“Covid has really sucked all of the air out of everything,” begins Vernon David Partner Charles Vernon. “From a legislative point of view things are a bit boring right now,given the imminent parliamentary elections that are due on December 6, everything has been pretty much at a standstill, except for Covid of course.”
Still, he says, there have been “some tweaks” to Romania's Companies Law and a new “poorly put together” amendment to the Agricultural Land Law. “The Agricultural Land Law amendment is directly aimed at foreign investors,” Vernon says, “and in a controversial way.” According to him, the changes are “essentially, a very protectionist text that seeks to insulate local large landowners from any foreign interest.” He says that it stopped most agricultural transactions in the country by introducing “a slew of preemptive rights and supertaxes for transactions, like, for example, an 80% tax on gains if the land has been owned for less than eight years.” This affects not just farmland, Vernon says, but also “impacts energy projects, oil exploration undertakings – it overflows to development in general.”
And Romania will need that development in the near future, Vernon says, as the country, which has a 5.5% unemployment rate after many years of almost full employment, is struggling with economic turbulence. “Industry is down 14%, the service sector is down 17%, and we’ve lost about 10% of the GDP in the past six months,” he says, adding that international organizations like the World Bank predict a 6% decrease in GDP for 2020. “Honestly, I think that’s an optimistic number,” he says, “especially given the fallout from the past lockdown and current uptick in Covid cases in Romania. However, the country did have an amazing first quarter of 2020, so that was good.” He says that, because of the poor outlook, nobody wants another lockdown, even as Romania approaches ten thousand new coronavirus cases per day. "Unfortunately for the economy," he says, "the government just announced more Covid limitations for both businesses and persons.”
Still, Romania has a lifeline in the EU. “The country is set to be a big recipient of EU aid,” Vernon says, “with almost EUR 80 billion being set aside for the next six years.” The current minority government – the PNL party – would like to place a lot of that aid into healthcare and infrastructure like hospitals, he notes. “That is a great place to put it: a lot of the infrastructure was underfunded for a long time, and the quarantine only exacerbated the cracks that were already there.”
While on the subject of politics, Vernon turns to the recent local elections in Bucharest, “The new mayor, independent Nicusor Dan, has the backing of the minority government,” he says, “which makes him not very well-liked by the recently defeated city administration and the current majority party in the parliament – the PSD.” Vernon says that this is the first time that Bucharest has had a truly “outsider” mayor. “Nicusor Dan has done a lot of NGO work protecting the old buildings and parks in the city, arguing for the need to overhaul public transportation and have a more controlled development – it will be very interesting to see how he navigates his position.”
And his task will not be that easy; Vernon reports that the city has been experiencing severe issues with hot water outages for a few months now. “Modernizing the administration of the city, fixing infrastructure, and making it more digital will be a tough challenge, but it is needed, especially given the pandemic,” Vernon says. “Nicusor Dan will face obstacles, but if he can get around them, I think he could make Bucharest a much better place to live and work as well as demonstrate that with the right leadership, the city can make real progress.”
Finally, Vernon says, “the government is facing serious financial difficulties.” According to him, “the estimated deficit spending at the beginning of this year was estimated to be around three percent of GDP – and it is now over nine percent due to Covid. In addition, there have also been a number of economic incentives given out to assist with the pandemic, but some of these have been a bit off-mark,” he says, citing as an example some “taxes being rescheduled and/or delayed instead of written off – this way, it is possible that all these due taxes will just creep up on people and it's not clear if everyone will be able to bear that tax burden when due.” In addition, he concludes, not obtaining the benefit to the budget from these expected taxes may only strain the country’s situation even more.