Final policy recommendations

•

To improve the monitoring and evaluation culture to increase the value-added of interventions.

Competitiveness must also become a bottom-up process. The cen-tral Government is the only driving the policy proposals, decisions and incentives. Roles and responsibilities must be decentralized, so that Romanian economic development rely on a collaborative process, involving government at multiple levels, companies, teaching and re-search institutions, and other institutions. Individuals, companies, and institutions should undertake this responsibility.

public sector;

•

access to specialist finance (risk capital, venture capital, seed capital);

•

environmental RTDI;

•

human capital – training of researchers.

d) Efficient use of European Funds for environmental sustainability:

While significant support is still needed for:

•

environmental infrastructure projects (e.g. waste-processing);

•

clean-up and rehabilitation of derelict / contaminated sites;

•

protection / enhancement of areas of ecological interest;

more support for is necessary in the meantime:

•

company-based environmental and energy management,

•

development of green areas, outdoor space, natural parks, pro-tected areas;

•

investment in renewable energy sources;

•

sustainable development management/monitoring projects;

•

preservation of biodiversity / wildlife.

e) Romania needs to improve its competitive standing and be-come one of the top 30 in the global rankings

National public and private funds should accompany the Euro-pean support for improving the competitiveness factors. It may not be possible to excel in every indicator. But government policies should adapt the development strategies by managing not only the domestic resources and competencies, but also by adapting to global changes.

This will mean adopting the worldwide best practices for each compe-tition factor that may be improved. Raising competitiveness will bring improvements in international rankings and, more importantly, deeper integration with the developed economies.

f) The road to adding higher value

Rather than try to win back low-wage and low-skill assembly jobs, Romanian Government should undertake three essential steps to fur-ther the economic development:

•

encourage the transition to higher-value-added activities,

•

identify and exploit our comparative advantage (e.g. highly educated and moderately paid Romanian scientists and en-gineers), and

•

push forward with reforms that create more competition, entrepreneurship, and flexibility.

The expansion into higher-value-added activities comes not from a shift into entirely new industries, such as high tech, biotech, or na-notech, but from the natural evolution of companies within existing industries¹⁴. As low-skill, labor-intensive operations head elsewhere, Romania should resist the temptation to try to lure them back with tax breaks or other financial incentives. Such initiatives are not likely to influence foreign investment significantly and won’t compensate for rising wage rates over the longer term. In some cases they can lead to counterproductive overinvestment. Instead Romanian Gov-ernment might use the funds to improve the transportation networks, the power grids, and the telecommunications lines. A strategic di-rection should focus on capturing in Romania to a larger extent the new wave of the outsourcing in high value added manufacturing, in research and development, as well as in shared services moving to the CEECs. Beyond that, policy makers must boost competition in the broader economy so that companies are compelled to improve their operations, to adopt best practices and to innovate. Predicting changes in the business sectors is also to become an integral and ex-plicit step in public policy making.

g) Build a Romanian Competitiveness Institute (RCI)

RCI should become a think-tank, based on a public-private

partner-14 In northern Italy’s textile and apparel industry, for example, the majority of garment production has moved to lower-cost locations, but employment remains stable because companies have put more resources into tasks such as designing clothes and coordinating global production networks. A similar series of events has played out in other countries developing around the world: companies start out in the simple, labor-intensive parts of an industry but over time hone their skills to compete in more profitable areas, such as marketing, product design, and the manufacture of sophisticated intermediate inputs.

ship, focused on the current and forthcoming economic policies¹⁵. It should build capacity in order to address the following questions in a meaningful way, and assist decision makers with informed policy options:

•

What is the impact of current policies on the Romanian econ-omy competitiveness?

•

What roles should the country play in the European internal market?

•

What unique or specific values can we provide for a business location?

•

For what range or types of businesses and functions can Ro-mania be competitive?

The Romanian Competitiveness Institute should also become a central facilitator of the regional co-operation on competitiveness. The action plan should not be too sophisticated. We cannot however omit the huge need for developing a competitiveness research database and for case studies and international reports analyses. Last, but not least, RCI members should to undertake education and training programs, especially in microeconomic of competitiveness and public policy courses, exploring customized programs from European governments, while also looking to those from the USA, ASEAN or other countries.

The necessary conditions for RCI success are: a strong leadership;

world class research; clear intellectual framework; inclusiveness; per-manence and independence.

15 Some countries have national competitiveness councils. Ireland (1997), Greece (2003), Croatia (2004) and the Philippines (2006) are just some examples that have advisory bodies or special govern-ment agencies that tackle competitiveness issues. The latter came into being under the initiative and financial support of the Philippine Exporters Confederation - the country’s biggest business group, as part of the national action agenda to make it easier for business to operate efficiently.The older Irish National Competitiveness Council uses a Competitiveness Pyramid structure to simplify the factors that affect national competitiveness. It distinguishes in particular between policy inputs in relation to the business environment, the physical infrastructure and the knowledge infrastructure and the essential conditions of competitiveness that good policy inputs create, including business performance metrics, productivity, labour supply and prices/costs for business.

References:

Bachtler, J. (2006) Knowledge and innovation for growth – Challenges for Struc-tural Funds to deliver the Lisbon Strategy, European Policies Research Centre, Nov. 2006

Conway, P., Donato de Rosa, Nicoletti, G. and F. Steiner (2006)

Regulation, competition and productivity convergence , OECD Economics department working papers no. 509, Sept. 2006 EC (2006) CIS 3 - Report of the National Institute of Statistics

EU Autumn Forecasts Report, Nov. 2006 EIU (2006)

Central Eastern Europe and its place in global business, presentation, Jan. 2007, forthcoming in the second edition of

“Eterging Markets” by Nenad Pacek and Daniel Thorniley, to be published by summer 2007

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Government of Romania (2006)

National Development Plan 2007 – 2013, Dec. 2005

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National Reform Plan, 2006 Hunya, G. (2006)

EU Membership – Support and Challenge to the Competitive-nessof the Polish and Romania economies, Draft paper to be pre-sented at EUIJ Kansai, 9 December 2006 and at EUIJ Tokyo, 11 December 2006

IMF (2006) World Economic Outlook - Economic Indicators for Romania, 2004-2007, April 2006

Landesmann, M. and J. Wörz

(2006) CEECs’ Competitiveness in the Global Context, WIIW Re-search Reports, No. 327, May 2006

Krugman, P. (1994) Competitiveness: A Dangerous Obsession, Foreign Affairs, March/April 1994

Ministry of Economy and Trade – Romania (2006)

Sectoral Operational Programme “Increase of Economic Com-petitiveness”

- Second Draft, November 2006 National Commission for

Eco-nomic Forecasting (2005)

Romania on the path towards European Union, through devel-opment of the

Knowledge-based economy, Conference on Medium-Term Economic Assessment - CMTEA, 2005 Edition Sofia, 29-30 September

National Institute of Statistics

– Romania (2006) Main Macroeconomic Indicators, Q3 2006

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Porter, M. E. (1990) The Competitive Advantage of Nations, Macmillan, London Porter, M. E. (2006) Raising Indonesia’s Competitiveness, presentation in Jakarta,

Indonesia, 28 November 2006

World Economic Forum (2006) The Global Competitiveness Report 2006-07

Annex 1. Macroeconomic indicators and the business environment

Indicators 2001 2002 2003 2004 2005 2006^e 2007^f 2008^f 2009^f 2010^f Gross Domestic

Product EUR

Mill. 52,606 60,784 79,258 95,858 112,128 127,027 141,149 154,090

Economic growth % 5.7 5.1 5.2 8.3 4.1 7,0 6,5 6,3 5,9 5,6

Gross added value

in industry % 4.4 5.1 4.6 6.8 2.5 6.4 4.8 5.2 5.4 5.6

Private sector in

GDP % 68.0 69.4 67.7 72.2 70.4 71,4 - - -

-Domestic demand % 8.4 3.9 8.4 12.1 8.3 9.5 8.6 7.8 7.3 6.9

FOB Export EUR

Mill. 12722.0 14675.0 15614.0 18934.7 22255.1 26100 30550 34750 39300 44400

CIF Import EUR

Mill. 17383.0 18881.0 21201.0 26281.0 32568.5 40260 36100 52300 58790 65850 FOB / CIF trade

balance EUR

Mill. -4661.0 -4206.0 -5587.0 -7346.3 -10313.4 -14160 -15550 -17550 -19490 -21450 Foreign direct

in-vestments (Balance of Payments)

EUR Mill. 1312 1194 1910 5127 5237 8500 5800 5600 5600 5600 Inflation rate

(December /

De-cember) % 30.3 17.8 14.1 9.3 8.6 4.7 4.5 3.5 3.0 2.5

Exchange rate

RON/EUR* % 2.6027 3.1255 3.7556 4.0532 3.6234 3.525 3.43 3.38 3.35 3.35 Budgetary deficit

in GDP % 3.6 3.0 2.7 2.1 0.8 1.4 2.8 2.7 2.2 2.0

Number of employ-ees in economy, out of which:

1000

pers. 4,619 4,568 4,591 4,469 4,559 4,615 4,745 4,825 4,900 4,960

• Industry (total),

out of which: % 41.2 41.4 40.3 39.0 36.7 35.5 34.6 33.8 33.0 32.4

- Extractive

industry % 7.4 7.2 6.9 6.8 6.8 6.3 6.1 5.8 5.6 5.3

- Processing

industry % 83.6 84.3 85.6 85.7 85.2 85.6 85.7 85.9 86.1 86.3

- Electricity and heating energy,

gas and water % 8.9 8.5 7.5 7.6 8.0

8.0 8.2 8.2 8.3 8.4

Unemployment rate end %, of the

riod

pe-8.8 8.4 7.4 6.3 5.9 5.4 5.3 5.1 5.0 4.9

Labour productiv-ity per employee, in

industry % 6.7 5.0 5.4 11.8 7.0 7.4 5.5 5.8 6.0 6.2

Average gross wage

• gross Euro 162 170 177 202 267 323 370 414 458 499

• real % 5.0 2.4 10.8 10.5 14.3 8.8 6.5 7.9 5.5 5.3

Unit labour cost

• nominal % 16.3 11.4 12.7 8.6 5.3 3.6 3.4 3.3

• real % -6.1 -3.2 0.6 -1.2 -1.4 -1.3 -0.5 -0.1

Notes: * preliminary estimations base on 2006 achievements.

Source: National Institute of Statistics, National Commission for Economic Forecasting, National Bank of Romania, Romanian Agency for Foreign Investments, The National Trade Register Office, 2006

In document The Role of Human Capital in International Competitiveness. Transatlantic Comparison of Experience with Migration in the US and the EU (Pldal 60-63)