he has been assigned;

• Nullity of the employment contract observed by the parties

agreement or by a court decision; In case that job is occupied

again by a person that was illegally fired.

Hiring young graduates for

undetermined periods.

The incentives are granted to the

employer on a monthly basis for a

period of one year.

Hiring unemployed individuals with

the age over 45 (for an undetermined

period).

The incentives are granted to the

employer on a monthly basis for a

period of one year.

Employment incentives




State aid in Romania can be executed through 4 main methods, each being employed by various state aid schemes

• State Resources transfer

– Grants

– Fiscal benefits

– Guarantees

• Selectivity

– Oil reserves (with 600 million barrels)

– Export growth rate of R&D services

– Energy independence

• Effect upon market competitiveness and trade

– If EU law is obeyed, the skewing effect is drastically

reduced, according to the Competition Council

• Economic Advantage

– Renting or buying property from the state under the

market price

– Subsidies for salary costs

– Access to infrastructure tax-free

State Aid policy in Romania has been developed according to EU Law in order to facilitate

and stimulate foreign investment in the country




With a budget of EURm 600 for the next 6 years, the two schemes for regional state aid aim to support value adding investments

• The two schemes offer state aid in the form of non reimbursable grants from the state budget, caped by the limit of maxim intensity

approved according to the regional map

Aim• To support minimum investments valued at

EUR 10 million

• The creation of at least 10 jobs per

location, out of which 3 jobs are for

unfavored workers

Eligible Costs

• Construction of new buildings

• Renting costs for existing buildings

• CAPEX aimed at technical installations

and tools

• Acquisition of intellectual property

• Salary costs registered for a 2 consecutive

year period resulted as a direct

consequence of the investment

• Salary costs are comprised of gross

annual salary plus benefits

Budget • Total budget for the two schemes is EUR 600 million, with annual investments projected at EUR 100 million

Payout • 2015 – 2023 • 2015 – 2025

GD 2014/ 807 GD 2014/ 332




Eligibility criteria for companies concern their financial health and their capacity to see the investment project through

Eligibility Criteria for Companies (separate)

Eligibility Criteria for Companies (common)

• In the case of GD 2014/ 807, payout occurs after all or part of the eligible expenses have been covered

• In the case of GD 2014/ 332, payout occurs on a quarterly basis, after all or part of eligible expenses have been covered

GD 2014/ 807

• Net profitability for existing companies:

> 0%

• Equity for new companies: >= RON

100,000

• Net profitability for existing companies:

>1%

• Equity for new companies: >= RON

30,000

GD 2014/ 332

• Are registered according to company law no. 1990/31

• Execute an investment in one of the eligible sectors

• Do not have outstanding debt from the general consolidated budget

• Are not registered as enterprises in difficulty or are not debtors in an enforcement or insolvency

proceeding, nor are they suspended from activity

• Are not part in a state aid recovery proceeding

• Have not benefited from regional state aid for eligible costs in the same investment project

• Have not closed a similar or even identical enterprise in the European economic area in the past two

years and do not plan to do so for the next 2 years after the execution of the initial investment




There are also eligibility criteria pertaining to the project itself, such as its value and viability over the short, medium and long term

Eligibility Criteria for Investments (separate)

Eligibility Criteria for Investments (common)

• Minimum value: EUR 10 million

• To be viable and determine the operational

efficiency of the company

• To prove the stimulating effect of state aid

• To generate contributions to regional

development

• To facilitate extra investment in the region

• To lead to the creation of 10 new jobs per

investment location, out of which 3

positions to be covered by unfavored

workers

• To be viable and determine the operational

efficiency of the company

• To be considered initial investments

• In the case of large companies in the Bucharest region, investments must also develop new economic

activities within the local ecosystem

GD 2014/ 807 GD 2014/ 332




The intensity of state aid varies according to the region, varying from 15% (in Bucharest) to 50% in most of the country

North-West

50%

West

35%

North-East

50%

Center

50%

South-East

50%

South-West

50% South

50% 15%

35%

State aid intensity, according to development region:• North West – 50%

• North East – 50%

• South East – 50%

• South – 50%

• South West – 50%

• West – 35%

• Ilfov County – 35%

• Bucharest – 15%

• State aid intensity is established as per EU and national regulations and is subject to change according to EU law on the matter• Development regions of Romania represent a split of counties into larger regions in order to technically better target development programs and policies




European Structural and Investment Funds (ESIF) offer support for risk averse investors targeting low volatility sectors

• ESIF will be provided through 5 programs– European Agricultural Fund for Rural

Development (EAFRD)– European Maritime and Fisheries Fund

(EMFF)15– European Regional Development Fund (ERDF)– European Social Fund (ESF)– Cohesion Fund (CF)

• More than €1 billion allocated to R&D and innovation

(TO1), supporting the national target of 2% of GDP

invested in R&D (against 0.49% in 2012)

• €3.9 billion to be invested to support the shift to low

carbon economy

• €22.4 billion for Cohesion Policy (ERDF, ESF, Cohesion

Fund)

• Cohesion policy will be delivered by 8 operational

programs

14%

2%

22%1%

26%

1%

4%

8%

23%

ESF+YEI EARDF EMFFERDF CF ERDF CompESF ERDF REGERDF TA

In total more than €30 billion in funding will be provided

during the 2014-2020 Partnership Agreement

Budget distribution on programs [%]

Sources: European Commission, EIB, InvestRomania



The Investment Plan for Europe (Juncker Plan) can be a very effective financing tool for riskier projects through the EFSI*

POLICYSECTORS COMPANIES

• The EFSI will target specific

sectors, including:

– Infrastructure

– Education

– Research

– Innovation

– Renewable energy

– Energy efficiency

• The companies targeted by the EFSI for

investment must fall into one of the

following two categories:

– Small and medium enterprises

(250 employees maximum)

– Mid-caps (250 to 3000

employees)

• Companies will also have to

facilitate the following objectives:

– Promote job creation

– Long term growth

– Competitiveness

• Besides the three filters, the criteria on which investment decisions are based include:

– Economic viability with the support of the initiative

– Sufficiently mature character in order for the business to be appraised on a global or local basis

– Consistency with EU policy priorities and value adding character at European level

– Maximization of private sector financing

• Projects do not have to be cross border

EFSI investment thesis outline


* EFSI = European Fund for Strategic Investment is a EUR 21 billion guarantee fund and core of the Investment Plan for Europe dedicated to facilitating private

investment across the EU



However, it is not only companies that can apply for EFSI financing; investment funds, public sector entities or banks are also welcome

Public Sector Entities (except Member States themselves)

SMEs (up to 250 employees)

Mid-caps (up to 3000 employees)

Large entities such as• Utilities• Special purpose vehicles• Project companies Banks to deliver intermediated lending (incl.

National Promotional Banks)

Investment funds

Bespoke Investment Platforms

• There are two main ways to apply for ESFI financing:– Through direct contact of the EIB with the proposal, following the usual application on the EIB website for the strategic investment

window – the government is not a gatekeeper in this process– Through the EIF financial intermediaries (dedicated to SMEs and mid-caps)

EFSI

Entities that can apply for EFSI financing



Documents

Romania an emerging auto hub - Guvernul Romanieiinvestromania.gov.ro/web/wp-content/uploads/2016/... · Romania –an emerging auto hub. ... • The evolution of the main automobile