This year’s economic upturn has brought a significant revival in many areas, from trade to industry and agriculture, but with risks commensurate with the challenges posed by inflation, the financial bottleneck and logistical problems. “More than 50,000 firms, drained by the COVID crisis, have given up the fight, and the number could double by the end of the year,” estimate experts at Sierra Quadrant, a company specializing in business reorganization.
The economy grew significantly in the first six months of 2021, by 6.5% and 13% in Q2, managing overall to overcome the losses accumulated in 2020, the year of COVID.
Boosted by the recovery in consumption and rising investment, as well as the effects of inflation, gross domestic product grew significantly faster than expected, a sign that the business environment has broadly adapted to the challenges posed by the pandemic and has been able to capitalize on the opportunities created by the lifting of restrictions, the cited analysis shows.
According to Sierra Quadrant, beyond the overall positive picture, this economic recovery hides risks, a sign that we are dealing with a fragile evolution, negatively affected by rising inflation, the accentuation of the financial bottleneck and the financing problems faced by most Romanian companies.
In the year of the pandemic, Sierra Quadrant estimates that there are 60,000 companies that are on the edge of survival, with serious problems, especially financial ones, and for which the subsidies offered by the state (payment of technical unemployment, deferment of taxes, etc.) will prove to be a poisoned apple. The reality, after the lifting of all facilities, confirms these estimates. We have almost 60,000 companies that have abandoned business, in the first six months of 2021, and their number will increase in the coming period”, says Ovidiu Neacșu, coordinating partner of Sierra Quadrant.
According to ONRC data, 32,565 firms were struck off in the first six months, 41.5% more than in the same period in 2020. In addition, another 14,265 firms were dissolved (+18.42%), 6043 suspended their activity (+17.6%), and 3076 went into insolvency, up 30.34% from the previous year.
“In addition to insolvencies, we have also seen an increasing number of companies entering into composition with creditors and ad hoc mandate, procedures that have allowed them to start the process of restructuring their businesses, given the challenges generated by the crisis,” explains Neacșu.
10 months of trial by fire ahead
According to the company’s estimates, the number of firms in difficulty could double in the next 6-10 months.
“There are 10 months of fire ahead for the economy. The galloping rise in prices, especially since July, has caused major problems for retail chains, with direct effects on falling sales and a deepening financial bottleneck. With more than 90% of Romanian firms having financing problems, for many of them autumn and especially winter this year will be a critical time – some will reorganize and overcome the crisis, others will close down,” analysts predict.
According to the Sierra Quadrant analysis, most problems are in the hot sectors of the economy, from trade to construction and manufacturing where, incidentally, the most insolvencies in 2021 were also recorded – trade (30.9%), construction (16.8%) and manufacturing (12.6%). At the opposite end of the spectrum are Mining & Quarrying, Energy & Gas and Health & Social Care, with 0.3% of all insolvencies each.
“Consumption was expected to increase after a year in which Romanians stayed indoors longer, but this phenomenon is fading every day, influenced by the significant increase in prices. In construction, the sharp rise in the price of building materials has created major difficulties for developers, with many building sites expected to be put on stand-by in the coming period. And in manufacturing, orders have not yet reached pre-crisis levels, especially for exports. In addition, the manufacturing sector is going through its worst labour shortage in recent years,” the analysis shows.
Geographically, the biggest problems, judged solely in terms of the number of insolvencies, were in Maramures, Giurgiu and Calarasi counties, with shares ranging from 133% to 190%.
The crisis alphabet reinterpreted
At the moment, the economic recovery is tending towards the letter ”V”, but the next 10 months could rewrite this trend as ”W” or ”K”.
“Inflation, moderating consumption and wave 4 of the pandemic could bring an economic slowdown in the autumn compared to previous quarters, followed by a recovery over the holidays in the form of a W. But it is not excluded that the economic trend will follow the letter K, with sectors that will continue the positive trend and others that will remain challenged by the lack of orders and skilled staff,” analysts predict.
A decisive moment for the economic recovery will undoubtedly be the completion of the NRRP and the infusion of money into the economy.
“The nearly €30 billion, which is expected to arrive from 2022 onwards, will breathe new life into a fragile economy like Romania’s, which lacks financial strength. If the European money comes in, the benefits will be widely felt in the economy. If we will not be able to attract this money, hard times are ahead, given the major imbalances that have worsened in the last 2 years – increasing public debt, widening current account deficit, increasing financial blockage, etc.” the analysis also shows.
In its more than 23 years of activity, Sierra Quadrant has become one of the most important companies in Romania, specializing in complex administration and liquidation works, with a high degree of difficulty, characterized by large and diversified assets, by the multitude of legal issues to be resolved, concurrently with the insolvency procedure: environmental balance sheet, hazardous substances in property, unclear easements and disputes related to assets, etc.
Among the significant files currently handled by Sierra Quadrant are Electrocentrale București (ELCEN), CET SA Bacău, Letea SA Bacău, Servicii Energetice Moldova SA, Donau Chem, Compania de Navigație Fluvială Giurgiu NAV S.A., Teleferic SA, Rombet SA and GA-PRO-CHEMICALS S.A.
Translation: Service For Life S.R.L.