Moldova: Open to the World

Ion Ciubic
Prime Minister of the Republic of Moldova

On behalf of the Government of the Republic of Moldova, I am glad to have the opportunity to address the Internet users. Our young, sovreign and independent country was ratified in the world as a democratic state, having real perspectives for a dynamic development of the economy and social sphere.

The majority of states in the world recognise Moldova; abroad are 16 acting embassies, with diplomatic relations having been adjusted with 109 countries. The State is a member of the United Nations (UN), the European Community (EC) and the Community of Independent States (CIS). Moldova is also a member of such regional organisations as South EST Cooperative Iniative (SECI), Black Sea Economic Cooperation (BSEC), Central European Iniative (CEI) and others.

In 1991 the Republic of Moldova made the choice to build a market economy. Presently, the initial stage of the transition to the market economy is complete. As a result of these reforms, the national currency is stable, the inflation rate and bank interest rates are reduced, mass privatisation of state ownership is concluded, the private sector has expanded, various agricultural enterprises have appeared, and a base of legal and regulatory actions were implemented to promote these reforms.

Main branches of the Republic's economy are:
Industry Total volume of production
Agriculture and food-processing 56.5%
Power sector 7.5%
Mechanical engineering and metallurgy 13.9%
Light industry 4.8%
Construction 4.5%
Wood, pulp and paper industry 3.3%

The food processing industry includes 15 branches, 180 companies and 41,000 employees. It possesses large investment and export potential on such goods as grape wine and wine raw material, strong spirit drinks and liquor, concentrated apple juice, jam, fruit and vegetables, juice and nectar; mashed fruit and vegetables for children; and dietician food.

It is the agricultural industry that delivers the primary raw materials to the food-processing industry. Agricultural land constitutes 2556,3 thousand hectares or 75.5% of the total area of Moldova; arable land, which is the most fertile land - famous Moldovian black earth, occupies 1774 thousand hectares; gardens form 199,6 hectares of land; and vineyards cover 195,9 thousand hectares.

Agriculture utilises 17,2 thousand economic agents, including 16,000 farms and just over 530,000 employees.

Now, with the support of the Centre for Private Business Reforms, financed by the United States Agency for International Development (USAID) and with the financial support of the TACIS programme, the reorganisation and privatisation of a number of agricultural enterprises is occuring.

Agriculture has considerable potential opportunity to produce:

  • 850,000-950,000 tons of grapes;
  • 700,000-800,000 tons of fruit and berries;
  • 3,000,000-3,500,000 tons of grain and crops for grain;
  • 200,000-250,000 tons of sunflower seeds;
  • 2,000,000-2,400,000 tons of sugar beet;
  • 70,000-80,000 tons of tobacco;
  • 950,000-1,000,000 tons of vegetables.

In turn, the Programme of Technical Reequipment and modernisation of the enterprises of the food-processing industry provides installation of 25 modern lines of grape-processing, and reequipment of canning factories in accordance with European standards of production and quality. At 10 sugar factories it is provided to modernise the power equipment and to implement computer technologies which will reduce energy consumption by 30-35 per cent.

The reorganisation of tobacco branch assumes qualitative improvement and expansion of raw material base, and the implementation of modern technologies for tobacco production and processing.

Similar measures for technoical reequipment are scheduled in the meat and milk branch, the meat and fat branch, the perfumery and cosmetic branch, the combined fodder branch, and other branches of the agroindustrial complex.

The development of the power sector is also of strategic significance for the country, because 98 per cent of consumed power resources (natural gas, coal and petroleum) are imported.

The main problem in the next few years will be the reconstruction of equipment within the power processing industry (power stations, tarmac power stations, electrical and thermal networks), implementation of the energy savings technologies, and reduction of heat and energy losses in the networks.

Mechanical engineering includes the production of electrical devices, electrotransformers, electrical engines, cables, tools, automatic equipment and systems, pumps, industrial refrigerating machinery, equipment for the food-processing industry and for urban needs, tractors, refrigerators, combines, machinery and equipment for farming, TV sets, radio and telecommunication equipment, household electrical devices and others.

The programme of the development of mechanical engineering provides reorganisation of the most viable enterprises and updating of a range of produced goods, according to the:

  • requests of the local and foreign markets;
  • modernisation of engineering and equipment;
  • introduction of a new scientific elaboration;
  • interaction between the groups of enterprises specialised in the production of spare parts for means of transport, for agricultural machines and industrial equipment.

The light industry produces stocking net, cotton fabrics, clothes, carpets, items of natural and artificial leather, footwear and a huge range of ready goods.

A large part of the textile and sewing industry is equipped with modern machines. There already exist joint ventures, created together with foreign partners. But the branch requires large investments. They are necessary to increase the delivery of raw materials, to complete the loading of production capacities and to search for new external sales markets.

Construction and industry of buildings will form one interconnected sector of the economy. With each year, the potential opportunities of this sector are expanded at the expense of realisation, with five large projects on the production of cement - cellular concrete blocks used to make walls and sanitary cabins; operation of stocks and the production of calcium carbit;and the production of ceramic plaques and faience items.

The wood, pulp and paper industry produces wood items such as furniture, as well as cardboard, packing and paper items.

Woods in Moldova have the status of protection and reservation zones. The total volume of local forest products does not exceed 70,000m3. Meanwhile, wood-processing enterprises use imported raw material and advanced technologies which ensure complete processing in the production of furniture, cardboard and chipboards.

The wood and furniture processing industries are combined with the commercial bank 'Mobiasbanc', in a financial/industrial group, 'Mobilagrup', a joint stock company of open type. The association of financial resources and industrial opportunities will, in the near future, be allowed to expand its range of goods by 25 per cent, to modernise the equipment and technologies.

Other industries are responsible for the production of ceramic and glass crockery, printed production, technical rubber items, washing powders and means, varnishes, paints and other goods of a domestic nature, as well as microbiological products, medicines, and national art and craft items. Further development is provided for such branches of national economy through transport telecommunications and tourism. The transport system plays a key role in the economy of Moldova, which is mainly oriented towards the export of ready products and the import of large volumes of raw material.

A substantial amount of goods are exported by rail (length 1318km). The share of the truck transportation is equal to 96 per cent of the total volume of consignments transported within the country, and to 80 per cent of the passengers' transportation. The total length of the highways of Moldova is equal to about 10,000 km. The state company 'Air Moldova' and two private companies, 'Moldavian Airlines' and 'Air Moldova International', carry out the air carriages. The project for the reconstruction of the international airport in Chishinau, financed by the European Bank for Reconstruction and Development (EBRD) is being implemented. A number of foreign airlines render transportation services in Moldova on an agreement basis.

In the Republic of Moldova exists direct telecommunication connection with all countries of the CIS, Romania, Bulgaria and Greece. Communication with other regions of the world is carried out with the help of satellites.

Now the Government is undertaking the privatisation of 40 per cent of the shares of the state company that renders local and international telecommunication services, namely 'Moldtelecom'.

The convenient geographical situation of the crossing of transport directions EST - south/west and north-west/south - EST; natural sights; a favourable climate; together with historical, cultural, architectonic and archeological monuments, including monastries of the orthodox church of the 13th-18th centuries: Tsipova, Capriana, Curchi, Rudi, the archeological monument Old Orhei (a unique settlement preserved from the Paleolithic Age), the Middle Ages fortress Soroca, and other sights which attract foreign tourists to our country.

Moldova is visited by about 30,000 tourists annually. In turn, 55,000 citizens of Moldova travel abroad as tourists. For the purposes of a more complete use of the tourist potential, based on the unique wine collections and wine cellars of Cricova, Mileshtii Mici, Cojushna and others, together with the leading tourist firm 'Moldova Tour' J.S. (previously a Chishinau branch of the former USSR Inturist) a National programme for the realisation of the project 'RuralTour' is providing special tourist programmes, developed and authorised by the Government, and known in Europe under the name of 'The Wine's Road'.

The bodies of the public administration of Moldova conduct planned work for the creation of a favourable investment climate and for the attraction of foreign partners. Membership of the agency under Multilateral Investment Warranties of the World Bank provide compensation of foreign investments in case of civil war, political disagreements and governmental actions.

The availability of the legislative base, ensuring and protecting economic activity of foreign companies, and the granting of privileges to registered companies and foreign investors is a very significant argument for the benefit of foreign investments in Moldova.

Main normative acts regulating the activity of the foreign investors are the:

  • Fundamental Law - Constitution of the Republic of Moldova, adopted by Parliament on July 29 1994. According to Article 126 of the Constitution, the State guarantees the safety of investments of individuals and legal entities, domestic or foreign.

  • Law on Foreign Investments No.988-IX from April 1 1992. This law provides for the attraction and protection of foreign investments, in addition to providing legislative, structural and economic bases for the activities of foreign investors and enterprises in Moldova.

  • decree of the President No.11 from January 17 1994. According to this decree, the State registration chamber bears responsibility for the registration of companies with foreign capital, and for their branches and representations.

  • decision of the Government of the Republic of Moldova about enacting the regulation on the promotion and operation procedure for foreign companies, banks and structures, outlined in No.293 on June 10 1991.

  • decision of the Government of the Republic of Moldova concerning the registration fee for joint ventures, No.450 from June 29 1992 (with amendment No.425 from June 29 1992). According to this decision, the registration chamber for joint ventures, irrespective of their organisational form, makes registration US$300 and changes in constituent documents $30.

  • decision of the Government of the Republic of Moldova No.575 from July 7 1993, about enacting the regulation on the procedure of stating the production of joint ventures, intended for export.

  • regulation of the Ministry of Finance No.9-02 from December 31, 1993. On procedure of calculation and payment into the budget of the income tax by the companies with foreign capital and foreign legal entities (with amendments No.09-2-06/85 from March 21 1995).

According to Article 2 regarding the law about foreign investments, a foreign investor can be:

  • foreign, natural and legal entities, registered in the country of their citizenship or place of constant residence for conducting their entrepreneurial activity;
  • foreign individuals not registered for carrying out entrepreneurial activity in the country of their residence;
  • citizens of the Republic of Moldova and persons without citizenship, permanently living outside the Republic, and registered in the country of their permanent residence for conducting entrepreneurial activity;
  • foreign states;
  • international organisations.

The investments can be introduced according to the law on foreign investments in the form of:

  • hard currency or other foreign currency, accepted by the banks of the Republic of Moldova and which are subject to bank operations;
  • technological equipment and other machinery, including office equipment;
  • property and non-property rights, including the right on intellectual (industrial) property, (property rights, origin rights, copyrights, patents, samples, industrial samples, commercial labels, company names, industrial and commercial secrets, technology, know-how and others).

The foreign cash investments, intended to be introduced into equity of the enterprise, must be transferred to the account of the foreign investor, open with one of the banks of the Republic of Moldova, or must be introduced in legal order (ie, all foreign currency should be submitted in a customs declaration).

The foreign cash investments are imported into the Republic or acquired by one of the banks of Moldova. The list of these currencies has been established in a regulation about currency from January 13 1994 and is approved by the Administrative Council of the National Bank of Moldova.

According to this regulation, the list of hard currencies are referred to as being the: US dollar, pound sterling, Dutch gulden, Swiss franc, Swedish krone, Italian lira, French franc, Finnish markka, Norwegian krone, Danish krone, Canadian dollar, Japanese yen, Austrian shilling, Belgium franc, Deutsche mark, Spanish peseta, Kuwaiti dinar, Icelandic krone and Estonian krone.

The National Bank of Moldova has concluded agreements for the organisation of payment with the central banks of the Russian Federation, Lithuania, Latvia, Estonia, Belarus, Ukraine, Tajikstan, Turkmenistan, Kyrgyzstan, Azerbaidjan, Romania, Armenia, Kazakstan and Uzbekistan.

Foreign investments in a non-monetary form should be brought into the Republic or acquired within the territory in return for either hard currency, or any other foreign currency accepted by the banks of the Moldova (Article 3 of the law concerning foreign investments.)

In cases where the foreign investor should introduce intellectual (industrial) property, they should confirm their right to it.

The organisational and legal form of foreign investment in the Republic of Moldova is determined by Article 5 of the law about foreign investments. Foreign investments may be made in the form of the:

  • creation of enterprises, their branches and associations, together with individuals and legal entities of the Republic of Moldova;
  • creation of enterprises, their branches and associations, completely belonging to foreign investors;
  • the foundation of enterprise branches by non-residents, their associations and international organisations;
  • purchase of enterprises under construction or under production, shares in such enterprises, as well as stock and other securities;
  • placing of bank deposits with special purposes;
  • purchase of foreign separate buildings and constructions, as well as other property which, according to the Republic of Moldova, can belong to the foreign investors as their property;
  • purchase of property and non-property rights, including the right on leasing, concession and intellectual property objects;
  • investments, based on the agreements for mutual activity, as well as any other forms allowed by the legislation of the Republic of Moldova.

Foreign investments can be placed in any sector of the Republic of Moldova, provided that they do not violate the:

  • interests of state security;
  • anti-monopoly legislation previews;
  • norms of the environment protection, population health, public order and moral norms.

According to Article 37 of the law regarding foreign investments, enterprises with foreign capital are given tax privileges.

The enterprises with foreign capital have a 50 per cent exemption from profit tax for a 5 year period, if the following conditions are respected:

  • the ownership capital is entirely formatted;
  • the first profit is declared;
  • the share of foreign investments in the authorised capital of the enterprise exceeds $250,000;
  • more than 50 per cent of the profit of the enterprise comes from the sale of its own goods (works, services).

Thus the existing investment legislation is based on the principle of equality of the foreign and local investors. It is non-discriminatory towards foreign investors and compatible with the international legislative system.

The programmes of the presidential legislative and executive authority determine the strategy of development of the Republic of Moldova.

The President, or Chief of State, represents the state and is the guarantor of the sovreignty, territorial integrity and unity of the country.

The programme of the President, Petru Lucinschi, elected on December 1 1996 for a four year term, is based on the realisation of a policy, directed to preserve the national unity and maintenance of the vitality and independence of the Republic of Moldova.

The Parliament, consisting of 101 deputies, is the superior representative and legislative body of the state.

With the aim to create the legal conditions for the market economy, the following laws have been adopted concerning:

  • entrepreneurship;
  • the protection of small businesses;
  • the commodity exchange;
  • and joint stock companies.

To improve the legislation concerning the anti-monopoly and the development of competition, the projects of the laws on the protection of competition, holding companies, financial/industrial groups and other normative groups, are in the stage of development.

The Government of the Republic of Moldova is responsible for the internal and external policy of the state, as well as assuring the general management of the bodies of the public administration.

The Government undertakes measures for the further progression of economic reforms, reorganisation of the enterprises, increase of the inflow of local and foreign investments, and perfection of the legislative base.

With the purpose of activating the process of privatisation by means of sale of state funds for cash resources, Parliament has accepted the Government's proposal for a programme of privatisation from 1997-1998.

Industrial enterprises now account for 17.3 per cent of the total amount of privatised enterprises, while agriculture constitutes 11.9 per cent and the trade and services sphere forms 12.8 per cent.

Since 1996, privatisation has been exclusively carried out by means of direct financing, basically through auctions and competitions for local and foreign investors.

The programme for 1997-1998 expands the borders of privatisation with regard to new objects of the infrastructure (power complex, transport, telecommunications, municipal services and others.) The programme also supplies for the restructuring of enterprises and the privatisation of land areas, shops, hotels, the service sector, the control packages of the large industrial enterprises (60 per cent of the shares), as well as finished and uncompleted building objects.

Recognition of the industrial policy of the state is the component part of the socio-economic programme of development realised by the Government. The main components of industrial policy are:

  • the use of effective technical and scientific potential;
  • labour;
  • reorganisation and restructuring of the enterprises;
  • introduction of new technologies;
  • attraction of private and foreign capital as investments;
  • reduction of the negative social effect from structural reforms.

Pilot projects on restructuring have been completed by the Agency for Enterprise Restructuring (ARIA), implementating modern management, new technologies and where necessary, the creation of several independent enterprises on the basis of one big enterprise.

Foreign investors can participate in the restructuring process by purchasing the shares of the industrial enterprises, in order to:

  • update production technologies;
  • expand the sales market;
  • provide capital and modern equipment to the companies that had been set up with local partners.

The attraction of foreign investments is necessary and desirable for the implementation of new technologies, the reorganisation of enterprises, and the production of qualitative goods, successfully sold on external markets.

The Government is currently focusing on the development of the market economy, the expansion of foreign economic relations, the active attraction of foreign investments based on the principles of market relations, and the freedom of initiative and loyal competitiveness.

All this, including the accumulated experience of qualified experts in the domain of production and intellectual and scientific potential, create a strong basis for the dynamic development of the national economy of the Republic of Moldova.

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