i. Introduction

1 Background

In the second half of 2003 a process of consultation between the public and the private sector was initiated. In December 2003, through a Parliament decision Emergency Ordinance nr. 120 (the system of export promotion) was amended:

· the monitoring of the system was no longer the task of the intergovernmental committee, which was abolished;

· in its place, an Export Council should be created, on the basis of a public-private partnership.

The Ministry of Economy and Commerce formally set up the Export Council, in April 2004, through a Government decision that was signed by the Prime Minister.

By law, the Export Council has the following competences:

· to harmonize the sectoral, intersectoral and regional strategies within the framework of the National Export Strategy, with a view to determining priorities for export growth;

· to identify resources of public and private financing to fulfil programmes and actions mentioned in the National Export Strategy ;

· to propose programmes to assure the increase of the competitiveness of the export offer;

· to initiate actions to increase and diversify the export of goods and services with high added value;

· to analyze the current problems of the foreign trade activity and formulate proposals to improve it;

· to suggest modifications of the legislative framework to eliminate the export barriers and generate an increase of the export volume;

· to support the promotion of services and specialized assistance to exporters;

· to monitor progress, results and impact of implementation of the measures, instruments and mechanisms of support and promotion of exports with state budget financing, included in the National Export Strategy;

· to publicize actions, programmes and measures for export growth.

A Secretariat was established within the Export Promotion Directorate, Ministry of Economy and Commerce.

Four working groups were created:

· Commission for strategy, competitiveness, marketing and branding;

· Commission for monitoring export promotion instruments;

· Commission for trade legislation, commercial defence and training;

· Commission for current issues.

It was decided that the first commission should start to work faster and to organize in Bucharest a seminar about “Modalities to Elaborate a National Export Strategy”. The workshop was held on 19-20 May 2004 with the assistance of the International Trade Centre UNCTAD/WTO (ITC). The Export Council met again in a plenary session on 21 May 2004. During this session, the report of the Commission was presented and the Export Council approved the national export strategy design initiative, based on ITC’s National Export Strategy Template. A “Roadmap” for this initiative was also endorsed.

2 Approach

This report is not a strategy. Rather,

· it presents a frank assessment of Romania’s trading performance and prospects;

· it identifies the key issues that are impeding the country’s competitiveness;

· it suggests a strategic process and framework for overcoming the obstacles to further export development.

It is based on consultation amongst, and inputs from, members of the Commission (Strategy Core Team - see Annex ‘B’) and adopts the “National Export Strategy Template: A Process and Methodology Tool” developed by the International Trade Centre UNCTAD/WTO.

1. Competitiveness Assessment

1.1 A Snapshot of Romania’s External Trade

During the period 1992 – 2003, Romania’s foreign trade increased steadily year by year. In 2003 exports increased by Euro 9,946 million over 1992. This increase in exports was primarily attributed to sectors that performed particularly well during this period, including:

· Footwear, headgear, umbrellas and other accessories ( 1350% increase);

· Textiles and articles thereof ( 670% increase);

· Machinery, appliances and electric equipment, sound and video recorders and players (380% increase).

Romania’s portfolio of exported goods has changed. During the ten-year period, several sectors experienced a change in weight (in terms of percentage of total exports), including:

· Textiles and articles thereof (increase by 15%);

· Footwear, headgear, umbrellas and other accessories (increase of 6.4%);

· Machinery, appliances and electric equipment, sound and video recorders and players (increase of 4.4%);

· Plastics, rubber and related products thereof (increase of 1.3%);

· Mineral products (decrease of 6.1%);

· Chemical products (decrease of 6.0%);

· Transportation means (decrease of 5.2%);

· Common metals and articles thereof (decrease of 4.0%).

In 2003, imports increased by Euro 13,071 million over 1992. Although this increase in imports can be attributed in part to the increase of the world oil prices, natural gas and coal and to supplementary imports of crude oil, it is also due to increased imports of materials (inputs such as cotton; hides, skins and leather; man made fibres and filaments; etc.) needed by the exporting sectors.

Nevertheless, Romania’s foreign trade per capita is lower than that of neighbouring countries. Between 2000 – 2002, this was 5.7 times lower than in the Czech Republic, 5.5 times lower than in Hungary, 4.2 times lower than in Slovakia, 2 times lower than in Poland, and 1.5 times lower than in Bulgaria.

Geographical distribution of exports has also changed during the 1992 – 2003 period. The European Union (15) now represents two-thirds of Romania’s total export volume, compared with one-third in 1992. In 2003, Romania’s top five trading partner countries were Italy, Germany, France, United Kingdom and Turkey. These five countries accounted for 59% of total exports (compared to 30% in 1992).

From the macroeconomic perspective, this evolution in foreign trade led to an acceleration in economic development and performance. Between 2001– 2003, the Romanian economy was characterized by economic growth on one hand, and gradual decrease of inflation and a low fiscal deficit on the other.

The quantitative and qualitative economic changes, partly spurred by structural reforms, suggest that considerable progress has been achieved in Romania’s transition to becoming an operational market economy.

1.2 Economic Growth

At present, Romania is in the fifth year of continuous economic growth. Starting with 2001, an annual rate of 5% has been ensuring a gradual decrease of the gaps against the EU countries. If in year 2000, the Gross Domestic Product real growth was of only 2.1%, during 2001-2003 the average growth rate was of 5.2% and in the first quarter of 2004, an economic growth of 6.1% was registered.

In the following frame, the Romanian economic evolution, in the period 2001-2004, is presented:

Starting with year 2001, the Romanian Government has been implementing macroeconomic policies aiming to back the economic growth. A well-disciplined fiscal policy, completing a tight monetary policy and supported by a significant progress of economic reforms, has managed to improve the business climate and the functional character of the Romanian economy. Through a coordination of all these factors, a growth in high rates of the gross domestic product resulted, accompanied by an accentuated decrease of the inflation and by maintaining fiscal deficits and current account in sustainable limits.

As a result of these evolutions, the GDP volume at present is equivalent to that registered in year 1989, in the conditions of a deeply changed economic structure, more competitive and compatible with the developed economies one.

These results were achieved in the conditions of an unfavorable international context, the slowness of the economic growth being even more accentuated in the European Union countries, the main Romania’s partners (France, Italy, Germany).

The economic growth in Romania was favored by both the domestic and foreign demands. If in the previous years - and especially in year 2002 - the investments and the foreign demand preponderated in the stimulation of the economic growth, in 2003, the domestic demand (the investments and the private consumption) represented one of the main supporting factors of the economic growth.

The gross formation of the fixed capital, in year 2003, increased by 9.2% against year 2002, and the investment rate, determined by dividing the gross formation of fixed capital to the gross domestic product, being of 22.5%. In the frame of this, the investments achieved in the economy increased by 8.5% against year 2002, due to the augmentation, by 11.2%, of the investments in the private sector and by 3.3% in the public sector. The investments in equipment and transport means increased by 12.6%, the share of equipment import within equipment investments representing 39.6%, this reflecting the capacity and the availability of the economy to assimilate the investments for modernization.

Excepting year 2002, during the last five years, the external demand has had a negative contribution to the GDP real growth, although the exports of goods and services had registered high growing trends, i.e. 46.4% during the period 2001-2003.

The imports of goods and performed services, had also strong growth (+54.3% for the whole period), causing a negative contribution of the net export of about 2%.

Due to the structure of the domestic and external demand, the GDP was determined mainly by the increase of the gross added value produced in industry, constructions and services.

During 2000-2003, the industrial output increased – in real terms – by 27%, in external unfavorable economic conditions and based exclusively on the growth of the labour productivity.

In this respect, it is significant that the labour productivity in industry increased, during that period, with more than 45%, in the conditions when the private sector ensures, now, more than 80% of the industrial added value as against 68.4% in year 2000.

The principal characteristics of the industrial activity during the last years have been represented by the continuation of the production structure significant improvement, as a result of the superior dynamics of the manufacturing industry, with export more and more competitive on the international level.

In this sense, it is suggestive that the export of machine building industry goods, during 2001-2004, registered a three times increase, as against period 1997-2000.

Source: National Commission of Prognosis, Romania

Despite these reforms, economic growth in Romania has still not been sufficient to reduce income gaps and to solve the country’s problem with poverty, estimated to affect 29%[1][1] of the population.

The following is quoted from “Romania: Poverty Assessment”[2][2]

The evolution of poverty in Romania during 1995-2002 confirms the robust relationship between poverty and growth, the two indicators going in different directions. For any poverty line – food, extreme or total – the poverty numbers:

· declined in 1996, on the background of a growing economy;

· registered a sharp increase in 1997, and modest increases thereafter up to 2000, during a four-year recession period; and

· began to fall again in 2001-02, with the return of the economic growth.

One of the report’s main conclusions is that:

Economic growth should be the centrepiece of poverty reduction in Romania.

The impressive macroeconomic indicators during the past two or three years should not be taken in isolation. The following points are noteworthy:

· real output (GDP) has still not recovered to the pre-transition level (2001 figures) and remains low in comparison with CEE countries;

· growth in macroeconomic performance has not been continually accompanied by an equivalent growth in productivity;

· reallocation of resources, (e.g. mobility of labour from the industrial to the agricultural sector; subsidies in heavyweight industries, often state-owned) has sometimes distorted real economic growth;

· although Romanian exports depend considerably on processes that transform imported materials into final products, the country has not been able to close the trade gap. A case in point is Romania’s trade deficit in the food and agriculture sector. The degree of coverage of the country’s imports by exports remains at around 80% yearly.

Further sustainable development of the export sectors can contribute to continuous socio-economic growth.

1.3 Comparative vs. Competitive Advantages

The performance of the key sectors is based on factors of comparative advantage, mainly low labour costs and raw materials. In fact a major share of the exports to the EU are generated by the labour - and natural resources - intensive industries. These are typically low value-added products requiring low technology content that depend on low cost labour (often with low capacity to adapt to new skills) and imported materials (e.g. textiles, footwear and apparel). Simultaneously, more than half of the trade deficit with EU is generated by the technology-intensive industries.

The clothing sector, for instance, has become Romania’s largest export sector. Whilst this can be partially attributed to a higher degree of competitiveness, it is also the result of niches created by the then EU candidate countries as they reoriented their economies to other export sectors.

Such comparative advantages are easily eroded and lost. They represent temporary conditions of competitiveness and cannot be sustained. Romania must not depend on such factors to continue with its socio-economic growth trend.

The Romanian economy has a relatively low level of competitiveness in the European context. This competitiveness gap against the rest of EU member countries cannot be ignored, given the significance of the European market to Romania. This gap is likely to grow given the prospect of further world trade liberalization and integration, leaving Romanian exporters in a critical condition.

According to the Global Competitiveness Report 2002-2003[3][3], Romania lags behind other economies in transition in its Growth Competitiveness Index and in the Business Competitiveness Index.

Global Competitiveness Report 2002-2003
Country	Growth Competitiveness	Business Competitiveness
Estonia	26	30
Slovenia	28	27
Hungary	29	28
Lithuania	36	40
Czech Republic	40	34
Latvia	44	45
Slovakia	49	42
Croatia	58	52
Poland	51	46
Bulgaria	62	68
Romania	66	67

Source: World Economic Forum. Global Competitiveness Report 2002-2003

Romania’s strategic focus must now be on competitive advantages, on developing its export sectors’ capacities and competencies, and on fostering an economy that can thrive under conditions of free trade in an increasingly globalize market-place.

1.4 Investment

With the exception of Bulgaria, Romania commands the lowest levels of foreign direct investment (FDI) stock per capita, and of GDP per capita, of the 10 CEE states (8 new EU member states, Romania and Bulgaria). Romania also scores relatively low in the Inward FDI Potential Index rankings 1999-2001^{^[4]}^[4] covering 130 countries (see table below).

The general approach towards foreign investment promotion does not necessarily ensure maximum benefit for the export sector. In 2003, foreign direct investment reached almost Euros 1.3 billion.

FDI Potential Index 1999-2001
Country	Rank
Slovakia	26
Czech Republic	37
Estonia	38
Hungary	41
Poland	47
Latvia	55
Lithuania	56
Bulgaria	64
Romania	75
Slovenia	105

Source: World Investment Report 2003

Overall, however, Romania has attracted a lower investment per capita (compared to other countries in the region) due to the absence of a transparent legislative framework and an unequal playing field.

FDI is a source of capital, of know-how, technology and management skills and stimulates economic growth. Romania must become a better contender for absorbing foreign direct investment, especially those exports oriented.

1.5 The Regulatory Framework

Certain sectors are still protected. Some producers are recipients of import control protection that is more severe than that in the EU for third countries. As a consequence, these sectors, which are the least likely to engage in export, are inefficient, uncompetitive and are therefore a burden to the entire economy. The experience of the new EU member countries clearly suggests that tariff protection has a strong negative effect on GDP per capita.

Romania can no longer be defensive or protectionist, focusing on access issues and on regulating the supply of products and services to the domestic market. The introduction of Joint Customs Tariff with the prospect of Romania’s accession to the EU in 2007 will call for a rapid adaptation to international market conditions. It is essential that the productive sectors must take that into account.

Competitive advantages do not arise from protectionism, quotas and preferential market access. Indeed, such measures can have a negative effect on economic performance since they lower enterprise motivation for efficiency, quality and innovation.

1.6 Economic Diversification and Innovation

In spite of continued opening to foreign trade (since 1998, the openness of the Romanian economy has been growing from 52.9% to an estimated 79.4% in 2003[5][5]), and in spite of strong export performance, Romanian exports are still not diversified enough. This is partly due to the fact that few enterprises undertake R&D in product development. A brief look at Romania’s principal exports in 2002[6][6] (see table below) quickly reveals that the majority are traditional sectors. There has been little innovation and as a consequence, there are few technology-intensive industries.

Whilst Romania doubled its textiles exports, during 1995 – 2002, the country has been slow to develop other sectors. To illustrate this, we can mention that the world trade in the automobile sector doubled, between 1990 and 2002, (an increase of 30 percent during 1995-2002). Romania, however, has only managed to capture a small part of the potential export market. Slovakia, Hungary and the Czech Republic, by contrast, have performed remarkably with up to 800% more exports than Romania.

Romania’s Top Export Products
HS Code	Product	2002 Exports ’000 US$
2710	Petroleum oils, not crude	959,770
6204	Women's suits, jackets, dresses skirts etc & shorts	819,326
6203	Men's suits, jackets, trousers etc & shorts	596,712
6403	Footwear, upper of leather	570,021
8544	Insulated wire/cable	497,784
9403	Other furniture and parts thereof	491,659
7208	Flat-rolled products of iron/non-al/s width>/=600mm,hr,not clad	470,648
6406	Part of footwear; removable in-soles, heel cushion etc; gaiter etc	403,159
4407	Wood sawn/chipped lengthwise, sliced/peeled	364,882
8901	Cruise ship, cargo ship, barges	301,238
6206	Women's blouses & shirts	287,355
6110	Jerseys, pullovers, cardigans, etc, knitted or crocheted	274,526
8708	Parts & access of motor vehicles	240,374
6205	Men's shirts	234,291
8529	Part suitable for use solely/princ. With televisions, receptor app	196,966
7204	Ferrous waste and scrap; re-melting scrap ingots or iron or steel	189,562
8517	Electric app. for line telephony, incl. curr line system	179,372
7304	Tubes, pipes and hollow profiles, seamless, or iron or steel	176,744
6201	Men's overcoats, capes, wind jackets etc o/t those of hd 62.03	176,574
7601	Unwrought aluminum	124,028
9401	Seat (o/t dentists' & barbers' chairs, etc), &part thereof	118,392
4011	New pneumatic tires, of rubber	117,701
8482	Ball or roller bearings	111,241
3102	Mineral or chemical fertilizers, nitrogenous	110,562
6109	T-shirts, singlet and other vests, knitted or crocheted	108,883
6405	Footwear, nes	105,817
6202	Women's overcoats, capes, wind-jackets etc o/t those of hd 62.04	104,196
2716	Electrical energy	100,464

Source: ITC TradeMap.

Romania must continue to develop its existing sectors by introducing efficiency and quality, by capturing and retaining more value in the country, whilst simultaneously encouraging innovation and diversification of both the export offer and markets.

1.7 Conclusions

· Romania needs a national strategic effort that is based on developing competitive advantages to advance an economy that can thrive under conditions of free trade in an increasingly globalized market-place.

· Over the long-term, the gains from free trade in open economies tend to more than compensate for any short-term cyclical set backs. Romania must further open its economy to urge competitiveness based on efficiency, quality and innovation.

· It is essential that the country captures and retains more value in its supply-side capabilities. This must be coupled with sustained increases in productivity and diversification of production capacity.

· Export trade is the most viable way forward for socio-economic growth.

2. Competitiveness Constraints

2.1 Introduction

Broadly, Romania is faced with several constraints to its international competitiveness. These arise from structural deficiencies within the economic, business and institutional environment, as well as from a sluggishness of entrepreneurship and enterprise capacity. A number of factors have contributed to these constraints, such as:

· delays in implementation of economic and structural reforms;

· arbitrary fluctuations in the legislative framework;

· inadequate institutional reform;

· unclear and complex formalities and procedures;

· limited availability of reliable physical infrastructure;

· insufficient access to trade financing opportunities.

These constraints have led to an undesirable national business environment that is characterized by:

· uncertainty within the business community;

· little domestic and foreign investment in emerging sectors;

· insufficient diversification of the export offer;

· low awareness of quality requirements of international buyers;

· low managerial competencies;

· low enterprise culture/ability to restructure and innovate;

· dependence on the domestic market.

In the present conditions, but mostly in the integration prospective, emphasizing and analyzing the principal constraints are essential for a viable export strategy configuration. The following (2.2 to 2.5) elaborate some of the key constraints.

2.2 The Institutional Framework

Competitiveness Constraints:

― The trade support network in Romania is not sufficiently coordinated. This results in duplication of effort, sub-optimal use of the limited resources available and gaps in services delivery.

― The consultation and collaboration process between trade and industrial policy-makers, from the commercial and industrial field and the private sector is still in an incipient phase.

― The process of coordinating the delivery of trade support services at national level is also in an incipient stage.

― There is the need for a better coordination between the trade promotion and foreign investment promotion functions.

― No organization operates a first-stop referral service that serves as a focal point and guides enterprises on the services and facilities offered by the trade support network.

Competitiveness and export development arise from a complex and dynamic interaction between the state, enterprises and intermediate institutions, along with the ability of industry to organize itself.

This means that ultimately, national economic performance is influenced not by individual organizations alone, but by the aggregate institutional framework in the nation. International trade requires the direct or indirect input of an extensive network of players (such as banks, insurance companies, shipping agencies, certification and standards bodies, customs authority, information providers, etc). One or more weak links in the chain of institutions involved in the trading cycle can lead to national competitive disadvantages and can create difficulties for existing exporters, aspiring exporters and potential exporters alike.

Romania has done much to encourage export growth. Several institutions, both public and private, have produced strategic plans and implemented actions at the sectoral and cross-sectoral levels. Many times, however, such plans and actions have been prepared and executed in isolation, with little, if any, consultation with the relevant stakeholders. In this respect, the maximum impact cannot be achieved. In fact, this often results in duplication of effort and sub-optimal use of the limited resources available. Despite the many public and private trade support institutions, there are still gaps in service delivery. For example, whilst many organizations provide trade information services, (often more of the same) few are oriented toward the development of enterprise competencies in areas such as quality management, research and design, packaging, export marketing, branding, etc.

Possible Response: A structured approach to institutional coordination is essential. A more comprehensive institutional response can further meet the demands and needs of industry and develop enterprise competitiveness.

2.3 Clients, Client Needs and Competencies

Competitiveness Constraints:

― The services delivery network targets only one segment of clients.

― Although efforts are made to meet client demands, not enough attention is given to client needs.

― Many enterprises still depend entirely on the domestic market. There is a lack of awareness of the benefits of exporting.

― Existing, aspiring and potential exporters do not have the managerial skills necessary to operate efficiently in international markets.

Clients of the trade support network include:

· existing exporters;

· aspiring exporters (those enterprises that are seeking to tap into exports);

· potential exporters (those enterprises that need encouragement and support before investing in export efforts).

Many organizations deliver services (mostly of a promotional nature, such as financial assistance for participation in international trade fairs and exhibitions, subsidies on publicity and advertising materials, etc.) aimed at existing exporters. Whilst such services can indeed enable enterprises to tap into international business opportunities, they do not make the enterprises more internationally competitive. Very few trade support institutions offer specialized services aimed at developing the production capacities and competencies of enterprises. Numerous opportunities exist, such as:

· product and process upgrading:

― production volume,

― quality management,

― value-creation, value-addition and value-retention;

· investment in human capital:

― awareness-building,

― export management,

― marketing skills.

· new business ventures:

― development of industrial clusters,

― joint-ventures and other strategic alliances,

― encouraging linkages between SMEs and large firms;

· export-readiness assessment and advice on export potential.

Due to the absence of such support, many enterprises find themselves struggling for daily survival, instead of facing the challenges of liberalization and adopting a medium- to long-term approach to export development.

Enterprises everywhere, however, are more likely to see obstacles that are external to their operations and do not immediately recognize the necessity to further develop internally. Not only is there a lack of skills, but there is also a lack of awareness / recognition of the need to develop skills.

Naturally, this impedes the competitiveness of Romanian firms since they cannot operate efficiently and successfully in international markets. Export potential is therefore reduced.

It is the common responsibility of the public and private sectors and the trade support network, to ensure that there is sufficient awareness, and the right support to encourage enterprises prepare for development and international competitiveness. Essential competencies include:

· market research;

· planning;

· finance;

· marketing;

· export management.

The availability of such awareness, training and specialized services, although sometimes more difficult to create and to operate, will help stimulate entrepreneurship and improve the international competitiveness of Romanian firms.

Moreover, Romania has one of the lowest densities of SMEs amongst CEE countries. Many of these SMEs do not export.

Possible Response: A more equitable balance between generic support and specialized support is essential to develop new exporters and new export capabilities and competencies.

2.4 Capacity, Quality, Value Addition and Branding

Competitiveness Constraints:

― Exporters sometimes lack the capacity to meet overseas demand.

― Industry does not always meet the quality requirements and standards demanded by international buyers.

― Romania’s top performing export industries are typically low value added sectors requiring low technology content, unskilled labour and imported materials.

― Many Romanian exporters produce under buyers’ private labels / brands.

Export growth depends on the ability of Romanian enterprises to meet international demand in terms of volume and quality.

It is no longer possible to compete exclusively on the basis of low-cost labour. Creation of competitive advantages comes through product differentiation and customization for distinct market segments, rather than merely by cutting labour costs. Romania’s economic success, and its ability to create wealth, will largely depend on its firms’ ability to move into higher value-adding economic activities that are retained in the country. Continuous technological improvement of production processes coupled with the development of new products/services is therefore essential, and exporters must have the abilities to adapt accordingly.

Unfortunately, many exporters produce under buyers’ private labels and brands. Not only does this not create visibility for Romanian products, but it shifts crucial responsibilities (such as quality management and adherence to standards) on the buyer. This, in turn, positions Romanian firms as relatively passive intermediaries, or as mere manufacturing bases. It is essential that Romanian producers become more sensitive to quality management issues and that they then develop their own brand. This will help position Romania firmly on the world trade map.

In fact, Romania must also intensify its efforts in international branding for wine, mineral water, tourism and IT&C, and initiate programmes for other sectors (e.g. furniture). In doing so, it is crucial that the brand be based on strong quality criteria, otherwise the country will lose its credibility.

Possible Response: A national effort to raise the ability of firms to meet international demand whilst creating awareness on quality (and related support services) will provide the basis for promoting the Romanian brand.

2.5 FDI and Market Diversification

Competitiveness Constraints:

― Investment and export promotion are not sufficiently aligned.

― FDI is characterized by a few, large, influential investors. Smaller investors keep away because they do not have equal clout.

― Exports are too concentrated on a few (mostly EU) countries.

― Many firms depend on one or two international buyers.

For the 10 CEE states, the correlation between investment and commercial activity is a positive one. The benefits are well known: FDI can supplement domestic capital requirements; is a source for acquiring know-how, technology and management skills; it stimulates economic growth. Often however, Romania is not considered as a serious contender for absorbing foreign investment. In fact, it has one of the lowest per-capita investment levels in the region. A more investor-friendly environment is crucial – a transparent one, governed by a sound legislative framework and one which minimizes bureaucracy (in terms of time required, the number of intermediaries and the number of documents requested).

In its investment promotion efforts, Romania must become equally or more efficient than its neighbouring countries in competing for the same investment. In doing so, Romania must respond immediately to enquiring potential investors by quickly providing information on opportunities, incentives and available locations.

The relatively low number of investors limits the production and export diversification potential of Romania, as well as the ability to improve the quality and the processes of existing products. It also limits the potential to enter new markets.

Apart from the diversification of the export offer, Romanian exporters must penetrate new markets to reduce risk, to further broaden profit potential and to reduce volatility – such reduction in volatility comes from trading in multiple, non-traditional markets.

A major concern is that many exporters depend on just one or two international buyers. The risks associated with this approach are considerable; it can cause the sudden loss of business and even the shutting down of firms.

Possible Response: It is essential that investment in Romania become more effective in improving output and that it focuses on the expansion and modernization of companies rather than represent simple changes in ownership. A more diversified target for both investment and export promotion reduces economic risk.

2.6 Conclusion

It is essential that Romania addresses these issues without delay. These are structural or operational in nature and they impact or hinder its level of competitiveness and potential for development.

In doing so, it is essential that a comprehensive approach is adopted since the issues are interlinked and must therefore be tackled simultaneously.

3. Direction of Future Strategy

3.1 Introduction

The information and competitiveness issues presented in the previous sections clearly suggest that:

· the competitiveness and development of the export sector in Romania will benefit from a strategic approach;

· given the greater openness of the economy, export trade is the only viable way forward for sustained economic growth.

Romania must become internationally competitive and must be viewed as investor-friendly with an efficient business environment. This can only happen by design and requires a multi-faceted, but well-coordinated, national export strategy for the country.

Broadly, the national export strategy should seek to:

· enhance private sector capacity and capability to drive economic growth and development;

· promote human resource development to obtain the skills required for further economic development;

· integrate science and technology in socio-economic planning and development;

· promote dynamic indigenous technical and innovative capabilities in industrialisation;

· identify and develop new sectors that create, capture and retain higher value-addition and that provide the basis for Romania’s future economic development;

· encourage inter- and intra-sector linkages to foster the evolution of centers of excellence and industry clusters;

· enhance the effectiveness and efficiency of the national business environment to one that is internationally competitive;

· ensure an adequate provision of the necessary infrastructure to enable industry become more internationally competitive;

· contribute to regional development, employment generation and poverty reduction to encourage a more equitable income distribution;

· reduce dependency on tariff and non-tariff barriers, or preferential market access for sustained export development;

· further expose Romanian enterprises to international business opportunities.

Both the public and the private sectors need to become more dynamic. Most, if not all new investment projects must be undertaken by the private sector, whilst public sector gradually reduces its direct involvement. The public sector needs to become more pro-active and responsive to private sector initiatives and needs – many times, it is the facilitator and the enabler.

This calls for a cultural shift in the way that things are planned and implemented, as well as a change in attitudes and perceptions of both the public and private sector stakeholders.

3.2 The Strategic Process

To be relevant and to be successful, the National Export Strategy must actively involve both the public and the private sectors. It is essential that all stakeholders, that are interested in, or that impact, export competitiveness and export development, be involved at the start of the strategy design process.

It is only through such a partnership that the competitiveness constraints can be removed or minimized and these opportunities are identified and maximized. The partnership aligns the private sector’s commercial objectives with the public sector’s developmental concerns. It is also the only channel available to simultaneously address the macro, the mezzo and the micro levels.

Public-private partnership (PPP) in strategy design is relatively new to Romania. However, with the establishment of the Export Council, this partnership is now formalized and can be further strengthened. The strategy process, however, will require even more stakeholders to take an active role in the design, and eventually the implementation of the strategic actions. A comprehensive listing of stakeholders is presented in Annex ‘A’.

3.3 The Strategic Scope

To become more internationally competitive, and to stimulate the development of the export sector, requires a comprehensive approach – one that addresses the impediments to competitiveness and that takes advantage of opportunities for enhanced export performance.

It is suggested that the scope of the strategic framework adopts ITC’s 4-Gears of National Export Strategy model, i.e.:

· Supply-side issues or “Border-In”: focusing on production capacity, productivity, quality, technology development, management and export marketing competencies, and competency within the trade support network to assist enterprises in supply-side matters;

· Operational issues or “Border”: focusing on a developing a business environment that is internationally competitive, on reducing the costs of the trade transaction, on streamlining official procedures and documentation, and on infrastructure;

· Demand-side issues or “Border-Out”: focusing on identifying commercial opportunities abroad, provision of in-market support, promotion of the country and its sectors, promoting export-oriented foreign direct investment and technology/know-how transfer, and;

· “Development”: focusing on employment generation, poverty reduction and regional development.

Apart from developing strategies to improve the competitiveness of the various product and service sectors, the strategy must also address cross-sector issues such as:

· trade information,

· trade finance,

· quality management,

· competency development,

· trade facilitation,

· trade promotion.

Simultaneously, related trade policy measures and the investment promotion regime must be attuned to the national export strategy.

3.4 Strategic Focus

To focus the strategy, priorities must be set within each sector and among sectors. To achieve this, the value-chain approach will be used. The value-chain model provides a framework through which opportunities can be identified to:

· improve efficiency within the sector (thereby enhancing its competitiveness);

· capture and retain a higher proportion of the product’s final market value;

· increase the sector’s contribution by identifying new related products;

· increase the sector’s contribution to development objectives.

The value-chain will therefore be used to identify products in which Romania has a current or potential competitive advantage. To do so requires analyses of both the primary activities (such as R&D, product design, procurement of raw materials and components, production process, packaging, transport, distribution and after-sales service), as well as the support activities (such as trade financing, regulatory procedures, customs formalities, communication, and promotion).

This will result in identification of inter-related activities that need to be implemented at the national, sector and/or the firm level.

The sectors upon which the strategy will focus will become clearer in the course of the strategy-design process itself. This will entail the conduct of necessary institutional and enterprise audits, completion of competitor and sector analyses, confirmation of the potential for competitive advantage, and identification and allocation of resources.

At this stage, it is reasonable to suggest that the strategy will focus on:

· existing sectors, such as:

― textile industry (especially garments);

― shoe industry;

― furniture;

― wines and beverages;

― glass and ceramics;

― plastics and rubber industries;

― metallurgy;

― machine building industry.

· sectors with export potential, such as:

― automotive parts;

― information and communications technology sector (including business process outsourcing);

― business and professional services;

― agro-tourism;

― organic agriculture;

― medical services, treatment services, consultant services;

― processed food.

In each case, the sector strategies will aim to:

· enhance the efficiency and productivity of existing industries;

· create new growth and knowledge-intensive industries;

· develop and enhance indigenous capacity for sustained growth;

· develop an infrastructure which is supportive of industry;

· enhance private sector capacity for growth and development;

· ensure reliable and sustainable raw material supply.

Both the sector and cross-sector strategies will be designed by specialized teams that will be set up for this purpose. At least one Core Team member will be represented in each of these specialized teams.

Since resources available for export development are limited, it is essential that priorities be set. Such priorities must be set among sectors and cross-sectoral issues that will be addressed in the National Export Strategy.

3.5 Strategic Questions

The National Export Strategy will answer the following questions:

· What actions will be carried out (to improve competitiveness and export performance)?

· Why (the rationale)?

· How will the actions be implemented?

· By whom?

· By when?

4. Long List of Issues that the Strategy Should Address

4.1 Border-In Issues

· Romania’s export performance and international competitiveness are primarily based on lower labour costs and natural resources. This renders the economy vulnerable.

· Production capabilities generally have a low value-added and low technology content.

· The country has not yet succeeded to develop sufficient specialization that is based on competitive advantages.

· Industry needs to meet the quality and standards demanded by international buyers. Few exporters have obtained certification in their respective industries (e.g. CMM in the software industry).

· Industry is not capable of acting on international demand to diversify and benefit from growth.

· There is insufficient export-oriented domestic and foreign direct investment, particularly in high technology sectors.

· Enterprises undertake little R&D in product development and improvement. Associated facilities are needed to build ‘centres of excellence’ and nurture sectoral clusters.

· There is little collaboration with academia to ensure that the education system is aligned to the skills required by industry, particularly in the fast-growing, dynamic sectors.

· Romania has a low ratio of scientifically skilled human resources.

· The service sector, an engine of growth, is undeveloped. New capacities and competencies are needed in the various sub-sectors which include not only tourism, but also business and professional consultancy services (e.g. legal services, accounting, translation services, etc.) information and communications technology, architecture, engineering, quantity surveying, nursing and medical services, training and education services, transportation etc.

· Enterprises have little interest in forming strategic alliances (e.g. joint-ventures, technology/know-how transfers, etc.). More awareness of the benefits is needed.

· Intra- and inter-sectoral linkages are very rare. This results in slow development related and supporting sub-sectors.

· The trade support network is not sufficiently coordinated. Consequently it is characterized by duplication of effort and gaps in services delivery.

· Few specialized trade support services are available. The services delivery network must segment its clients appropriately and target assistance according to needs.

· Limited assistance is available for industry to launch training schemes.

· Producers have little in-house expertise in export marketing.

· The banking sector does not adequately address the trade financing needs of exporters, aspiring exporters and potential exporters. This does not encourage entrepreneurship, enterprise development and the access of exporters for the export production backing.

4.2 Border Issues

· The business environment is not yet considered internationally competitive, being often perceived as bureaucratic and inefficient.

· There are too many trade-related documents and official procedures including registration, authorization and declaration systems. Removal or simplification is essential to create a national environment that is conducive to international trade and investment.

· High transaction costs raise the cost of doing business, rendering Romanian firms uncompetitive.

· Corruption is still an acknowledged problem, even at enterprise level.

· More predictability and transparency in the regulatory framework is essential.

· Improved access to low-cost and reliable infrastructure (e.g. land, air and sea transport, gas and electricity supply, and telecommunications);

4.3 Border-Out Issues

· Diversification of export markets is essential to spread risk and to claim a bigger chunk of international trade.

· Many enterprises are totally dependent on the domestic market. Others are dependent on one or two buyers. Awareness-creation must be accompanied by stronger marketing activity.

· Quality market information is difficult to obtain. Further improvement in dissemination activities (or removal of barriers to information) is needed to create better-informed exporters.

· Better methods of identifying international business opportunities are needed.

· Certain types of information are not available (e.g. information on product/ service standards). More information is needed on topics such as import regulations, business practices, distribution channels, etc.

· Many exporters have no marketing expertise. More marketing at the sectoral level is essential.

· Investment promotion must target and attract new technology / know-how to stimulate diversification.

· Romania has few internationally recognizable brands.

· Many firms do not carry own-brands.

· Insufficient in-market support is available for firms in their overseas marketing endeavours.

4.4 Development Issues

· Lack of reliable physical infrastructure is limiting economic development in various regions.

· Poverty is still high – estimated at 29% of the population. Poverty in the rural area is declining at a much slower rate. The benefits of the economic growth are hardly reaching this habitat. New employment opportunities in non-farm activities are essential.

· Workers in the private sector are more vulnerable to unemployment than public sector employees

· The weak investment climate (both domestic and foreign) impedes regional development.

· New employment opportunities must be created in new sectors (e.g. technology-driven sectors and service sectors) to avoid mass unemployment as Romania becomes uncompetitive in traditional sectors.

Proposed Work plan

Timeline	Activity	Objectives	Output
Completed	Core Team (CT) Commitment Meeting	· To consolidate the public-private sector partnership and launch the strategy design process · To familiarize stakeholders with the strategy design process (and the use of the National Export Strategy Template) · To build a team that will complete the process · To confirm a timeframe for completion of the strategy	· Strategy design process understood; · Core Team composition confirmed; · individual responsibilities agreed.
Completed	CT identifies issues and considerations and assesses competitiveness environment (completion of Modules 2 and 3 of National Export Strategy Template)	· To determine likely scope of strategy (i.e. long list of issues for possible inclusion in strategy)	· Key issues affecting competitiveness identified · Base line data collected and analysed · Available resources confirmed
In Process	Second CT Consultation	· To prepare draft Response Paper	· Preliminary priorities identified · Response Paper drafted
+ 7 Weeks	Wide consultations with the stakeholders under the form of a Seminar or National Symposium.	· To confirm priorities and establish focus of strategy · To establish sector and cross-sector teams to develop detailed strategies	· National buy-in and ownership of strategic process · Specialized teams established
+ 8 Weeks	Third SSCT Consultation	· To prepare work plan and timeline for each specialized strategy team	· Confirmation of sector and cross-sector priorities · Assessment of resource implications · Work plan for completion of strategy design and documentation of strategy · Assessment of strategy management and monitoring mechanisms · Agreement on drafting responsibilities of each specialized strategy team
+ 9 Weeks	Preparation of sector and cross-sector strategies and strategy management / implementation plan.	· Prepare detailed export strategy, including implementation action plans for each priority sector and cross-sector issue.	· Detailed strategies for each key service sector, cross-sector support service and strategy management · Review of strategy management options (and institutional implications)
+ 14 Weeks	Fourth SSCT Consultation	· To review and refine specialized strategies · To agree on the strategy management and monitoring arrangements	· Draft National Export Strategy
+ 16 Weeks	Final drafting of National Export Strategy	· To complete the design process · To prepare detailed strategy implementation plans	· Finalized National Export Strategy Document
+ 21 Weeks	Submission of strategy document to concerned authorities	· To obtain official approval of the national export strategy	· Strategy approved and ready for implementation
+ 25 Weeks	National awareness program	· To familiarize all stakeholders with the national export strategy and actions	· Strategy implementation initiated

5.4 A National Approach with a Comprehensive Scope

The National Export Strategy proposes a national approach with a comprehensive scope that includes:

· poverty reduction;

· regional development initiatives;

· employment generation;

· supply-side capacities and competencies;

· more informed and more competitive Romanian enterprises;

· more dynamic and diversified economy;

· better practitioners in international markets;

· a national environment that is conducive to doing business.

The ultimate objective is enhanced socio-economic growth for the people of Romania.

5.5 Conclusion

The fundamental question to ask at this point is:

“What would the economic prospects of Romania be if no concrete actions are taken to resolve the competitiveness constraints and to further develop exports?”

6. Resources Required

6.1 Overview

The scope of this paper is to provide the evidence, rationale and the motivation of the need to design a National Export Strategy that is relevant, realistic, that is communicated and endorsed and that is implemented. It defines the need for Romania to become more internationally competitive and to develop its export sectors for more sustained socio-economic growth.

Elaboration of National Export Strategy, however, requires availability of greater efforts and more resources.

6.2 Consultations

As it has been observed, national economic performance is influenced not by individual organizations alone, but by the aggregate institutional framework in the nation. The design of the strategy will requires the information, the expertise and the decision-making authority of the stakeholders. Only this way can the strategy be comprehensive, realistic and implementable.

It is therefore crucial that all stakeholders be brought into the process and that cooperation is forthcoming. A list of stakeholders is provided in Annex ‘A’. Apart from the organizations that are currently active in the strategy Core Team, the following are some specific organizations that must be involved in the next phase of the strategy design initiative:

· Ministry of Research and Education;

· Ministry of Finance;

· Ministry for Integration;

· Ministry for Transportation;

· Ministry for Information Technology;

· Regional Development Organizations;

· Trade Unions, Employer Associations and Professional Associations;

· Banks.

The Export Council should seek to communicate this Response Paper with a wider group of stakeholders and find the best way to ensure their active participation in the strategy design process.

6.3 Human Resources

The proposed workplan outlines the amount of activity that is necessary to keep the momentum in the strategy-design process. It is necessary that the Export Council Secretariat be strengthened by having more people who can work on a full-time basis on the National Export Strategy initiative. Without these human resources, it will be difficult to complete all the required tasks, and unlikely that the schedule can be followed.

Name / Position	Organization
Alexandru Borcea, President ARIES	Tech 21 Coalition
Alina Beldescu, Director	Romanian Trade Promotion Centre
Andreea Vass, Researcher	Romanian Academy, National Economy Institute
Anica Nisioi, General Director	Employers Federation from the Light Industry
Bogdan Barbalata, Director	Romanian Bank for Export Import-EXIMBANK
Calin Mirea, Project Coordinator ANIS	Tech 21 Coalition
Constantin Soare, Counselor - Minister for Trade	Ministry of Economy and Commerce, General Directorate for Export Promotion
Costin Lianu, General Director	Ministry of Economy and Commerce, GDEP
Cristi Petrovici, Deputy General Director	MEC-GDEP
Cristian Ionescu, Director	National Council of Small-Medium Sized Private Companies -CNIPMMR
Cristina Leucuta,Counselor	MEC – Industry
Cristina Sorban, Expert	MEC-GDEP
Dumitrache Dima, General Director	National Association of Romanian Exporters & Importers-ANEIR
Dumitru Anca, Counselor	MEC-GDEP
Filofteia Bogdanescu, Deputy Director	National Institute of Statistics
Florin Vrejoiu, Vicepresident	Romanian Association for Electronic and Software Industry-ARIES
George Cristodorescu, Director General	IBD-GTZ
Gheorghe Serban, Executive Director	Tech 21 Coalition
Ion Ghizdeanu, General Director for Strategy	National Commission of Prognoses
Ion Pop, Director	Chamber of Commerce and Industry of Romania and Bucharest Municipality
Ion Serban, Counselor	MEC-GDEP
Madalina Spanu, Lecturer	Spiru Haret University
Marcel Diaconu, President	Professional Association from Plastic and Rubber Industry-ASPAPLAST
Maricel Popa	General Union of Industrialist from Romania -UGIR 1903
Marius Balaban – ANIMMC	National Agency for Small-Medium Sized Enterprises-ANIMMC
Marius Vitionescu, General Director	Romanian Trade Promotion Centre
Miahi Eduard Pankler-Student	Academy for Economic Studies Bucharest
Mihai Korka, Dean	Academy for Economic Studies Bucharest
Monica Ion, Chief of Office	National Customs Authority
Nelida Ciornei, Counselor	National Customs Authority
Octavian Botez, Professor	Spiru Haret University
Ovidiu Gheorghe, Director General	Vine and Wine National Employers Federation
Radu Morariu, Director GARANT	National Association of Foodstuffs Producers-ROMALIMENTA
Stefan Iordache, Chief of Depart., GRIRO S.A.	Employers Confederation from the Romanian Industry-CONPIROM
Stefan Ragalie - Acad.Romana-CEIS	Romanian Academy
Stefan Staicu, Counselor	Ministry of Foreign Affairs
Victor Schmidt, Deputy General Director	MEC-Industrial Policies
Viorica Rabocea, Counselor	Furniture Producers Association from Romania
Winfried A.Senker - CES Romania

DRAFT

ROMANIA

Pleading for National Export Strategy

Key Issues and Possible Response

i. Introduction

1. Competitiveness Assessment

2. Competitiveness Constraints

3. Direction of Future Strategy

4. Long List of Issues that the Strategy Should Address

5. Rationale for Continuing the Analysis

Proposed Work plan

Completed

6. Resources Required

A. Trade Support Network

B. Core Team Members

Organization