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 33,800 km 2 Area: 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 Strategically located at the cross-roads, between Eastern and Western Europe Administrative units: 32 National currency: Moldovan Leu (MDL) Exchange rate: 1 € = MDL 16.9 1 $ = MDL 12.8

Macroeconomic Development GDP growth, % Inflation/ Exchange rate (USD), % 45 35 7,3 7,2 4 7,1 6,1 6,3 25 1,9 15 -4,4 -6,5 5 -5 1999 2000 2001 2002 2003 2004 2005 2006 -15 Inflation Exchange rate 1998 1999 2000 2001 2002 2003 2004 2005 2006 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$) 2693,2 2311,8 1768,5 1402,3 1038 1051,6 892,2 1091,3 776,4 985,2 790 643,8 565,5 471,5 -394,2 -326,7 -304,9 -783,3 -612,3 -1220,5 -1641,6 2000 2001 2002 2003 2004 2005 2006 Export Import Trade balance Structure by regions Export, % Import, % 2003 2004 2005 2006 2003 2004 2005 2006 53,6 51,0 50,5 40,3 42,3 43,2 39,6 37,9 CIS Countries European Union 23,4 30,1 29,7 35,0 28,4 32,9 32,5 31,1 Countries 15,7 10,7 11,1 16,5 17,2 11,3 12,7 14,4 CEE Countries 7,3 8,2 8,7 8,2 12,1 12,6 15,2 16,6 Other countries

Export: main countries/products (%) 21,14 14,8 12,3 11,1 17,3 7 5 3,7 2,7 2,6 2,3 Russia Romania Ukraine Italy Belarus Germany Poland Turkey England France Other 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

Import: main countries/products (%) 20,9 19,2 15,5 12,9 8 7,3 4,3 4,2 2,8 2,7 2,3 Ukraine Russia Romania Germany Italy Turkey China Belarus Poland France Other 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 287,2 336,5 Total cumulative 350 since 1994: 300 240,0 250 200 1.32 bn. US$ 91,8 150 52,1142,9148,6 100 117,1 76,0 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 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

FDI Origin – top 10 Country Nr. mil. Lei % of total 1 Netherlands 2008,1 19,4 Russia 2 1341,9 13,0 Spain 3 1022,3 9,9 3 United Kingdom 822,7 7.9 Cyprus 5 629,6 6,1 6 USA 577,8 5,6 Germany 7 528,8 5,1 Switzerland 8 476,9 4,6 9 Italy 451,7 4,4 France 10 430,9 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 3590,0 Economically active population, 1655 1617 1615 1474 1433 1422,3 1484,0 th. Population employed in 1515 1499 1505 1356 1316 1318,7 1404,0 economy, total Unemployed pers., th. 140 118 110 117 116,5 103,7 79,9 Unemployment rate, % 8,5 7,3 6,8 7,9 8,1 7,3 5,4 2002 2003 2004 2005 2006 2007 State social insurance tariff (%): - Employers 29 29 28 27 26 25 - Employees 1 1 2 2 3 4 Compulsory medical insurance contribution fee (%): - Employers - - 2 2 2 2,5 - Employees - - 2 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 mil dollars USA 312,9 280 241 186,8 180,16 171,04 155,04 99,41 112,77 1998 1999 2000 2001 2002 2003 2004 2005 2006

Textiles and Apparel production one 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 250 228,3 mil. dollars USD 193,9 200 171,0 Total exports of textiles 150 129,7 and related products 107,5 104,1 100 83,4 64,4 50 0 1999 2000 2001 2002 2003 2004 2005 2006 2006 Italy Germany Textiles and apparel 2005 USA export structure Russia by countries 2004 Romania % to total The Netherlands 2003 United Kingdom Other 0% 50% 100%

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

Tourism - Main Attractions