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Romania - RIO Country Report

RIO Country Report Romania 2015

The annual RIO Country Report offers an analysis of the R&I system in Romania, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Romanian research and innovation system and assesses the policy response.

R&I Challenges
Increase public R&I expenditure and the allocation of Structural Funds for R&D
Challenge description: 

The Romanian R&I system is heavily underfinanced. In 2014 gross domestic expenditure on R&D (GERD) was the lowest among all the EU Member States (0.38% of GDP compared to an EU average of 2.03% of GDP). A target of 1% public R&D expenditure was first set in 2006 and used as basis for the programming period 2007-2013, but the average annual allocation was three times smaller. Romania has reaffirmed this target for 2020, which also forms the basis for the National RDI Strategy 2014-2020 and its instruments. However, several months after the adoption of this strategy, the 2015 budgetary allocation is 2.17 times lower than this objective for the year.

The allocation of structural funds for R&D is also surprisingly low, in light of the 1% target. For the period 2007-2013 structural funds provided 20% of public R&D expenditures, while for the period 2014-2020, the allocation has not increased significantly (€1 billion, representing 15% of the R&D required to reach the target in 2020). The low allocation of structural funds for R&D displays the low political interest in this field, even if the absorption rate for R&D was 100%, particularly high compared to less than 40% in some other fields.

Policy Response: 

Between 2000, when Romania started the negotiations for the accession to the EU, and until the economic crisis struck, the Romanian Government gave a high priority to R&I as a driver of competitiveness and sustainability. Since 2001, policy objectives were derived mostly from the Lisbon Strategy and the European Research Area targets. This new direction was reflected, particularly starting in 2006, in policy documents as a justification for channelling resources to R&I. However, the noticeable hikes in expenditures lasted only a few years, until the beginning of the economic crisis. The National Development Plans and the National Reforms Programmes and two of its Operational Programmes (OPs) provide strong arguments for increasing R&D resources; the R&I-oriented Plans and OPs also contain objectives and special instruments to achieve them.

Policy assessment: 

The government has made progress in identifying the causes of structural weaknesses of the R&I system, but the implementation of the solutions is delayed and/or absent. Given the drastic reduction in funding for most research programmes, recent infrastructures are underused, while the research career prospects of the new PhD graduates look grim. The long-term underfinancing has been translated into a substantial brain-drain. Romania has one of the largest scientific diaspora among the EU countries, with an estimated 15,000 researchers working abroad. While the new doctoral schools funded by Structural Funds provided students with generous financial support, they experience difficulties in finding jobs in Romania and become contenders to enlarge the diaspora.

Romania has the second lowest rate of Structural Funds (SF) absorption in the EU (62.2%), although it has managed great improvements since 2012, when the rate was below 10%. The implementation of the SF Sector Operation Programmes is significantly affected by the quality of governance which is determined by the administrative capacity, still weak in comparison to other European countries, by poor institutional coordination and fragmentation, frequent legislative and institutional changes, and by insufficient policy capacity. The European Semester Country Report for Romania shows that the weak administrative capacity is causing delays in reforms and in the absorption of Structural Funds (SF).

Between March and October 2010, the World Bank undertook six sectorial reviews on behalf of the Romanian Government. They disclose public administration is characterised by a focus on compliance with norms rather than performance, while budget resources are spread thinly across policy areas without prioritisation. The reviews indicate that Romania has a poor institutional capacity at the central structure of the government to coordinate policies and resource commitments across sectors that would better align and achieve medium-term budgets and strategies.

Improve the R&I governance
Challenge description: 

Romania has a very fragmented research, development and innovation policy governance. The main actor is the Ministry of Education and Scientific Research (MESR). The ministry discharges its mission in the domains of research and innovation through its National Authority for Scientific Research and Innovation (NASRI), which coordinates the implementation and evaluation of the National RDI Strategy. However, MESR has limited power beyond implementing the National RDI Plan and allocating Structural Funds. Innovation policies have very limited inter-ministerial coordination, as the National Council for Science and Technology Policy (NCSTP), the responsible body at governmental level, has been inactive since its creation.

According to the National RDI Strategy 2014-2020, the consulting bodies for RDI are the Advisory Board for Research, Development and Innovation (ABRDI) and The National Council for Scientific Research (NCSR). These boards are supported by NASRI and, respectively, by the Executive Agency for Higher Education, Research, Development and Innovation Funding (UEFISCDI) and they contribute directly to the management of the programmes of the National RDI Plan, through developing professional procedures for project financing. These councils have limited power in determining the flow of resources.

Regional research innovation policies are mostly national, reflecting the general structure of the public administration in Romania. This is also the case for smart specialisation, which is clearly addressed in the National RDI Strategy 2014-2020. However, all the 8 Agencies for Regional Development are also required to prepare their RIS3 strategies by the end of 2015. Given that there is de facto no regional autonomy in Romania, the main concrete actions resulting from these strategies will most likely focus on the allocation of RDI funds under the Regional Operational Programme (17% of RDI structural funds for the period 2014-2020).

Policy Response: 

Following a long foresight exercise, the National RDI Strategy 2014-2020 was adopted in October 2014. The strategy includes an important component of smart specialisation and is a reassuring step. The new strategy sets fairly ambitious targets and includes priorities of national interest and instruments and policies to support the development of an

innovation ecosystem, but its implementation is still uncertain since the National RDI Plan has just been adopted after an extensive delay. The Strategy provides for the creation of The National Council for Science, Technology and Innovation Policy (NCSTIP), with several ministers on board, to replace the National Council for Science and Technology Policy (NCSTP).

Romania adopted a set of additional strategies which include a broad range of innovation-related objectives and measures (e.g., for competitiveness, for the SME sector), but their resources and implementation plans remain unclear.

Policy assessment: 

Despite changes and improvements in policy formulation, the public R&I sector needs a reorganisation. There is a lack of coordination between the relevant policy actors, a fragmented institutional setting, and unpredictability at the level of the advisory councils of the MESR, unreliable funding, and a limited evaluation culture.

The evaluations of the research institutions carried in the past years may have brought improvements to institutional mid-term strategies, but a comprehensive approach aiming at a possible concentration of institutional resources is still lacking. Broader coordination of innovation policies is still missing and important governance reforms are delayed. There has been no progress in building a regional system of innovation governance or regionalisation.

The Assessment of the 2014 NRP and convergence programme for Romania shows that there is a lack of formal coordination between the Innovation Strategy, Competitiveness Strategy, Industrial Policy Strategy and SMEs Strategy.

Improve the framework for private investment in R&I and build synergies between science and industry
Challenge description: 

The level of R&D investment in the business sector (BERD) is very low; in 2014 it was 0.16% of GDP, decreasing from 0.19% in 2012. Romania's limited innovation performance is reflected in its economic structure which has a prevalence of low- and medium-technology sectors. The demand for knowledge is low and there is an underdeveloped innovation culture.

Romania is specialised in labour-intensive industries (preparation and spinning of textile fibres, sawmilling, wearing apparel and accessories), in capital-driven industries (cement), and marketing-driven ones (footwear). In terms of innovation, Romania is specialised both in low-innovation sectors (wearing apparel, leather) and in medium-high innovation sectors (textiles, basic metals). Romania's competitiveness is affected by a weak R&I capacity. Manufacturing plays a stronger role in Romania than in most other EU countries (24.8 % of total value added, compared to 15.5 % EU average), but the country is a modest innovator.

One of the most important barriers to develop a strong private R&D sector and promote innovation is the dual economy. Romania has several multinational companies (MNCs) which have high productivity, but lack in-house research activities. Thanks to them, the country has an increasing share of high-tech exports compared with its neighbours and a high share of medium high-tech export, but there is only a very low number of SMEs innovating in-house (see the table with the R&I input and output indicators).
The level of privately-funded public R&D expenditure in Romania is low. In 2012 it was 8.6% of the total GERD and 0.04% of GDP, which indicates a low level of science-business collaboration and a weak commercialisation of research results. In 2013 Romania received a country-specific recommendation to ensure closer links between research, innovation and industry, by prioritising R&D activities that have the potential to attract private investment.

The weak commercialisation of public research may have several sources. On the demand side, in Romania there is still a limited capacity for knowledge transfer caused mainly by the low interest and involvement of companies in research and development activities, including the cooperation with research institutions. This is complemented by the poor understanding of the need for quality control and certification, which leads to a low degree of conformity with advanced quality standards, a reduced interest in issues such as industrial and intellectual property and also an unclear perception about the advantages that the applied research provides to industry. On the supply side, there is a traditional low level of industry-academia relations, a lack of entrepreneurial culture and skills among researchers, and a lack of bodies aimed at facilitating knowledge transfer.

Policy Response: 

The National Strategy for Competitiveness 2015-2020, approved in September 2015, identifies several significant economic sectors with competitive potential, i.e., tourism and ecotourism, textiles and leather, wood and furniture, creative industries, automotive components, ICT, food processing and beverage, health and pharmaceuticals, energy and environmental management, bio-economy, biopharmaceutical and biotechnology.

The National RDI Strategy 2014-2020 which includes an important component of smart specialisation identifies a set of four priorities: Bioeconomy; ICT, Space and Security; Energy, Environment and Climate Change; Eco-nano Technologies and Advanced Materials. The regional smart specialisation strategies in all of the 8 regions should be elaborated by the end of 2015/beginning of 2016, but as the actual regionalisation process is still pending in Romania, the spectrum of instruments these strategies can use remains limited.

One of the most important policies introduced in the last 5 years concerns the 50% tax deduction for R&D expenditures. A 20% tax deduction was adopted in 2010 and it was raised in 2013 to 50%, but it is only in 2015 that the eligible costs and other implementation details were clarified, a fact that may encourage its use by companies.

The National RDI Strategy 2014-2020 sets targets in terms of activating the business sector and economic impact, following the Innovation Union Scoreboard indicators. The Governmental Strategy for the SME sector and business environment was adopted in 2014. Its action lines include: support and promotion of entrepreneurship, SMEs access to adequate funding, innovative SMEs, access to markets and internationalisation of SMEs, and reactivity of public administration to the needs of SMEs.

University spin-offs are represented only by few cases in Romania. Technology transfer and entrepreneurship in universities are relatively recent activities and only the major universities have developed their own technology transfer offices. There is a need for a friendlier environment (legal, institutional) for innovation in the private sector and a more attractive package of incentives for clustering and networking.

The Regional Operational Programme (ROP) and the Priority Axis 4 ‘Strengthening regional and local business environment’ provides funding for regional and local business support structures, especially in less developed and declining areas, rehabilitation of industrial sites, regional and local entrepreneurial initiatives to attract investors, job creation and sustainable economic growth, technology transfer to micro enterprises.

Policy assessment: 

The business sector shows signs of an increasing interest in innovation, as revealed by the emergence of hubs, especially in ICT. The tax deduction for R&D expenditures was finally made functional and has the potential to become a very powerful trigger for R&D activities in the business sector. The Business Angels Law, also adopted in 2015, provides for a 3-year tax exemption for the dividends earned by the transferee.

In response to complaints by companies that intellectual property law in Romania was too flexible and insufficiently supportive of investor interests, the IPR legal framework was changed under Law no. 83/2014 on service inventions. The law clarifies the rights of intellectual property revenue sharing between employees and their employers producing such inventions.

Support to knowledge-based start-ups, including funding for product development, is provided via dedicated measures financed under Structural Funds. The main support for business R&D activities and investment is given by RDI project co-financing under the National RDI Plan and Structural Funds, but access to loans for R&D activities in SMEs is very limited. For the period 2014-2020, both the RDI Strategy and SMEs Strategy provide for the creation of an investment fund with opening capital and seed capital for entrepreneurs with innovative ideas and an investment fund with venture and growth capital for innovative start-ups.

Romania has shown limited progress in addressing the recommendation to ensure a better link between research, innovation and industry, in particular by prioritising research and development activities that have the potential to attract private investment. Some public-private cooperation initiatives, associated with the development of clusters, succeeded in gathering policy makers, public research institutions, big companies and SMEs. Well-targeted support measures would be helpful to support their further development.

Despite the current scarcity of resources, Romania's performance on knowledge transfer might be improved provided that the necessary funds are allotted according to identified priorities. The main risks are related to the implementation process. The overlapping of measures, programmes and implementing agencies, as well as the lack of coordination, monitoring and of clear responsibilities for each actor involved in the implementation process, the lack of transparency in structural funds management, as well as bureaucratic delays in respecting the EU deadlines and procedures, may compromise the attainment of strategic goals.

Chapters
1. Overview of the R&I system

The Romanian R&I system is heavily underfinanced. In 2014 gross domestic expenditure on R&D (GERD) was the lowest among all the EU Member States (0.38% of GDP compared to an EU average of 2.03% of GDP). A target of 1% public R&D expenditure was first set in 2006 and used as basis for the programming period 2007-2013, but the average annual allocation was three times smaller. Romania has reaffirmed this target for 2020, which also forms the basis for the National RDI Strategy 2014-2020 and its instruments. However, several months after the adoption of this strategy, the 2015 budgetary allocation is 2.17 times lower than this objective for the year. Compared to 2007, when Romania joined the EU, the R&I system performance has improved to a certain extent in several departments, but it still lags behind the EU average and similar countries. While on certain aspects such as publications in the main flow Romania scores well, considering its undersized system, the absolute numbers remain weak. In other respects, such as patenting activity, the gap has widened even more. The Innovation Union Scoreboard 2015 defines Romania as modest innovator, ranking last among the EU Member States.

2. Recent developments in research and innovation policy and systems

Key developments in the Romanian R&I system in 2015 included:

  • The adoption of the National Plan (NP3) for the implementation of the National Strategy on RDI 2014-2020 in July 2015.
  • The adoption of the Law 120/2015 on stimulating individual investors – business angels in May 2015, primarily aimed at improving access to funding for SMEs.
  • A draft law on public procurement introduces the concept of “innovation partnership” for public institutions seeking innovative solutions that are not available on the market.
  • A draft law to approve the Government Emergency Ordinance 13/2015 on the establishment and organisation of the National Agency for Public Procurement (NAPP) is in the adoption phase.
  • A legislative proposal to establish a National Council for Competitiveness as a mechanism for the monitoring and correlation of policy was launched. The Council will evaluate draft policy, propose policy improvements, monitor the efficiency of programs aimed at increasing competitiveness, approve the public budget and the social security budget, assess annually the competitiveness of relevant sectors of the economy.
3. Public and private funding of R&I and expenditure

Public allocations for R&D started to drop abruptly during the recent economic crisis, subsequent to a few years of consistent increases. After having reached a GBAORD as share of GDP of 0.39% in 2008, Romania entered a downward spiral which seems to have recently reached a flat valley: figures for 2012-14 were 0.22%, 0.21% and 0.21%, respectively (the EU28 average was 0.68% in 2012-13). Furthermore, public expenditures for R&D have not picked up despite sustained economic growth. R&D financed by businesses reached only 0.12% of GDP in 2013 and 0.16% in 2014 (down from 0.19% in 2012). While this figure may be underestimated, mainly because companies are not stimulated to declare their R&D expenditures, the low level is partly explained by the fact that the economy is dominated by multinationals, of which only a few perform relatively limited R&D in Romania. On the other hand, the still young SME sector carries out predominantly low value-added activities, as suggested by the fact that Romania ranks lowest in Europe in terms of innovative small and medium enterprises. In terms of R&D performers, it is not only business companies that have experienced a decreasing trend in expenditures; higher education institutions (HEIs) have followed the same route.

4. Quality of science base and priorities of the European Research Area

In discussing Romania’s competitiveness problems, the European Commission noted in its 2015 Country Report that the “underfinancing in the research and development affects the system in structural terms, resulting in a brain drain and decreased quality of human skills.”. One of the key objectives of the National Strategy for RDI 2007-2013 is to reach the EU average in researchers per population. However, as the allocated budget is only one third of the programmed funding, the objective seems to have been de facto abandoned. For the period 2014-2020, the new objective in terms of researchers is to double their number and simultaneously reach a share of 45% in the business sector. This implies the number of researchers in business would have to increase almost fourfold.

5. Framework conditions for R&I and science-business cooperation

Romania is characterised by a modest level of public-private cooperation in R&D. Technology transfer activities from universities to business firms are relatively limited due to low demand from industry and also a relatively weak offer from universities, but many universities are currently actively involved in strengthening their technology transfer capacity. Other critical problems are the degree of interaction between companies and public research performers and the low level of commercialisation of research results. The legal framework, the financial instruments to stimulate research activity and research results commercialisation, as well as the current fiscal incentives to foster innovation activities in enterprises could be further improved.

There are currently a number of financial instruments for business from internal and external financing sources, but it is generally difficult for them to reach the SMEs. The chief factors restricting growth in innovative companies are the limited availability of local capital and an absence of entrepreneurships culture. The changes on this front – such as a new law on business angels, funding lines for SMEs backed by JEREMIE, or a risk capital fund dedicated to Romania exclusively – are promising yet still too recent to assess in terms of outcomes.

6. Conclusions

This chapter provides an assessment of the performance of the national research and innovation system and identifies the main structural challenges faced by the national innovation system. All the main challenges faced by the national R&I system are also listed in the Executive summary of this report. A summary table with policy measures addressing the structural challenges of the Romanian R&I system are presented in this chapter.

Geo coverage
Report year
2015
Country Report file
Official publication date
Friday, 20 May, 2016
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