THE ECONOMIC SITUATION AND INVESTMENT CLIMATE OF THE REPUBLIC OF - - PowerPoint PPT Presentation

THE ECONOMIC SITUATION AND INVESTMENT CLIMATE OF THE REPUBLIC OF MOLDOVA

General country overview

Area: 33,800 km2 Population: 3.4 million Capital: Chisinau - 717,000 citizens Climate: moderate winter (Jan. -4 -7°C ), warm summer (Jul. +25 +28°C) Official language: Moldovan (Romanian), also Russian spoken National Legislature: Unicameral assembly, the Parliament has 101 members Head of state: Vladimir Voronin Administrative units: 32 National currency: Moldovan Leu (MDL) Exchange rate: 1 € = MDL 16.9

1 $ = MDL 12.8 Strategically located at the cross-roads, between Eastern and Western Europe

Macroeconomic Development

• 6,5
• 4,4

1,9 6,1 7,2 6,3 7,3 7,1 4

1998 1999 2000 2001 2002 2003 2004 2005 2006

GDP growth, %

Inflation/ Exchange rate (USD), %

• 15
• 5

5 15 25 35 45

1999 2000 2001 2002 2003 2004 2005 2006

Inflation Exchange rate

During 2000-2006 years Government policy was oriented to assurance of macroeconomic stability, development of real sector of economy, promotion of structural reforms, intensification of external commerce.

Trade policy

June 2001 – Moldova becomes member of WTO; June 2001 – Moldova becomes member of Stability Pact for South East Europe (SPSEE) December 2006 – Moldova signs Free Trade Agreement CEFTA and becomes the member of this agreement Free Trade Agreements signed with 10 CIS countries (except Tadjikistan) Free Trade Agreements concluded with all SPSEE member-countries; The Republic of Moldova benefits from the General System of Preferences Plus (GSP+) granted by the EU (about 9.2 th. groups of

products out of 10.2 th. have free access on EU market without customs duties).

Foreign trade (mln. US$)

471,5

776,4

• 304,9

565,5

892,2

• 326,7

643,8

1038

• 394,2

790

1402,3

• 612,3

985,2

1768,5

• 783,3

1091,3

2311,8

• 1220,5

1051,6

2693,2

• 1641,6

2000 2001 2002 2003 2004 2005 2006

Export Import Trade balance

Structure by regions

Export, % Import, % 2003 2004 2005 2006 2003 40,3 42,3 28,4 17,2 12,1 35,0 16,5 8,2 2004 2005 2006

CIS Countries

53,6 51,0 50,5 43,2 39,6 37,9

European Union Countries

23,4 30,1 29,7 32,9 32,5 31,1

CEE Countries

15,7 10,7 11,1 11,3 12,7 14,4

Other countries

7,3 8,2 8,7 12,6 15,2 16,6

17,3 14,8 12,3 11,1 7 5 3,7 2,7 2,6 2,3 21,14

Russia Romania Ukraine Italy Belarus Germany Poland Turkey England France Other

Export: main countries/products (%)

Goods % share Food, beverages and tobacco 26.3 Textiles and textile articles 21.7 Vegetable products 13.0 Metal and metal articles 7.2 Machinery and equipment 5.1

19,2 15,5 12,9 8 7,3 4,2 4,3 2,8 2,7 2,3

20,9

Ukraine Russia Romania Germany Italy Turkey China Belarus Poland France Other

Import: main countries/products (%)

Goods % share

Mineral products 24.6 Machinery and equipment 14.1 Chemicals 8.3 Metal and metal articles 8.2 Textiles and textile articles 7,7 Food, beverages and tobacco 6,7 Plastics, rubber, articles thereof 6,3 Vehicles and transport equipment 6.0

Banking and financial system

Levels: 1) National Bank of Moldova

• Independent body
• Objective – to ensure price stability
• Supervises the activity of banks
• Controls the flows of foreign currency

2) 15 Commercial banks, five largest banks accounting for over 70 per cent of total banking assets of almost 1.4 bn. US$ Monetary policy for FDI:

• Unlimited money exchange
• Possibility to keep foreign currency in company account
• Free repatriation of profits and capital

Foreign direct investments (FDI) Inflows

Actually, businessmen from 42 countries are investing in Moldova, the major investments being from European Union countries, CIS countries, USA, Romania, Cyprus and Canada. There are 4907 registered companies with foreign capital

1.32 bn. US$

Total cumulative since 1994:

76,0 52,1142,9148,6 117,1 91,8 240,0 287,2 336,5

50 100 150 200 250 300 350 1998 1999 2000 2001 2002 2003 2004 2005 2006

FDI Origin – top 10

Nr. Country

• mil. Lei

% of total 1 Netherlands 2008,1 19,4 2 Russia 1341,9 13,0 3 Spain 1022,3 9,9 3 United Kingdom 822,7 7.9 5 Cyprus 629,6 6,1 6 USA 577,8 5,6 7 Germany 528,8 5,1 8 Switzerland 476,9 4,6 9 Italy 451,7 4,4 10 France 430,9 4,2

Major foreign investors

Taxation

2005 2006 2007 Corporate income tax (%) 18 15 15 Personal income Tax (%) 9,14,20 8,13,20 7,10,20 Social security payments (%) 27 26 25 VAT rates: Standard rate: 20% - applied to manufactured and imported goods and services in Moldova Reduced rate: 8% - Bread, milk, medicaments 5% - Natural gas Excise duty applied on: Alcohol products, tobacco, petroleum and its products, cars, gambling activities.

Investment facilities

Investment facilities:

• Capital investment is made or statutory capital is formed or increased by contributions

that exceed the equivalent of USD 2 (5, 10, 20, 50) million and reinvest in the development of their own production, or in state or other national economy development programs, at least 80 (50, 25, 10, 0) % of the calculated but unpaid amount of the income tax – 100% corporate income tax exemption during 3 (3, 3, 4, 4) years. Other incentives:

• IT companies and employees of IT companies are exempted from income tax payment

for a period of 5 consecutive years;

• Imported material goods to be included in equity capital are exempted of VAT and

customs tax payment;

• Incentives for activity within a Free Economic Zone.

Free Economic Zones

"Expo-Business-Chisinau" ”Ungheni” – 107 km "Tvardita" – 115 km "Otaci-Business“ – 220 km "Vulkanesti" – 200 km “Taraclia" – 153 km

Labor market overview

2000 2001 2002 2003 2004 2005 2006 Total population 3639 3630 3622 3612 3603 3391,7 1422,3 1318,7 103,7 7,3 Economically active population, th. 1655 1617 1615 1474 1433 3590,0 1484,0 1404,0 79,9 Population employed in economy, total 1515 1499 1505 1356 1316 Unemployed pers., th. 140 118 110 117 116,5 Unemployment rate, % 8,5 7,3 6,8 7,9 8,1 5,4

2002 2003 2004 2005 2006 2007 State social insurance tariff (%): 26 3 2 2

• Employers

29 29 28 27 25 4 2,5

• Employees

1 1 2 2 Compulsory medical insurance contribution fee (%):

• Employers
• 2

2

• Employees
• 2

2 2,5

Why Moldova?

• Favorable geographic position in the South Eastern Europe;
• Highly qualified labor force and relatively low labor cost;
• Access to a market of over 320 million people through its chain of FTAs (CIS,

Stability Pact in South-East Europe); GSP granted by EU;

• One of the lowest corporate taxes in the region –15% and fiscal incentives on

investments;

• Member of WTO (2001); Stability Pact for SEE (2001); PCA Agreement (1998);
• Well-developed banking system and international accounting standards.
• Fast developing High Tech sector;
• Fertile soils and favorable conditions for agriculture;
• Progressive visions on stimulating entrepreneurial activity.

Sectors overview

Agribusiness Textile & Garment Informational technologies (IT) Tourism

Agribusiness - Characteristics

• 75% of total arable land is “black soil”
• Middle country climate (average temp January – 3.5° C)
• Food industry is a major player in the domestic industries and

accounts for about 50 % of the total country’s export

• 40 % of the total population is working in agriculture
• Strong wine and wine growing industry
• Stable and promising fruit and vegetable processing industry

Overview of wine sector

2.3 % of world vineyards (147 th. ha) 9% of country GDP 25% of employed workforce 30% of country’s exports

Companies

130 wineries 20 producers of divine and brandy 10 producers of sparkling wine 3 large wine cellars

Wine export

180,16 99,41112,77 155,04 171,04 241 280 312,9 186,8

1998 1999 2000 2001 2002 2003 2004 2005 2006

mil dollars USA

Textiles and Apparel production

• ne of the most dynamic sectors of Moldovan economy
• there are operating more than 100 companies
• total number of employees within the sector – 14 th.
• most of companies operate on inward processing basis

(CM/CMT)

• almost 100% export oriented garments are mainly exported

towards EU (Germany, Italy, Belgium, U.K.), USA etc.

Export of textiles and apparel

64,4 83,4 104,1 107,5 129,7 171,0 193,9 228,3 50 100 150 200 250 1999 2000 2001 2002 2003 2004 2005 2006

Total exports of textiles and related products

• mil. dollars USD

0% 50% 100% 2003 2004 2005 2006

Italy Germany USA Russia Romania The Netherlands United Kingdom Other

Textiles and apparel export structure by countries

% to total

IT sector

More than 110 companies currently develop software; Four universities prepare specialists in the ICT domain

(1000 graduates annually);

Turnover of software development companies exceed

US$ 20 mln.

Exports are estimated at US$2 million.

Software export, %

United Kingdom 23% Russia 25% USA 27% Germany 11% Romania 8% Ukraine 4% Sweden 2%

Tourism - Main Attractions

Natural Attractions Natural Attractions

"Codrii" Reserve (5,177 ha) “Padurea Domneasca” Reserve (6,032 ha) Tipova Reserve Saharna Reserve Taul Park “Plaiul Fagului” Reserve (5,642 ha) "Emil Racovita" Cave

Historic Buildings & Museums

Soroca Fortress (1545) Tighina Fortress (1408) Museum Complex “Medieval Town of Orhei“ (IV-I BC) “Manuc Bei” Mansion The National History Museum The National Ethnography & Natural History Museum

Wine Tourism

• The National Program “The Wine Road in Moldova”
• Wine Festival
• Cricova Winery

Cricova Winery

• Milestii

Milestii Mici Mici Winery Winery

• Cojusna

Cojusna Winery Winery

Other tourist attractions

Health & Beauty Tourism Health & Beauty Tourism Business Tourism

Fairs& Exhibitions Conference Venues

Special Interest Tourism Special Interest Tourism

Hunting Fishing Paragliding Speleology