Moldova has made some progress towards adopting free-market, democratic principles since gaining its independence in 1991, but still has significant investment climate shortcomings. Moldova regained relative stability after the political and economic turmoil of recent years, but at the same time, progress in implementing necessary reforms has slowed. The government continues to deal with the fallout from the massive 2014 bank fraud, and additional efforts are needed to implement financial and banking sector reform, and tackle pervasive corruption that has undermined public trust.
The major investment climate concerns in 2019 include political uncertainties related to government formation following national parliamentary elections, macroeconomic risks related to the freezing of EU and international financial institution (IFIs) external budget support, and challenges of maintaining reform momentum.
In June 2014, Moldova signed an Association Agreement (AA) with the European Union (EU), including a Deep and Comprehensive Free Trade Agreement (DCFTA), committing the government to a course of reforms to bring its governmental, regulatory, and business practices in line with EU standards. The DCFTA has helped integrate Moldova further into the European common market and created more opportunities for investment in Moldova as a bridge between Western and Eastern European markets. The Government approved an Action Plan for the implementation of AA/DCFTA in 2017-2019.
In 2018, the IMF suspended its three-year program with Moldova after the government passed a package of controversial tax and capital amnesty laws, jeopardizing its economic reform agenda.
The investment climate is challenging, undermined by corruption and inconsistent reform/policy implementation. In 2018, the government focused on central public administration reform, reducing the number of state agencies that could inspect businesses and limiting their discretion for inspection. The government also combined and eliminated some ministries and began implementing a one-stop-shop public services agency, in addition to other reforms. While these reforms did streamline certain business operations, they did not fully address underlying systemic corruption. The government also approved a 2018-2020 action plan for a business regulatory framework reform to facilitate day-to-day business activity.
Although a number of underdeveloped and emerging sectors offer business opportunities, investors should take note of remaining risks. While a number of large foreign companies have taken advantage of tax breaks in the country’s free economic zones, foreign direct investment remains low. Finance, automotive, light industry, agriculture, food processing, wine, and real estate have historically attracted foreign investment. The National Strategy for Investment Attraction and Export Promotion 2016-2020 identified seven priority sectors for investment and export promotion: agriculture and food, automotive, business services such as business process outsourcing (BPO), clothing and footwear, electronics, information and communication technologies (ICT), and machinery.
U.S. business activity in Moldova continued to grow in 2018, and investors and businesses have demonstrated increased interest in the country. Private investors, including several U.S. companies, have shown strong interest in the information and communications technology (ICT) sector, especially after Moldova established a preferential tax regime for the sector. Improvements in the strength and transparency of the financial sector have also helped attract increased investment. Many U.S. businesses have also explored opportunities in the agricultural and energy sectors.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||117 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||47 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||48 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$28.0||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$2,200||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Moldova, the poorest country in Europe, relies heavily on foreign trade and remittances from workers abroad for its economic growth. Under Moldovan law, foreign companies enjoy national treatment in most respects. In principle, the government views FDI as vital for sustainable economic growth and poverty reduction. In the last year, the government has sought to attract more foreign investors into the country. The lack of qualified labor, and emigration of qualified Moldovans of working age, has also limited foreign investment.
Moldova enjoyed a period of increased FDI following the eastward expansion of the EU into Romania in 2007. However, the 2008 global financial crisis significantly decreased FDI in Moldova, which has yet to return to pre-crisis levels. Remittances have not regained levels seen in 2008 and fell further in recent years, reflecting slower growth and the falling value of the Russian ruble (most remittances are from workers paid in Russian rubles.)
Moldova’s development path in recent years has been guided by agreements with the EU for reforms in trade policy and the judiciary. Moldova signed its Association Agreement with the EU in June 2014 and ratified it on July 1, 2016, with the intent of bringing closer political association and economic integration with the EU. The DCFTA, a component of the Association Agreement, provides for mutual elimination of customs duties on industrial and most agricultural products and for further liberalization of the services market. It also addresses other barriers to trade and reforms in economic governance, with the goal of strengthening transparency and competition and adopting EU product standards.
As a country with a small economy, Moldova has relied on a liberalized trade and investment strategy to increase the export of its goods and services.
A member of the WTO since 2001, Moldova has signed both bilateral and multilateral free trade agreements, including the following:
- Commonwealth of Independent States (CIS) Free Trade Agreement
- Central European Free Trade Agreement
- EU DCFTA
Since September 2013, Moldova has faced a Russian ban on its alcoholic beverage exports. After signing of the Association Agreement and DCFTA by Moldova in 2014, Russia imposed additional trade bans seriously affecting Moldova’s exports of fruit, canned products, and fresh and processed meat. These Russian trade bans pushed Moldova to expand to new export markets, and the EU is now the country’s largest export destination, absorbing more than half of all Moldovan exports.
The government approved an Action Plan for the implementation of the Moldova-EU Association Agreement and DCFTA for the period 2017-2019. The government has identified in its national development strategy “Moldova 2020” seven priority areas for development and reform: education, access to financing, road infrastructure, business regulation, energy efficiency, justice system, and social insurance. The government has made a formal commitment to accelerate the country’s development by making the economy more capital-intensive, sustainable, and knowledge-based.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no formal limits on foreign control of property and land, with the significant exception that foreigners are expressly prohibited from owning agricultural or forest land, even via a locally-domiciled corporation or business. Moldova does not have a formal investment screening mechanism for inbound foreign investment. Under Moldovan law, foreign companies enjoy national treatment in most respects. The Law on Investment in Entrepreneurship prohibits discrimination against investments based on citizenship, domicile, residence, place of registration, place of activity, state of origin, or any other grounds. The law provides for equitable and level-field conditions for all investors and rules out discriminatory measures hindering management, operation, maintenance, utilization, acquisition, extension, or disposal of investments. Local companies and foreigners are to be treated equally with regard to licensing, approval, and procurement. Companies registered in questionable tax havens are technically prohibited from holding shares in commercial banks and restrictions on foreign ownership of agriculture and forestry lands.
By statute, special forms of legal organizations and certain activities require a minimum of capital to be invested (e.g., MDL 20,000 (USD 1,200) for joint stock companies, MDL 15 million (USD 910,000) for insurance companies, and MDL 100 million (USD 6.1 million) for banks).
Moldovan law restricts the right to purchase agricultural and forest land to Moldovan citizens. Foreigners may become owners of such land only through inheritance and may only transfer the land to Moldovan citizens. In 2006, Parliament further restricted the right of sale and purchase of agricultural land to the state, Moldovan citizens, and legal entities without foreign capital. However, foreigners are permitted to buy all other forms of property in Moldova, including land plots under privatized enterprises and land designated for construction. There are reportedly Moldovan-registered companies with foreign capital known to own agricultural land by means of loopholes in the previous law. The only straightforward option available to foreigners who wish to use agricultural land in Moldova is to lease the land.
Other Investment Policy Reviews
The latest Investment Policy Review of Moldova was conducted by the United Nations Conference on Trade and Development (UNCTAD) as part of a broader South-East Europe Review in 2017 and can be accessed at
http://unctad.org/en/Pages/DIAE/Investment percent20Policy percent20Reviews/Investment-Policy-Reviews.aspx
Moldova was last subject to a trade policy review by the World Trade Organization (WTO) published in October 2015: https://www.wto.org/english/tratop_e/tpr_e/tp423_e.htm
The government has taken steps over the years to simplify and streamline the process of business registration and licensing, lower tax rates, strengthen tax administration, and increase transparency.
Business registration is overseen by the Public Services Agency, created in 2017 as a result of the merger of the State Registration Chamber, Licensing Chamber, Land Registry, Civil Records Service, and State Information Center Registry.
By law, registration should take three days for a standard procedure or four hours for an expedited procedure and is done in two stages. The first stage involves submission of an application and a set of documents, the range of which may vary depending on the legal form of the business (LLC, joint-stock company, sole proprietorship, etc.). At the second stage, the Agency issues a registration certificate and a unique identification number for the business, conferring full legal capacity to the entity. In 2010, the government introduced the “one-stop-shop” principle, under which businesses are relieved of the requirement to register separately with fiscal, statistical, social security, or health insurance authorities. There are currently no procedures for online business registration. Certain types of activity listed in the law on licensing require businesses to be first licensed by public authorities.
In 2006, the Moldovan Parliament ratified the 1961 Hague Convention on Abolishing the Requirement for Legalization for Foreign Public Documents. Acceptance of U.S. apostilles applied on official documents simplifies the legalization of official documents issued in the United States that are required in the process of business registration.
Moldova has an investment promotion agency to assist prospective investors with information about business registration or industrial sectors, facilitate contact with relevant authorities, and organize study visits. The Investment Agency has an investment guide available on its website invest.gov.md . In 2018, the agency went through a reorganization after merging with the Tourism Agency and now has the mission to promote foreign investment, exports, and tourism.
The government set up a special council for promoting investment projects of national importance and tackle red tape limiting larger investments.
Moldova does not have an official policy or mechanism for promoting or incentivizing outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
Moldova has signed bilateral investment protection and promotion agreements with 43 countries. In addition to the United States, these include Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Italy, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Montenegro, the Netherlands, Poland, Qatar, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Tajikistan, Turkey, Ukraine, United Arab Emirates, the United Kingdom, and Uzbekistan.
Moldova has a bilateral treaty with the United States on the Encouragement and Reciprocal Protection of Investment. Moldova has not signed a separate bilateral taxation treaty with the United States; however, the U.S. Government applies the Convention on Matters of Taxation signed with the USSR on June 20, 1973, which also deals with avoidance of double taxation, to former Soviet republics, including Moldova.
Moldova signed 50 double taxation avoidance treaties with the following countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia Cyprus, the Czech Republic, Estonia, Finland, Georgia, Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Montenegro, the Netherlands, Oman, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, the United Kingdom, and Uzbekistan.
Moldova has signed free trade agreements with 43 countries, among them member states of the Commonwealth of Independent States (CIS) and the Central European Free Trade Agreement (CEFTA), and Turkey. Moldova has also undertaken FTAs with China, Egypt and the European Free Trade Area (EFTA); negotiations with China are the most advanced. In 2008, Moldova moved from the extended generalized system of preferences (GSP-plus) with the EU to autonomous trade preferences, which expanded the duty-free access of Moldovan goods to EU markets. In September 2014, the Deep and Comprehensive Free Trade Agreement (DCFTA) supplanted the Autonomous Trade Preferences regime.
3. Legal Regime
Transparency of the Regulatory System
Bureaucratic procedures are not always transparent, and red tape often makes processing registrations, ownership, and other procedures unnecessarily long, costly, and burdensome. Discretionary decisions by government officials provide room for abuse and corruption. While the government has adopted a number of laws to improve the business climate and reduce excessive state controls and regulation, effective implementation of these laws is often lacking. The inconsistent application of laws and regulations undermines fair competition and adds uncertainty for less politically-connected businesses, particularly small- and medium-sized businesses as well as new entrants.
The Moldovan government generally publishes significant laws in draft form for public comment. Draft laws are also available on-line on the website of Moldovan Parliament. Business and trade associations provide other opportunities for comment. A significant exception to this norm is a mechanism that allows Parliament to also propose draft laws, as occurred in July 2018, when Parliament proposed and adopted the capitol and tax amnesty law in one day. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets to vet draft governmental regulations dealing with entrepreneurship. The working group’s meetings are open to interested businesses and the agenda is published online https://mei.gov.md/ro/agenda . Laws and regulations are published in the official gazette called Monitorul Oficial, while a database of laws and regulations is available online at lex.justice.md . An Economic Council under the Prime Minister offers another platform for discussion of Government-proposed business initiatives.
Moldova made a commitment to implement International Financial Reporting Standards (IFRS) in 2008. Use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other firms, although many use IFRS as well due to foreign ownership. Treasury-OTA has an ongoing IFRS training program for the NBM and commercial banks.
The Foreign Investors Association (FIA) was established in 2004 with the support of the OECD. The FIA engages in a dialogue with the government on topics related to the investment climate and produces an annual publication of concerns and recommendations for the improvement of the investment climate. In 2006, the American Chamber of Commerce (AmCham) registered in Moldova, presenting another voice for the business community. In 2011, a group of ten large EU investors founded the European Business Association (EBA). These are the three largest foreign business associations, and they regularly engage in policy discussions with the government.
Since 2008, the National Business Agenda supported by the U.S. Center for International Private Enterprise (CIPE) has organized 30 domestic business associations, putting forth an annual list of priorities in their dialogue with the authorities. These priorities deal with the general business environment and regulatory framework.
Since 2004, the government has been taking steps to reduce excessive government regulation of business activity. The Government approved a 2018-2020 action plan to implement the strategy to reform the business regulatory framework for 2013-2020. The plan aims at further streamlining the regulatory framework and administrative procedures. All regulations and governmental decisions related to business activity have been published in a special business registry, “Register of Regulations on Business Activity,” to raise the awareness of business people about their rights, increase the transparency of business regulations, and help fight corruption.
As part of a USAID-backed program, the Ministry of Economy reviewed the number of permits and authorizations issued to businesses as well as the number of authorities issuing such documents. As a result, government approved a list of business permits and authorizations and banned governmental agencies and inspectors from issuing or requesting any form of documents not included in the list.
In 2012, Parliament passed a law to introduce clear and uniform rules for the release of information and standardized documents through a “one-stop window.”
A law simplifying the system of inspectorates and various inspection bodies was adopted in 2017 to increase efficiency and reduce regulatory burden. Through the reformation of inspection bodies, the government wants to reorganize the state inspection agencies for better planning and monitoring of inspectors’ activity. By reducing the number of inspection agencies and introducing risk-based criteria for inspections, the government hopes to improve the business climate by reducing the opportunity for inspections to be used as a political tool.
The World Bank Cost of Doing Business 2018 survey shows that the time spent by companies dealing with regulatory authorities saw no change in 2017 from the year before. Despite reported improvements, the survey notes that only13 percent of business managers consider that the business climate really improved in 2018. While 66 percent of managers do not see any change, 21 percent believe it has worsened.
In 2016, the government made a decision to merge several agencies – the State Registry, Cadastral Office, the Licensing Chamber, State Registration Chamber and Civil Status Archive – into a Public Service Agency as a one-stop-shop for business registration and licensing.
International Regulatory Considerations
European integration is a fundamental priority for Moldova. The Association Agreement (AA) including a Deep Comprehensive Free Trade Area (DCFTA) significantly strengthens Moldova’s political association and economic integration with the European Union. The AA/DCFTA has binding regulatory provisions committing Moldova to a reform agenda and to approximating domestic legislation to EU standards in a range of areas including corporate law, labor, consumer protection, competition and market surveillance, general product safety, tax, energy, customs duties, public procurement, etc. Under the DCFTA, Moldova will gradually abolish duties and quotas in mutual trade in goods and services, and will eliminate non-tariff barriers by adopting EU rules on health and safety standards, as well as intellectual property rights, among others. The agreement contains a timeframe for implementation, with deadlines up to ten years.
Moldova has been a member of the World Trade Organization (WTO) since 2001 and, as such, is a signatory to the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements contain major investment-related provisions, such as opening to the establishment of foreign service providers, prohibition of local-content, trade-balancing and domestic-sales requirements (TRIMs), and protection of intellectual property of investors (TRIPS). No major WTO TRIMS inconsistencies were reported.
As a WTO member, Moldova has to notify draft technical regulations to the WTO Committee on Technical Barriers to Trade. Also, in 2016 Moldova ratified the WTO Trade Facilitation Agreement and adopted a 2018-2020 Trade Facilitation Action Plan in November 2017. The plan comprises 91 actions, with an estimated budget of over EUR 137.1 million and is implemented by government agencies in cooperation with the private sector under the guidance of the Economic Council under the Prime Minister, which acts as the National Trade Facilitation Committee. While an estimated 80 percent of measures focus on customs performance, the plan also provides for the setup of information points; discussion of relevant drafts with the business community and civil society; strengthening of the capacities of the National Food Safety Agency (ANSA) with integrated management information system for streamlining and standardizing the issuance of permissive documents; management of food safety registries; and supporting automated exchange of data with the European Union and Commonwealth of Independent States. It also involves expanding the capacities of the National Accreditation Center (MOLDAC) in new areas of accreditation, so that it could join the European Cooperation for Accreditation (EA) Multilateral Recognition Arrangement (MLA) and International Laboratory Accreditation Cooperation (ILAC) mutual recognition agreement (MRA). The action plan aims at cutting border-crossing costs for companies engaged in foreign trade.
The government has undertaken incremental steps since 2017 on a draft Customs Code, which would merge existing separate laws on customs procedures and goods crossing national borders and approximate national customs rules to the EU Customs Code. In April 2018, the Ministry of Finance sent the draft Code to the National Anticorruption Center (NAC) for its required review. In May 2018 NAC provided a draft anticorruption report which has not been finalized. In 2017, the government changed customs rules to align with the EU Authorized Economic Operator requirements and Approved Exporter conditions.
Thanks to negotiations linked to Moldova’s WTO accession, modern commercial legislation was adopted in accordance with WTO rules. The main challenges to the business climate remain the lack of effective and equitable implementation of laws and regulations, and arbitrary, non-transparent decisions by government officials to give domestic producers an edge over foreign competitors in certain areas. For example, an environmental tax is applied on bottles and other packaging of imported goods, but not levied on bottles and packaging produced in Moldova. Additionally, the government may cite public security or general social welfare as reasons to intervene in the economy in contravention of its declared respect for market principles. There are reports of problems with customs valuation of goods, specifically that the Customs Service has been applying the maximum possible values to imported goods, even if their actual purchase value was far lower. This has increased customs revenues, but has disadvantaged importers.
Legal System and Judicial Independence
Moldova has a civil law legal system with codified laws that govern different aspects of life, including business, trade, and economy. The country’s legal framework consists of its constitution, organic and ordinary laws passed by the Parliament, and normative acts issued by the government and other public authorities. Although Moldovan courts are constitutionally independent, its structure allows for government and political interference, and also suffers from low efficiency and lack of public trust.
The court system currently consists of lower courts (i.e. trial courts), four courts of appeal, the Supreme Court of Justice, and a separate Constitutional Court.
Moldova is preparing a new justice reform strategy in 2019 after its prior reform strategy expired (after an extension) at the end of 2017; there is no announced timeline for finalization of the new strategy. Parliament passed amendments in 2016 “optimizing” the country’s court system as part of the larger justice sector reforms, which ultimately reduced the number of trial courts in Moldova from 40 to 15. Specialized courts such as the Commercial Circumscription Court and Military Court ceased their activities. Five trial courts from Chisinau were conceptually merged into one — the Chisinau trial court — yet in 2018 the “merged” Chisinau trial court was further reorganized to specialize across five districts (investigative and contravention; criminal; administrative; bankruptcy; and civil, which includes adjudication of commercial disputes). The government’s plan predicts court optimization will be fully implemented by 2027.
In 2016, the government created two specialized quasi-independent prosecution offices. The Anticorruption Prosecution Office is responsible for investigating and prosecuting corruption, bribery and abuse of power by public officials, and money laundering. The Prosecution Office on Combating Organized Crime and Special Cases investigates and prosecutes organized, transnational and particular complex crimes, including tax evasion, smuggling, intellectual property offenses, trafficking in persons, drugs, etc. In 2017, the Moldovan Prosecution Service continued the implementation of reforms under a new law on prosecution service passed in 2016. The Prosecutor General’s Office (PGO) guided and led the drafting of new regulations for the specialized prosecution offices, regional and district offices. The Superior Council of Prosecutors organized competitions to appoint over 90 chief and deputy chief prosecutors in the PGO and all prosecutors’ offices in Moldova.
The government has also reformed the public integrity system in 2016 by creating the National Integrity Authority (NIA) – the successor to the National Integrity Commission. The new agency ultimately is to be staffed with 46 investigators who will check public officials’ financial disclosures, properties and conflicts of interests, and refer to the Anticorruption Prosecutor’s Office appropriate cases for further investigation and prosecution. However, due to the lack of funding and slow administrative planning, the Agency has yet to hire a full complement of investigators or start functioning at full capacity.
Also, in 2016, Parliament passed a new law on disclosure of assets (for NIA review) and conflicts of interest by public officials. This law, long-awaited by Moldovan civil society, broadens and improves the statutory competencies of integrity-checking authorities to oversee public officials’ integrity. Parliament also adopted new statutes in the Criminal Code criminalizing the misuse of international assistance funds. These provisions provide a statutory basis for Moldovan prosecutors to investigate and prosecute corruption or misuse of international donor assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants.
Laws and Regulations on Foreign Direct Investment
In addition to its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.
The current Law on Investment in Entrepreneurship came into effect in 2004. It was designed to be compatible with European standards in its definitions of types of local and foreign investment. It provides guarantees of investors’ rights, non-application of expropriation or similar actions, and for payment of damages if investors’ rights are violated. The law permits FDI in all sectors of the economy, while certain activities require a business license.
Competition and Anti-Trust Laws
In 2012, Parliament passed a law on competition in line with EU practice and legislation. The National Competition Agency was subsequently renamed the Competition Council. The Competition Council oversees compliance with competition and state-aid provisions and initiates examination of alleged violation of competition laws. The Competition Council may request cessation of action, prescribe behavioral or structural remedies, and apply fines.
Expropriation and Compensation
The Law on Investment in Entrepreneurship states that investments cannot be subject to expropriation or to measures with a similar effect. However, an investment may be expropriated if the expropriation is done for purposes of public utility, is not discriminatory, and is done with just compensation. If a public authority violates an investor’s rights, the investor is entitled to compensation equivalent to the actual damages at the time of occurrence, including any lost profits.
The government has given no indication of intent to discriminate against U.S. investments, companies or representatives by expropriation, or of intent to expropriate property owned by citizens of other countries. No particular sectors are at greater risk of expropriation or similar actions in Moldova.
Since 2001, the government has cancelled several privatizations, citing the failure of investors to meet investment schedules or irregularities committed during privatization. While the government agreed to repay investors in such disputes, investors have had to apply to the European Court of Human Rights (ECHR) to enforce compensation payments. The government has been compliant with the ECHR rulings involving foreign businesses.
In the past, the limit on foreign ownership of agricultural land was reportedly used in lawsuits as an argument against foreign companies.
ICSID Convention and New York Convention
In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID – Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.
Investor-State Dispute Settlement
Moldova is signatory to a number of bilateral investment treaties (see chapter 3 above), including the U.S.-Moldovan Treaty Concerning the Encouragement and Reciprocal Protection of Investment, which make binding international arbitration of investment disputes.
Local courts recognize and enforce foreign arbitral awards against the government. There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it.
The government has had a history of depriving investors, both national and foreign, of their businesses in various forms. Many of them have sued the government at the European Court for Human Rights for violation of the right to fair trial and of the respect for property. In 2018, the International Center for the Settlement of Investment Disputes (ICSID) ruled on a dispute involving a U.S. investor and local government authorities, which in 2011 terminated a farmland lease over a U.S. investor’s alleged failure to fulfill contractual obligations to plant the fields. After Moldovan courts ruled against the U.S. investor’s claims for compensation, in 2016 the investor filed suit with ICSID under the US-Moldova bilateral investment treaty. In 2018, ICSID ruled in favor of the U.S. investor, and the Moldovan Government subsequently paid the U.S. investor USD 1.792 million in compensation for damages.
International Commercial Arbitration and Foreign Courts
Private parties may choose alternative dispute resolution mechanisms instead of going to courts. Moldovan law provides the options of mediation and arbitration. The arbitration legislation is modeled after UNCITRAL rules. There are a number of arbitration bodies available in Moldova, including the arbitration court of the Moldovan Chamber of Commerce and Industry. The American Chamber of Commerce in Moldova (AmCham Moldova) recently established the Chisinau Court of International Commercial Arbitration (CACIC) under its auspices.
Moldova is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards.
Recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code for Civil Procedures, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal norms in examining the enforcement of foreign judgments. However, as a rule, foreign judgments are enforceable in Moldova on the basis of reciprocity.
Moldova’s court system generally enjoys a low level of public trust and is perceived to be vulnerable to acts of corruption, while court processes lack transparency. The overall expectation in court hearings involving representatives of public authorities, including economic entities, is that final court rulings will be in favor of state representatives. While arbitration is often seen as a preferable option to the courts, the courts must still enforce the arbitral decision. Investors have been discouraged by the occasionally slow pace of court enforcement of arbitral awards and the judge’s excessive discretion over the arbitral decision.
In terms of resolving insolvency, the World Bank ranks Moldova 68th out of 190 economies in the 2019 Doing Business survey. Moldova scores below the regional average and trails EU members in Central and Eastern Europe. According to the survey, it takes creditors on average 2.8 years to recover their credit. The country has changed its insolvency law to grant priority to secured creditors and to ease insolvency proceedings by introducing new restructuring mechanisms, reducing opportunities for appeals, adding moratorium provisions, establishing strict statutory periods in the proceedings, and enhancing the role of insolvency administrators. The law also introduced expedited insolvency proceedings.
The country has two credit bureaus: Biroul de Credit, set up by commercial banks, and Infodebit Credit Report, founded by private shareholders.
4. Industrial Policies
Investment incentives are applicable for all Moldovan-registered businesses irrespective of the country of origin of the investment. Certain incentives apply only in specially-designated areas such as free economic zones and industrial parks (see below: Foreign Trade Zones/Free Ports/Trade Facilitation). Until 2020, Moldovan legislation allows employees of IT companies to benefit from incentives on personal income tax and social security contributions. Also, a 2017 law on information technology parks established a single tax for residents of the digital IT parks, calculated as the maximum between 7 percent from sales and 30 percent from the national average forecasted salary multiplied by the number of employees. There is also a range of tax incentives applicable if businesses meet certain requirements. Among those incentives are the following: value-added tax (VAT) and customs exemptions on long-term assets included in share capital; deferment of VAT liabilities on imports of materials used in manufacturing export-bound products; lower VAT rates for the hospitality and restaurant businesses; and lower social contributions and VAT rates for agricultural businesses.
Foreign Trade Zones/Free Ports/Trade Facilitation
At present, seven free economic zones (FEZs), one international free port – Giurgiulesti – and one international free airport – Marculesti – are registered in Moldova. According to Moldovan law, these zones support job creation, attraction of foreign and domestic investments, and export-oriented production. The Law on Free Economic Zones regulates FEZ activity. Foreigners have the same investment opportunities as local entities. FEZ commercial entities enjoy the following advantages: 25 percent exemption from income tax; 50 percent exemption from tax on income from exports; for investments of more than USD 1 million, a three-year exemption from tax on income resulting from exports; and for investments of more than USD 5 million, a five-year exemption from tax on income from exports; zero value-added tax; exemption from excises; and protection of residents against any new changes in the law for 10 years. In addition, residents investing at least USD 200 million in the FEZ are protected against new changes in the law for the entire period of operation in the FEZ, but such protection cannot extend beyond 20 years.
The government also passed a law creating ten industrial parks in 2008 with the aim of attracting investments in industrial projects. Businesses operating in those parks do not receive any special tax treatment, but typically have access to ready-to-use production facilities, offices and lower office rent fees for 25-30 years. Typically, these are idle premises of former big industrial enterprises.
Similar to the FEZs, the Giurgiulesti Free International Port, Moldova’s only port accessible to sea-going vessels, was established in 2005 for 25 years. Commercial residents of the port enjoy the following advantages: 25 percent exemption from income tax for the first 10 years following the first year when taxable income is reported; 50 percent exemption from tax on income for the remaining years; exemption from value-added tax and excises on imports and exports outside Moldova’s customs territory; zero valued-added tax on imports from Moldova; and protection of commercial residents against any changes in the law until February 17, 2030.
The Marculesti International Free Airport, a former military air base, was established in 2008 as a free enterprise zone for a 25-year period to develop cargo air transport. Airport management is also interested in turning Marculesti into a regional hub for low-cost passenger airlines.
Performance and Data Localization Requirements
All incentives are applied uniformly to both domestic and foreign investors. The Law on Investment in Entrepreneurship, in effect since 2004, does not protect new investors from legislative changes.
No formal requirements exist for investors to purchase from local sources or to export a certain percentage of their output.
No limitations exist on access to foreign exchange in relation to a company’s exports. There are no special requirements that nationals own shares of a company. Both joint ventures and wholly foreign-owned companies may be set up in Moldova.
While not an official policy, in sectors of the economy that require large investments, experienced management, and technical expertise such as energy or telecommunications, the government has shown preference for experienced foreign investors over local investors. In other sectors, foreign and local investors formally receive equal treatment.
The government does not impose “offset” requirements on procurements. Moldovan law allows investments in any area of the country in any sector, provided that national security interests, anti-monopoly legislation, environmental protection, public health, and public order are respected.
Enforcement procedures for performance requirements to enjoy tax incentives are described in the Tax Code and related governmental decisions and instructions. Foreign investors are required to disclose the same information as local investors. Moldova has no discriminatory visa, residence, or work-permit requirements inhibiting foreign investors’ mobility in Moldova. The government has set up a one-stop shop for foreigners applying for Moldovan residence and work permits in a bid to streamline a complicated procedure.
Moldova has a liberal commercial regime with more than 100 countries. According to the Tax Code, Moldovan exports are exempt from value added tax. Although there are no formal import price controls, there are reports that Moldovan Customs Service may make arbitrary price assessments on certain types of imported goods for taxation purposes.
The Embassyis not aware of any reports of forced data localization or special requirements targeting foreign IT providers. The Ministry of Economy and Infrastructure is responsible for developing strategies and policies on electronic communication, while the National Regulatory Agency for Electronic Communications and Information Technology (ANRCETI) is responsible for regulations and oversight.
5. Protection of Property Rights
Moldova has laws that formally protect all property rights, and has a system for recording property titles and mortgages is in place. There is a national cadastral office, which registers all ownership titles in the real estate registry. However, the mortgage market is still underdeveloped. In addition, the judicial sector remains weak and does not always fully guarantee the rights of citizens and foreign investors.
In the World Bank’s Doing Business 2018 report Moldova ranked 22nd among 190 economies on the ease of registering property.
Intellectual Property Rights
Despite efforts to improve intellectual property rights (IPR) protection and set up relevant executive structures in the government, Moldova does not fully enforce its IPR laws due to conflicts of interest, lack of resources, and a low level of awareness and training among law enforcement agencies. The concept of IPR is largely unrecognized by the local population. The country has an agency for the protection of IPR, the State Agency on Intellectual Property (AGEPI), which continues working on improving the legal framework and adjusting it to EU norms, increasing public awareness, and building capacity in law enforcement. Following Moldova’s adoption of the EU’s Association Agreements and Deep and Comprehensive Free Trade Areas (AA/DCFTA) in June 2014, AGEPI participated in implementation of the IPR chapter of the agreement with the objective of ensuring a level of protection for IPR in Moldova similar to that in the EU, including effective enforcement.
Moldova is party to the majority of international treaties on IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and 26 World Intellectual Property (WIPO) agreements, a list of which, including other international and regional agreements and IPR conventions, is available at www.agepi.gov.md/en/legislatie/international .
Along with other public institutions, AGEPI works on fulfilling Moldova’s IPR obligations as provided by the 2017-2019 National Action Plan for the implementation of the Association Agreement. In 2018, Moldova adopted the third Action Plan on the implementation of the National Strategy on Intellectual Property through 2020. While some progress is being reported, there are still issues with Geographical Indications (GIs) that remain to be addressed.
For consolidating the institutional capacities of IPR systems, in 2018, AGEPI was reorganized from a public institution into central administrative authority subordinated to the government. Efforts have been made to improve the access and quality of IPR services. AGEPI made the IPR database publicly available online and free of charge on its webpage www.db.agepi.md and launched an online filing application system, with over 40 percent of national IPR applications reported to be filed online. In 2018, AGEPI rolled out an e-learning platform for IPR education, with the first basic IPR e-course held in March 2019.
The time required to obtain IPR protection in Moldova varies depending upon the type of protection sought. For a copyright it takes 15-30 days, patent for plants 1.5-3 years, short-term patent for invention 7-8 months, patent for invention 17-18 months, geographical indications, appellations of origin, or traditional specialties guaranteed 10-12 months, industrial design 10-12 months, and trademark 10-12 months.
Moldova has specific laws dealing with trade secrets, while the criminal code prohibits unauthorized disclosure of trade secrets.
Moldovan authorities, including Customs, Ministry of Interior and General Prosecutor’s Office, keep track of statistics related to IPR violations, but such reports are not readily available online and are updated only at the end of the year. To better deal with IPR enforcement, the Moldovan authorities are working on developing an IPR Information System to deal with IPR data exchange between the protection and enforcement bodies, including AGEPI, Customs Service, Prosecution, Police, Agency for Consumer Protection and Market Surveillance and Agency for Court Administration. The system is expected to become operational in 2019.
In 2018, Moldovan authorities reported an increase in the number of IPR complaints compared with 2017. Moldovan Customs received 105 complaints in 2018 (compared to only 70 in 2017), detained almost MDL 3 million (USD 180,000) worth of counterfeit products in 82 instances, and destroyed roughly MDL 100,000 (USD 5,800) worth of counterfeit products.
The Ministry of Internal Affairs received 44 IPR-related complaints (52 in 2017) and started 85 contraventional and five criminal proceedings mainly on trademarks and copyright.
The Agency for Consumer Protection and Market Surveillance received 86 complaints, applied two fines and sent 33 cases to court for further sanction.
The General Prosecutor’s Office started eight IPR-related proceedings (compared to seven in 2017), seven of which were for copyright infringements and one for violation of industrial IPR.
The Agency for Courts Administration reported 77 infringement proceedings (compared to 36 in 2017), 57 of which ended with fines totaling MDL 161,000 (USD 9,500).
The list of the most common counterfeit products consists of footwear and clothing, cosmetics, children’s toys, household appliances, phone and phone accessories, and bags, purses, belts, and accessories.
Moldova is not listed in the United States Trade Representative (USTR) Special 301 Report, nor is it on the Notorious Markets List.
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en .
6. Financial Sector
Capital Markets and Portfolio Investment
Moldova’s securities market is underdeveloped. Official National Bank of Moldova (NBM) statistics include data on portfolio investments, yet there is a lack of sufficient open-source information to fully reflect the trends and relevance of this form of investment in Moldova. NBM data shows that most portfolio investments target banks, while the National Statistics Bureau does not differentiate between foreign direct investment and portfolio investments of less than 10 percent in the equity of a company.
Laws, governmental decisions, NBM regulations, and Stock Exchange regulations provide the framework for capital markets and portfolio investment in Moldova . The government began regulatory reform in this area in 2007 with a view to spurring the development of the weak non-banking financial market. In particular, since 2008 two bodies – the NBM and the National Commission for Financial Markets – regulate financial and capital markets.
Foreign investors are not restricted from obtaining credit from local banks, the main source of business financing. Access to credit continues to be difficult, especially for SMEs, in light of strict bank stringent lending practices. Local commercial banks provide mostly short-term, high-interest loans and require large amounts of collateral, reflecting the country’s perceived high economic risk. Progress in lending activity suffered a sharp reversal in 2015 in the wake of the late-2014 banking crisis, triggered by a massive bank fraud, which severely weakened the banking system. Extreme monetary tightening by the NBM in the wake of large currency emissions connected to the resulting bank bailouts led to prohibitively high interest rates. As a result, in early 2016, yields on one-year government bonds shot up to 25 percent, with commercial rates following close. The situation has been improving with average interest rates on bank loans dipping below 10 percent in 2018.
Large investments can rarely be financed through a single bank and require a bank consortium. Recent years have seen growth in leasing and micro-financing, leading to calls for clear regulation of the non-bank financial sector. As a result, Parliament passed a new law on the non-bank financial sector, which entered into effect on October 1, 2018. Raiffeisen Leasing remains the only international leasing company to have opened a representative office in Moldova.
The private sector’s access to credit instruments has been limited by the insufficiency of long-term funding, high interest rates, and unrealistic lending expectations by banks. Financing through local private investment funds is virtually non-existent. A few U.S. investment funds have been active on the Moldovan market, notably NCH Advisors, Western NIS Enterprise Fund, and Emerging Europe Growth Fund, the latter two managed by Horizon Capital equity fund managers.
Weaknesses in the share registry system, where companies were registered by private agencies acting as registrars, contributed to “raider attacks” over the past few years when ownership rights were fraudulently transferred from their rightful owners to others. A new single Central Securities Depository was established under the supervision of the National Bank of Moldova to bring greater transparency and integrity to ownership and the recordkeeping associated with it.
Acting as an independent regulatory agency, the National Commission for Financial Markets (NCFM) supervises the securities market, insurance sector and non-bank financial institutions. The NCFM adopted a Corporate Governance Code and passed new regulations intended to simplify the issuance of corporate securities and increase the transparency of transactions on the Moldovan Stock Exchange. In 2011, the government adopted a new strategy for the development of the non-bank financial sector through 2014 that focused on adopting European standards in financial market regulation and supervision. Amendments were passed in 2011 to the law on joint-stock companies to strengthen minority shareholder rights and improve disclosure obligations for transactions involving conflicts of interest. A new capital markets law adopting European Union regulations came into effect in 2013. It was designed to open up capital markets to foreign investors, strengthen NCFM’s powers of independent regulator and sets higher capital requirements on capital market participants. The government adopted a new 2018-2022 strategy for the development of the non-banking financial sector aimed at bolstering the capital markets combined with prudential supervision.
Money and Banking System
In 2014, a crisis at three Moldovan banks (which resulted in their closure and the loss of USD 1.2 billion), two of them being among the country’s top five, called into question the soundness of the banking system. In addition, the involvement of one Moldovan bank in the so-called “Russian Laundromat,” estimated to have laundered from USD 20 to 80 billion, also contributed to these challenges. The banking crisis shook the entire banking system, causing some foreign correspondent banks to terminate their relationships with Moldovan banks and caused some banks to tighten their lending approach.
The IMF has said that although recovery has been slow, there have been some improvements, with most indicators currently positive, with a high degree of capital and liquidity, a reduction of non-performing loans to approximately 12 percent, and an increase in lending in the banking sector. Moldovan banks remain the main source of business financing, with non-bank financial institutions, while gaining in the market, still playing a minor role. Bank assets account for about 45 percent of GDP. Banks are also the largest loan providers with loans amounting to approximately USD 1.8 billion, an increase of approximately 15 percent from a low point reached in March 2018.
Moldova currently has 11 commercial banks. The NBM regulates the commercial bank sector and reports to Parliament. Foreign bank subsidiaries have to register in Moldova and operate under the local banking legislation. Although the integrity of true bank ownership records is questionable, foreign investors’ share in Moldovan banks’ capital is approximately 78 percent of total capital or 93 percent of the market share, and includes such major foreign investors as OTP Bank (Hungary), Erste Bank (Austrian,) and Banca Transilvania (Romania).
As of December 31, 2018, total bank assets were MDL 83.2 billion (USD 5.0 billion and 90 percent of total assets in financial sector). Moldova’s three largest commercial banks account for more than 65 percent of the total bank assets, as follows: Moldova Agroindbank: 23.7 billion (USD 1.4.0 billion); Moldindconbank: MDL 16.5 billion (USD 981.0 million); and Victoriabank: MDL 14.4 billion (USD 854.0 million). In a bid to prevent another bank crisis, the NBM instituted the procedure of special monitoring of these top three banks over concerns about the transparency of bank shareholders. The monitoring has been lifted on all but Moldindconbank.
Over the years, the financial sector has suffered from a lack of transparency on ultimate beneficial ownership, illegal transactions that resulted in excessive large loans and related party loans, all factors contributing to a high rate of non-performing loans. Both regulating bodies, NCFM and NBM, were seen as having weak or underused enforcement powers, at times undercut by questionable court rulings. In response to this problem, the Moldovan Parliament adopted legislation that would strengthen the independence of decision making at the two regulating bodies. In order to strengthen the weak system of tracking shares and shareholders, authorities also put in place a law to set up the abovementioned Centralized Securities Depository, with USAID assistance, which applies to banks as well. In addition, all bank shares must be sold sold/purchased on the Moldovan Stock Exchange. These measures have improved to some extent the transparency and reliability of the financial sector.
NBM has been implementing reforms to banking laws and regulations, including a new banking law which came into effect on January 1, 2018 and a Bank Recovery and Resolution Law from 2016. Both bring the financial sector closer to harmonization with EU standards, including through the application of stronger risk-based supervision to banks, increased enforcement powers and monetary penalties applied to banks, structures to address problem banks, and strengthening the NBM’s ability to conduct risk assessments. The law will be phased in between 2018 and 2020 to provide an adjustment period. Also, NBM required banks to increase their credit loss provisioning and take urgent action to reinforce internal risk management as well as procedures on related-party financing. In addition to this, the NBM developed a methodology to better identify the related parties at banks.
Local authorities have not announced any intention to implement blockchain technologies in banking transactions. In 2017, the NBM warned domestic investors of the highly speculative nature of virtual currencies and their use as means of payment. Authorities in the breakaway region of Transnistria passed a law encouraging the use of blockchain technologies for mining cryptocurrencies in specially created economic zones; however, this development is not expected to have any direct impact on the Moldova’s overall financial sector.
Foreign Exchange and Remittances
Moldova accepted Article VIII of the IMF Charter in 1995, which required liberalization of foreign exchange operations. There are no restrictions on the conversion or transfer of funds associated with foreign investment in Moldova. After the payment of taxes, foreign investors are permitted to repatriate residual funds. Residual fund transfers are not subject to any other duties or taxes, and do not require special permission. The country’s central bank uses a floating exchange rate regime and intervenes only to smooth sharp fluctuations.
After a tumultuous period of inflation and devaluation of the 1990s, the local currency has entered a period of relative stability punctuated by periods of volatility and depreciation due to internal and external economic shocks.
Between late 2014 and early 2016, the national currency, the leu (plural lei), depreciated following challenges in the political environment, Russian bans on Moldovan food exports, and falling remittances from Russia, which impacted Moldova’s balance of payments. A massive banking fraud and a subsequent bailout program further undermined the leu, which depreciated by 36 percent. Since 2016, the National Bank has been pursuing a tight monetary policy that has contributed to a strengthening of the leu. In 2018, the national currency was relatively stable, but depreciated slightly toward the end of the year.
No significant delays in the remittances of investment returns have been reported. Domestic commercial banks have accounts in leading multinational banks, and foreign investors enjoy the right to repatriate their earnings.
The Moldovan leu is the only accepted legal tender in the retail and service sectors in Moldova. The foreign exchange regulation of the NBM allows foreigners and residents to use foreign currencies in some current and capital transactions on the territory of Moldova. Generally, there are no difficulties associated with the exchange of foreign or local currency in Moldova.
Sovereign Wealth Funds
The embassy is not aware of any sovereign wealth fund run by the government of Moldova.
7. State-Owned Enterprises
Since gaining independence in 1992, Moldova privatized most state-owned enterprises, and most sectors of the economy are almost entirely in private hands. However, the government still fully or partially controls some enterprises. The major government-owned enterprises are two northern electrical distribution companies, the Chisinau heating companies, fixed-line telephone operator Moldtelecom, the country’s largest tobacco company, and the state railway company. The government keeps a registry of state-owned assets, which is available on the website on the Public Property Agency https://app.gov.md/ro/advanced-page-type/registrul-patrimoniului-public .
State-owned enterprises (SOE) are governed by the law on stock companies and the law on state enterprises as well as a number of governmental decisions. SOEs have boards of directors usually made up of representatives of the line ministry, the Ministry of Economy and Infrastructure and the Ministry of Finance. As a rule, SOEs report to the respective ministries, with those registered as joint stock companies being required to make their financial reports public. Moldova does not incorporate references to the OECD Guidelines on Corporate Governance for SOEs in its normative acts.
Moldovan legislation does not formally discriminate between state-owned enterprises and private-run businesses. By law, governmental authorities must provide a level legal and economic playing field to all enterprises.
The Law on Entrepreneurship and Enterprises has a list of activities restricted solely to state enterprises, which includes, among others, human and animal medical research, manufacture of orders and medals, postal services (except express mail), sale and production of combat equipment and weapons, minting and real estate registration.
There are reports of state-owned enterprises having an advantage over privately-run businesses in Moldova. Either from government representatives sitting on their boards or from their dominant position in their industry, state-owned companies are generally seen as being better positioned to influence decision-makers than their private sector competitors, and in some cases have used this perceived competitive advantage to prevent open competition in their individual sectors.
Moldova launched the first of several waves of privatization in 1994. In 2007, Parliament passed a new law governing management and privatization of state-owned assets. Two major privatizations in 2013 – of the then-largest bank, Banca de Economii, and the 49-year concession of the Chisinau Airport – subsequently proved highly controversial. Privatization efforts in 2014 and 2015 emphasized public-private partnerships as means for companies to gain access to state-owned resources in infrastructure-related projects. In 2018, the government held several rounds of privatization for state assets selling its stake in 19 companies, including airline Air Moldova and gas interconnector Vestmoldtransgaz. The government intends to privatize state telephone company Moldtelecom and the northern power distribution companies RED Nord and FEE Nord.
Moldova conducts privatizations through open tenders organized at the stock exchange that are open to any interested investor. The government may also use open outcry auctions for some properties, the so-called investment or commercial tenders to sell entire companies to those who take on investment commitments or to the highest bidders as well as public private partnerships for infrastructure related projects. The government publishes privatization announcements on the website of the Public Property Agency www.app.gov.md and in the official journal Monitorul Oficial. Some investors complained in the past that privatizations are unfair and lack transparency.
8. Responsible Business Conduct
While Moldovan legislation deals with issues pertaining to environment, workers’ rights, social fairness or governance, there is little awareness of the concept of responsible business conduct. The country’s corporate culture and private sector are still at an early stage of development and still seeking to define the nature of interactions between private business and the authorities and the public at large. There is no governmental policy to encourage enterprises to follow OECD Guidelines for Multinational Enterprises.
Foreign companies operating in Moldova are gradually introducing the concept of corporate social responsibility as an aspect of responsible business conduct. However, the Soviet-era notion of a paternalistic government responsible for maintaining the social welfare for all citizens remains quite widespread. AmCham Moldova has set a leading example, with its corporate members engaging in a forestation project, in the rehabilitation of medical facilities, and in Christmas collection projects for orphanages.
While Moldova is taking steps to adopt European and international standards to combat corruption and organized crime, corruption remains a major problem.
The government developed and enacted a series of laws designed to address legislative gaps such as the Law on Preventing and Combating Corruption, the Law on Conflict of Interests and the Law on the Code of Conduct for Public Servants. The Criminal Code criminalizes public corruption through two specific statutes – passive and active corruption. These statutes apply only to corruption actions and bribery committed by public officials. In 2016, Moldova started the reform of the prosecution system and created two specialized prosecution agencies – The Anticorruption Prosecution Office and the Prosecution Office for Combating Organized Crime and Special Cases. In 2018, specialized prosecution offices continued to prosecute individuals allegedly involved in the “billion-dollar” banking theft and a series of high-profile bribery, corruption and tax evasion cases. However, these offices face multiple challenges, including lack of independent budgets and high workload. These specialized offices have yet to prove their full effectiveness in combating corruption and organized crime.
In 2016, Parliament passed the Law on the National Integrity Authority (NIA) and the Law on Disclosure of Assets and Conflict of Interest by public officials. According to these laws, the NIA replaced the former National Integrity Commission, with improved procedures and mechanisms put in place for disclosing assets, properties, and conflicts of interest by Moldovan public officials. The NIA will be staffed with 45 integrity inspectors and will have the power to apply fines on delinquent officials. The director and deputy director and all inspectors are hired in competitive processes, but the agency still has not hired a full complement of inspectors. Through 2017 and 2018, the National Integrity Council drafted regulations for the NIA’s functioning, appointment processes and position descriptions, and began filling positions. However, civil society organizations (CSOs) criticized the Council for being slow and non-transparent. After almost a year of deadlock and several failed attempts, the NIA director was selected and appointed in late December 2017. In 2018, NIA started its activities according to the new law, but it continues to lack staff and sufficient resources to fulfill its mission. The issuance of integrity certificates to individuals with well-known ties to the billion heist, has further hurt the organization’s reputation.
A 2012 law reorganized the Center for Combating Economic Crimes and Corruption (CCECC) into the National Anticorruption Center (NAC). The NAC focuses solely on investigating public corruption and bribery crimes, and is subordinated to the Parliament(CCECC had been organized under the executive branch). Moldovan judges, who had previously enjoyed full immunity from corruption investigations, can now be prosecuted for crimes of corruption without prior permission from their self-governing body, although the Superior Council of Magistrates still must approve any search or arrest warrant against a judge.
In 2018, the specialized Anticorruption Prosecution Office started recruitment procedures for seconding investigators to its office. According to the 2016 public prosecution reform law, these investigators are to support prosecutors to investigate complex corruption cases. However, even with a nearly-full complement of seconded investigators, this specialized office still relies on NAC’s investigative resources to conduct many corruption-related investigations and prosecutions. Also in 2018 a new agency, the Criminal Assets Recovery Agency, started its activities. Although created by statute, the Agency’s role is limited since it is administratively subordinated to the NAC as a specialized unit. The selection and appointment of the Agency’s leadership is coordinated through a competitive process by the NAC; in 2018, the Agency’s first director resigned, citing personal reasons. The agency remains understaffed and in need of resources and equipment to perform its duties effectively. The prosecutors refer criminal cases for recovering criminal proceeds, but due to limited capacity, the Agency is only able to detect and track proceeds – when it can at all – within Moldova.
On June 30, 2017, Moldova published its National Integrity and Anticorruption Strategy for 2017-2020. The Strategy was drafted and passed following public consultations. This strategy is structured along the “integrity pillars” concept that aims to strengthen the integrity climate among civil servants at all levels, but also includes a role for civil society organizations (CSOs) through alternative monitoring reports and promoting integrity standards in the private sector. The strategy also addresses the complexity of the corruption phenomenon in an innovative manner, by employing sector-based experts to evaluate specific integrity problems encountered by different vulnerable sectors of public administration.
Moldova’s Criminal Code includes articles on public and private sector corruption, combating economic crimes, criminal responsibility of public officials, active and passive corruption, and trading of influence, putting Moldovan law more in line with international anti-bribery standards by criminalizing the acts of promising, offering, or giving a bribe to a public official. Anti-corruption laws also extend culpability to family members. A new illicit enrichment law was added in 2013, but its potential as an effective anticorruption tool is severely constricted by the Constitutional Court’s interpretation of a provision of the Moldova Constitution creating a presumption in the law that assets possessed by a person were lawfully acquired. In 2017, the Anticorruption Prosecution Office started the only illicit enrichment case yet undertaken in Moldova, against a prominent chief judge involved in construction of private apartments. The criminal case remains unresolved, although the judge has since resigned from the judiciary.
Moldovan law requires private companies to establish internal codes of conduct that prohibit corruption and corrupt behavior. The Moldovan Criminal Code also criminalizes corruption and bribery in the private sector. In 2016, Parliament added two new statutes to the Criminal Code criminalizing the misuse of international assistance funds.
In 2012-13, implementing (in part) the government’s then-operative Justice Sector Reform Strategy, the Ministry of Justice drafted, and Parliament enacted, a series of amendments in the anti-corruption area. This package of anticorruption amendments included new legislation on “integrity testing” of justice sector officials disciplinary liability law for judges, and the introduction of extended confiscation and illicit enrichment statutes in the Moldovan Criminal Code as per the United Nations Convention against Corruption (UNCAC). The Constitutional Court subsequently constricted the use of integrity testing (excluding random testing as amounting to entrapment), but enactment of these reforms substantially augmented Moldova’s corruption-fighting toolkit.
Parliament passed a law in 2016 providing for a gradual increase of prosecutors’ salaries in the framework of broader prosecutorial reform.
The country has laws regulating conflicts of interest in awarding contracts and the government procurement process; however these laws are not assessed as widely or effectively enforced.
In 2018, the Anticorruption Prosecution Office prosecuted 5 judges, 3 prosecutors, 14 defense attorneys, and 44 law enforcement officials for corruption, bribery, and abuse of powers-related crimes.
Despite the established anti-corruption framework, the number of anti-corruption prosecutions has not met international expectations (given corruption perceptions), and enforcement of existing legislation is widely deemed insufficient. In 2018, Moldova ranked 117th among countries evaluated in the Transparency International Corruption Perception Index.
The Freedom House Moldova “Nations in Transit Report” 2018 concluded that the government has focused more on improving the legal framework and less on implementing it. The report found that anticorruption initiatives did not contribute to tackling endemic corruption or the de-politicization of public institutions and regulatory agencies. Public competitions have been mostly non-transparent and based on controversial regulations or political loyalty to, or membership in, the ruling political group, rather than on the grounds of merit. Also, the investigation into the “billion-dollar” banking sector theft has yielded few results: official data reported that by the end of 2018, only USD 100 million has been recovered – mainly from taxes, credits, and the sale of assets belonging to the three banks liquidated following the theft, and not by recovery of the stolen assets themselves. According to experts, there is no guarantee that the remaining funds will ever be recovered.
According to the 2019 Heritage Foundation’s Economic Freedom Index, Moldova’s economic freedom score was 59.1, making its economy 97th, better than Russia (98) and worse than Uganda (96). Its overall score has increased by 0.7 point, with improvements in judicial effectiveness, government spending, and fiscal health outweighing a decline in labor freedom. Regionally, Moldova is ranked 40th among 44 countries in Europe, and its overall score is below regional and world averages. In the rule of law area, Heritage indicated that the judicial sector remained weak and did not always fully guarantee the rights of citizens and of foreign investors.
A Transparency International Global Corruption Barometer (GCB) survey published in 2017 showed that 84 percent of Moldovans thought that the government was doing badly in fighting corruption. Globally, Moldova is among the top countries where people perceive public authorities to be most corrupt: almost seven in ten people say that people working in public sector institutions (the President’s office, Parliament, central government, tax inspection, police, the judiciary and local government) are highly corrupt. Almost 50 percent of Moldovans say they had to pay bribes over the past 12 months when coming in contact with public authorities. The latest GCB survey concluded that Moldova needs genuine and urgent measures to address the issue of corruption. Negative ratings of the government’s efforts to curb corruption suggest that more must be done to reduce public sector graft and clean up political institutions so that it acts in the interests of citizens rather than in its own interests.
Opinion surveys conducted by reputable pollsters like the International Republican Institute (IRI) consistently show that over 95 percent of Moldovans see corruption as a big problem for the country. Moldovans name the top corrupt institutions as: 1) Parliament; 2) public servants, including the police; 3) the judiciary; 4) top government officials; 5) political parties and their leaders.
The Embassy has received reports from foreign investors of serious problems with corruption and bribery. For example, when a foreign investor discovered that he had underpaid his taxes and wished to remedy the situation, the tax inspector assigned to the company attempted to extort money. The tax service later lauded the investor for his self-reporting and negotiated a reduced payment.
The Embassyt has also received reports of “informal” hostile takeovers of profitable businesses. In these cases, business owners were approached by politically-connected individuals who wished to acquire part of the businesses. When business owners refused, they were pressured to close.
In 2007, Moldova ratified the United Nations Convention against Corruption, subsequently adopting amendments to its domestic anti-corruption legislation.
Moldova is not a signatory of the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery. However, Moldova is part of two regional anti-corruption initiatives: the Stability Pact Anti-Corruption Initiative for South East Europe (SPAI) and the Group of States against Corruption (GRECO) of the Council of Europe. Moldova cooperates closely with the OECD through SPAI and with GRECO, especially on country evaluations. In 1999, Moldova signed the Council of Europe’s Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Moldova ratified both conventions in 2003.
Resources to Report Corruption
National Anti-Corruption Center
Bul. Stefan cel Mare si Sfant 168, Chisinau MD2004, Moldova
Tel. +373 22-257 257 (secretariat)/800-55555 (hotline)/22-257 333 (special line)
Transparency International Moldova
Strada 31August 1989 nr. 98, of.205, Chisinau MD2004, Moldova
Tel. +373-22 203-484(office)/800-10 000 (hotline)
10. Political and Security Environment
Levels of street crime and other types of violent crime are equal or lower in Moldova than in neighboring countries and businesses typically only employ the most basic security procedures to safeguard their personnel. Moldova has not had any significant instances of transnational terrorism. While there have been occasional instances of political violence in the past decade, these cases have typically been directed against Moldovan state institutions and have not generally impacted the international business community in Moldova. There have been no significant instances of political violence in the last four years and all recent large demonstrations have been peaceful.
The Embassy has received no reports over the past ten years of politically-motivated damage to business projects or installations in Moldova. In 2015 and early 2016, there was public outcry over the political class’ failure to prevent (or even facilitate) massive bank fraud where nearly 15 percent of GDP disappeared from the country’s then-three largest banks. Round-the-clock anti-government protests culminated in January 2016 in clashes with riot police when protesters tried to prevent Parliament from voting in a new government. The clashes were limited and did not turn into full-blown violence or cause extensive damage that would affect businesses in any way and the government remained in power.
In 2018, several large protests took place in response to the invalidation of Chisinau mayoral elections. The protests did not spill into politically-motivated violence or civil disturbance.
Separatists control the Transnistria region of Moldova, located between the Nistru River and the eastern border with Ukraine. Although a brief armed conflict took place in 1991-1992, both sides signed a ceasefire in July 1992. Local authorities in Transnistria maintain a separate monetary unit, the Transnistrian ruble (approximately 16.10 rubles per U.S. dollar), and a separate customs system. Despite the political separation, economic cooperation takes place in various sectors. The government has implemented measures requiring businesses in Transnistria to register with Moldovan authorities. The Organization for Security and Cooperation in Europe (OSCE), with Russia, and Ukraine acting as guarantors/mediators and the United States and EU as observers, continues to support negotiations between Moldova and the separatist region Transnistria (known as the “5+2” format). Throughout the years, negotiations have been piecemeal, with talks stalling in 2006 and formally resuming in late November 2011. An important achievement of the talks in the past few years has been the resumption of rail freight traffic through Transnistria, the opening of a bridge across the Nistru river, Transnistrian-registered vehicles gaining access to international traffic, issuance of Moldovan apostilles on Transnistrian-issued higher education diplomas, and operation of Latin Script schools in Transnistria.
11. Labor Policies and Practices
For years, Moldova prided itself on its skilled labor force, including numerous workers with specialized and technical skills. However, many skilled workers have left Moldova for better paying jobs in other countries. This has led to shortages of skilled workers in Moldova. There are imbalances in the labor market arising from a general lack of workers with vocational training that employers need on one hand, and lack of job opportunities for academically educated people on the other. Labor shortages are reported in manufacturing and engineering, and IT. Low birth rates, emigration, and an aging population represent a challenge to Moldova’s labor pool.
Official unemployment was 3.0 percent in 2018, which is misleading given the low labor participation rate of 43.3 percent, owing to large numbers of Moldovans migrating abroad, which reduces the number of job seekers at home. Youth unemployment is more than double the national average at 7.4 percent. Employment in Moldova is largely based on agriculture, low productivity sectors, and crafts. Approximately one third of the working population is employed in the informal economy. Around a fifth of the labor force works abroad (around 800,000). According to World Bank population projections, if current emigration trends continue, Moldova will lose another 20 percent of its population by 2050.
Moldova’s Constitution guarantees the right to establish or join a trade union. Trade unions have influence in the large and mostly state-owned enterprises and have historically negotiated for strong labor relations, minimum wage, and basic worker rights. Unions also have a say in negotiating collective labor agreements in various industries. Unions are less active and effective in small private companies. Moldova is a signatory to numerous conventions on the protection of workers’ rights. The country has moved toward adopting international standards in labor laws and regulations. In recent years, the government made changes to labor legislation in favor of employers and somewhat reducing from unions’ say on related to hiring and firing personnel. Nevertheless, labor legislation is stringent in matters dealing with severance payments or maternity leave – regulations that some foreign investors view as an impediment to labor flexibility and as putting a heavy burden on employers.
The government is drafting a new Labor Code to meet its EU Association Agreement obligations and modernize the labor market, with a focus on skills development and vocational education training reform.
The Moldovan General Federation of Trade Unions has been a member of the ILO since 1992, and has been affiliated with the International Confederation of Free Unions (ICFU) since 1997. The Federation split into two separate unions in 2000, but merged in 2007, forming the National Trade Union Confederation (CNSM), which was given membership in the International Trade Union Confederation in 2010.
12. OPIC and Other Investment Insurance Programs
In 1992, the Moldovan and U.S. governments signed an investment incentive agreement that exempts OPIC from Moldovan taxes on loan interest and fees. OPIC became active in Moldova in September 1997, providing political-risk insurance to a U.S. company investing in agribusiness. Since then, OPIC has provided a number of financial and insurance products to U.S. businesses operating in Moldova in such fields as agribusiness, telecommunications, banking, consulting, transportation logistics, and finance.
The U.S. Export-Import Bank (Ex-Im) provides U.S. companies investing in Moldova short- and medium-term financing in the private sector under its insurance, loan, and guarantee programs. In 2000, Ex-Im and Moldova signed a Framework Guarantee Agreement setting the terms for it to issue sovereign guarantees to facilitate Ex-Im financing of U.S. exports to Moldova. Also in 2000, Ex-Im and Moldova signed a Project Incentive Agreement that enabled the Ex-Im to finance U.S. exports for creditworthy private sector projects in Moldova on a non-sovereign risk basis which required host-government support such as permit and license approvals. Under the agreement, repayment of Ex-Im financing is based on the capture of financed projects’ revenue streams in special escrow accounts held in banks approved by Ex-Im.
In 2002, Ex-Im signed a memorandum of cooperation with the Black Sea Trade and Development Bank. Under the memorandum, Ex-Im’s financing can be used to support exports of U.S. goods and services to any country located in the Black Sea region, including Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The agreement enables the Black Sea Trade Development Bank to act as a guarantor of specific transactions and also provides for parallel financing arrangements.
Moldova is eligible for U.S. Trade and Development Agency (USTDA) funding for feasibility studies, orientation visits, specialized training grants, business workshops and other forms of technical assistance with U.S. export potential.
Institutions such as the European Bank for Reconstruction and Development and the World Bank are very active in Moldova in both the private and public sectors, offering various financial tools for both insurance and credit. Moldova is a member of the Multilateral Investment Guarantee Agency (MIGA) and a member of the World Bank Group. MIGA promotes foreign direct investment into developing countries by insuring investors against political risk, advising governments on attracting investment, sharing information through on-line investment information services, and mediating disputes between investors and governments. Moldova is also eligible for project and trade financing from the Black Sea Trade and Development Bank. The country also benefits from loans extended by the EU’s European Investment Bank and the Council of Europe Development Bank.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical
|USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||$9,600||2017||$8,128||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2018||$74.2||2017||$24.0||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||N/A||N/A||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2016||44.1%||2017||49.2%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
* National Bureau of Statistics and National Bank of Moldova are the primary source of the information. The FDI figure is preliminary.
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$3,324||100%||Total Outward||N/A||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Note: Moldova does not submit data for the IMF’s Coordinated Portfolio Investment Survey (CPIS). However, according to the National Bank of Moldova, the preliminary figure for total portfolio investment in 2018 amounted to USD 50.5 million. A breakdown by country for all portfolio investments is not available, but among the top five sources of investment in the banking sector were the United Kingdom, Cyprus, Russia, and Liechtenstein.
14. Contact for More Information
U.S. Embassy Chisinau, Moldova
Str. Alexei Mateevici 103,
Chisinau MD 2009, Moldova
Main switchboard +373 (22) 40 83 00
Fax: +373 (22) 23 30 74/40 84 10