Half of Romania's impact companies are in difficulty, CITR study shows

Three percent of the total Romanian companies represent the engine of the domestic economy and half of them are in difficulty, according to the third edition of the CITR Group study on the evolution of the impact companies between 2013 and 2015.

The number of these impact companies is shrinking, from 23,384 in 2013 to 19,564 in 2015. If this shrinking trend persists, the whole economy may be affected by contagion shows the CITR study. All this in the context in which Romania is not able to generate enough new entrepreneurs to compensate for the imbalance in Romanian business.

The study included companies with total assets of more than one million euros and not in insolvency. The analysis also includes state-owned companies, but excludes non-governmental organizations, banks, insurance companies, brokerage firms and pension funds, whose financial statements are different from other companies.

The study reveals that, for at least three years, we are witnessing a paradox of the Romanian economy: despite one of the highest growth rates in Europe, the field of insolvency remains very active and tumultuous. Only in 2016 the total debts of the 314 companies surveyed and insolvent were 2.4 billion euros, equivalent to about 1.5% of GDP. At a numerical level, healthy companies versus troubled companies (in different stages of difficulty) are almost equal.

Although the 19,564 impact companies account for only 3% of all companies in Romania, they generate 68% of the national aggregate turnover and employ 41% of the existing labor force in Romania. 

The number of employees in these 19,564 companies declined between 2013 and 2015 - about 19,000 jobs were lost. Approximately 36% of the impact companies have profitability ranging from 0% to 5%, a level too low to support over 70% leverage. However, 39% of companies with low profitability have a debt of 70-100%.

"For the period 2013-2015, the study indicates a top concentration of companies in the Romanian economy. The number of impact companies has declined, but it generates more, is more profitable and employs fewer people. In other words, the Romanian economy's pyramid is higher and seismic movements capable of destroying the entire system can occur. Annually, more than 1,000 of the important Romanian companies lose their relevance because they become smaller - their assets fall below one million euros. At this rate, we will have only 15,000 relevant companies at the end of next year, ie less than one per thousand inhabitants. This diminution should not be seen as an isolated phenomenon. Collateral implications are similar to domino effect and can affect the entire economy, "said Rudolf Vizental, CEO of CIT Resources.

According to the CITR Group study, impact companies have been divided into eligible for financing, restructurable and insolvency. The number of the first rose, the following fell, and the insolvent almost halved.

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