Identifier
Created
Classification
Origin
10CHISINAU21
2010-01-15 10:29:00
UNCLASSIFIED
Embassy Chisinau
Cable title:  

MOLDOVA'S 2010 INVESTMENT CLIMATE

Tags:  EINV EFIN ETRD PGOV KTDB OPIC USTR MD 
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VZCZCXRO9329
RR RUEHIK
DE RUEHCH #0021/01 0151029
ZNR UUUUU ZZH
R 151029Z JAN 10 ZDK
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 8755
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUCPCIM/CIM NTDB WASHINGTON DC
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS SECTION 01 OF 19 CHISINAU 000021 

STATE FOR EB/IFD/OIA AND EUR/UMB
BUCHAREST AND KYIV FOR FCS
KYIV FOR FAS
STATE PASS OPIC
STATE PLEASE PASS TO USTR

SIPDIS

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV KTDB OPIC USTR MD
SUBJECT: MOLDOVA'S 2010 INVESTMENT CLIMATE
STATEMENT

REF: 09 STATE 124006

CHISINAU 00000021 001.8 OF 019


UNCLAS SECTION 01 OF 19 CHISINAU 000021

STATE FOR EB/IFD/OIA AND EUR/UMB
BUCHAREST AND KYIV FOR FCS
KYIV FOR FAS
STATE PASS OPIC
STATE PLEASE PASS TO USTR

SIPDIS

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV KTDB OPIC USTR MD
SUBJECT: MOLDOVA'S 2010 INVESTMENT CLIMATE
STATEMENT

REF: 09 STATE 124006

CHISINAU 00000021 001.8 OF 019



1. Embassy Chisinau submits the 2010 Investment
Climate Statement in response to reftel:

A.1. Openness to Foreign Investment
--------------


2. Moldova continues to take steps toward
developing a stronger economy, reforming a
cumbersome regulatory framework, combating
corruption, and adopting reforms aimed at
improving the business climate. A new Government
of Moldova (GOM) assumed office on September 25,
2009, and has publicly committed itself to a
reform agenda and European orientation. After a
prolonged recession in the 1990s, GDP grew for
seven straight years and inflation decreased
between 2002 and 2008. In 2009, like most
countries in the region, Moldova was severely
affected by the global economic recession. GDP
decreased by approximately nine percent for 2009.
Moldova, which is consistently ranked the poorest
country in Europe, relies heavily on investments,
foreign trade, and remittances sent by Moldovans
working abroad, for economic growth. Recent years
saw an increase in foreign direct investment (FDI)
as investors took advantage of the eastward
expansion of the European Union (EU),which now
borders Moldova following the January 1, 2007,
accession of Romania. The global crisis took its
toll on FDI, which fell more than 50 percent in

2009. Though remittances dropped sharply in 2009
following the global crisis, they still equaled
approximately one third of GDP. Over the past
five years the GOM has made efforts to tackle some
obstacles to investment, such as corruption and
red tape. Furthermore, Moldova has declared
European integration a strategic objective. The
country had an Action Plan with the EU that set
out a roadmap for democratic and economic reforms
and the harmonization of Moldovan laws and
regulations with European standards. The Action
Plan expired in February 2008 and Moldova is set

to start negotiations with the EU on an
Association Agreement in January 2010.


3. As a country with a small market, Moldova
benefits from liberalized trade and investment and
wants to promote the export of its goods and
services. Moldova has been a member of the WTO
since 2001 and has signed free trade agreements
with countries of the former Soviet Union (CIS)
and southeast Europe. In December 2006, Moldova
joined the Central European Free Trade agreement.
Moldova benefits from an extended generalized
system of preferences (GSP-plus) with the EU, and
starting in March 2008 the EU unilaterally granted
Moldova autonomous trade preferences, which
expanded the duty-free access of Moldovan goods to
EU markets. Moldova also seeks to further deepen
its preferential trade arrangements with European
Union in the negotiation of a deep and
comprehensive Free Trade Agreement.


4. The GOM has created an adequate legal base,
including favorable tax treatment for investors.
Under Moldovan law, foreign companies enjoy the
same treatment as local companies (national
treatment principle). The GOM views investments
as vital for sustainable economic growth and
poverty reduction. However, the amount of FDI is
far below the country's needs.


5. After years of low FDI caused by a weak
business climate, FDI inflows steadily increased
from 2004 to 2008. According to the National Bank
of Moldova, FDI inflows in 2007 amounted to USD
611.85 million and in 2008 FDI totals were USD
868.31 million. In the first nine months of 2009
FDI dropped to USD 231.06 million. Recent years
have seen large investments by Germany's Metro
Cash & Carry, Germany's Draexlmaier, France's

CHISINAU 00000021 002.8 OF 019


Societe Generale, Austria's Grawe insurance
company, Austria's Raiffeisen Investment, the
Netherlands' Easeur Holding B.V., Italy's Veneto
Banca, the U.S. investment fund NCH Capital and
the U.S. equity fund Horizon Capital. American
investments in Moldova are primarily in the wine
and food industry, cosmetics, telecommunications,
banking and real estate.


6. Despite the GOM's efforts to lower tax rates,
strengthen tax administration, increase
transparency and simplify business regulations,
decision-making remains sometimes opaque and the
application of regulations inconsistent. On
occasion, government officials have interfered in
business decisions in favor of a protected
individual, used governmental powers to pressure
businesses for personal or political gain, and
selectively applied regulations. Since the
judicial system remains weak, recourse to the
courts does not guarantee citizens and foreign
investors an impartial ruling on alleged
governmental misdeeds.


7. In May 2004, the GOM approved the Economic
Growth and Poverty Reduction Strategy (EGPRS),
which established a policy framework for Moldova's
sustainable development in the medium term from
2004 to 2006. In 2006, the GOM extended the EGPRS
to 2007. Both the World Bank and the
International Monetary Fund (IMF) supported the
implementation of the EGPRS. Together with the
EU-Moldova Action Plan signed in February 2005 and
subsequent GOM programs, the EGPRS guided
Moldova's economic development in recent years.
Starting in 2008, the GOM consolidated its
development strategies into an umbrella document -
the National Development Plan (NDP) Q which
prioritizes the GOM's policies for 2008-2011.
Seeking to improve living standards, the NDP is
based on five basic pillars: consolidation of the
rule of law, Transnistrian conflict resolution,
competitiveness enhancement, human development,
and regional development.


8. Attracting FDI is critical to enhancing the
economy's competitiveness. In 2006, after a five-
year intermission, the GOM resumed relations with
the IMF by signing a Memorandum of Economic and
Financial Policies that included criteria for the
improvement of macroeconomic indicators,
infrastructure development and better state
property management. The memorandum expired in
June 2009 and the Communist-led GOM was unwilling
to negotiate a new agreement with conditions
calling for salary freezes and other unpopular
measures shortly before parliamentary elections on
July 29, 2009. The new GOM has negotiated a new
agreement with the IMF and is awaiting IMF board
approval in January 2010. In 2007, Moldova
received USD 24.7 million funding from the
Millennium Challenge Corporation (MCC) for a
Threshold Country Program which focused on
supporting Moldova's anti-corruption efforts. In
January 2010, the GOM will sign an MCC Compact for
USD 262 million. The Compact will fund two
projects, one for road rehabilitation and the
other for the transition to high value agriculture
by rehabilitating central irrigation systems,
providing technical assistance and providing
access to financing for farmers. The MCC compact
targets poverty reduction through economic growth.


9. The GOM launched the first privatization
process in 1994. It has adopted three different
privatization programs since that time, including
privatization via National Patrimonial Bonds
(foreigners were not allowed to participate); via
cash transactions for both locals and foreigners;
and via a program which involved only cash
privatization. The third program began in 1997-
1998 and was extended to 1999-2000. The program
was later extended with some modifications to the

CHISINAU 00000021 003.8 OF 019


end of 2006. Foreign investors have successfully
participated in these privatizations. In 2007,
Parliament passed a new privatization law which
introduced a new plan for privatizing and managing
state-owned assets with a focus on economic
efficiency. The law has a list of assets,
connected to the security of the state, which are
not subject to privatization. The GOM also
adopted regulations on the privatization of state-
owned non-agricultural land through commercial
tenders. The GOM has approved a list of assets
subject to privatization.


10. 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. It rules out discriminatory measures
hindering the 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. In recent years, the
GOM made significant efforts to streamline
business registration. In the business
registration procedure, the GOM simplified
document submissions by implementing a "one
window" approach. This process reduced the number
of documents and days necessary for business
registration. Limited on-line business-
registration services were introduced in 2006 and

2007. In the business licensing procedure, the
government simplified the process in 2002 by
establishing one authority in charge of business
licensing -- the Licensing Chamber -- and by
reducing the number of business activities that
require licensing. The GOM plans to streamline
the permit process for entrepreneurial activity
and introduce elements of the "one-window"
approach in the activities of public authorities,
including their electronic interconnection to
facilitate the exchange of electronic data.


11. Rankings for Moldova:

Measure Year Index/Ranking

TI Corruption Index 2009 89 of
180
Heritage Economic Freedom 2009 120 of
183
World Bank Doing Business 2010 94 of
183


12. Moldova receives an annual scorecard from MCC
assessing its performance in 17 indicators in the
three policy categories of Ruling Justly,
Investing in People, and Economic Freedom. Under
the name of each indicator is the Moldova's score
and percentile ranking in its income peer group
(0% is worst; 50% is the median; 100% is best).
Under each percentile ranking is the peer group
median. Country performance is evaluated relative
to the peer group median. Scores above the median
meet the MCC required performance standard for
eligibility for MCC programs. Scores at or below
the median do not meet the performance standard.

Measure Year Index/Ranking

MCC Government Effectiveness 2010 0.03 (58%)
(Median 0.00)
MCC Rule of Law 2010 0.43 (81%)
(Median 0.00)
MCC Control of Corruption 2010 0.13
(63%) (Median 0.00)
MCC Fiscal Policy 2010 -0.4 (61%)
(Median -1.4)
MCC Trade Policy 2010 79.9 (92%)
(Median 67.9)
MCC Regulatory Quality 2010 0.43 (92%)

CHISINAU 00000021 004.2 OF 019


(Median 0.00)
MCC Business Start Up 2010 0.986 (93%)
(Median 0.918)
MCC Land Rights Access 2010 0.952 (98%)
(Median 0.612)
MCC Natural Resource Mgmt 2010 69.49
(70%) (Median 61.61)

A.2. Conversion and Transfer Policies
--------------


13. Moldova accepted Article VIII of the IMF
Charter in 1995, which required liberalization of
current 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-funds transfers are not subject
to any other duties or taxes, and do not require
special permission. There are no significant
delays in the remittances of investment returns,
since domestic commercial banks have accounts in
leading multinational banks. Foreign investors
enjoy the right to repatriate their earnings.


14. Generally, there are no difficulties
associated with the exchange of foreign or local
currency in Moldova. However, shortages of
Moldovan currency do occur in exchange offices,
usually at times of sharp exchange rate
fluctuations. While the local currency, the
Moldovan Leu (plural, Lei) (MDL),has been
generally stable, its exchange rate has proven
volatile in the face of external shocks. After
several years of appreciation owing to the
weakness of the U.S. dollar, a massive surge in
remittances and changes in monetary policies, the
trend reversed in 2009 as a result of the fallout
from the global crisis coupled with the
uncertainties of an electoral year. The MDL
started the year at 10.4 to one U.S. dollar and
finished it off at 12.20.


15. The U.S. Embassy has no information on
complaints from U.S. investors regarding
converting or remitting funds associated with
investments in Moldova.

A.3. Expropriation and Compensation
--------------


16. The Law on Investment in Entrepreneurship
states that investments cannot be subject to
expropriation or to measures with a similar
effect. An investment may be expropriated only if
all three of the following conditions are present:
the expropriation is done for purposes of public
utility, is not discriminatory, and is done with
just and preliminary compensation. If a public
authority violates an investor's rights, the
investor is entitled to reparation of damages.
The compensation will be equivalent to the real
extent of the damage at the time of occurrence.
The public authorities concerned will pay
compensation for any damage caused, including any
lost profits. Compensation must be paid in the
currency in which the original investment was made
or in any other convertible currency, if the
investment was made in a convertible currency.


17. The government has given no evidence 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. The new government
that took power on September 25, 2009 has
mentioned plans to review privatizations that took
place under the Communist-led government. No
particular sectors are at greater risk of
expropriation or similar actions in Moldova.


18. Moldovan law restricts the right to purchase

CHISINAU 00000021 005.2 OF 019


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. Moldovan-registered companies
with foreign capital are known to own agricultural
land, by means of loopholes in the previous law.
In the past, the limit on foreign ownership of
agricultural land was used in lawsuits as an
argument against foreign companies. The only
straightforward option available to foreigners who
wish to use agricultural land in Moldova at this
time is to rent agricultural land.


19. Since 2001, the GOM 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, payment of compensations was delayed.
Often, investors have had to apply to the European
Court of Human Rights (ECHR) to enforce payment o
compensation from the Moldovan government. The
GOM has been compliant with the ECHR rulings
ivolving foreign businesses.


20. Investors shoud be aware that Moldovan
territory east of the Nstru (Dniester) River is
under the control of a sparatist regime that does
not recognize the soveeignty of the legitimate
Moldovan authorities inChisinau. These
separatists have declared a sel-proclaimed
"Dniester Moldovan Republic," commony known as
"Transnistria." The U.S. Embassy advises any
potential investors that it is limited in its
ability to provide any assistance, including
consular and commercial services, in areas east of
the Nistru River. Also, the GOM has indicated
that it will not recognize the validity of
contracts for the privatization of firms in
Transnistria that are concluded without the
approval of the appropriate Moldovan authorities.
In March 2006, Ukraine imposed new customs
regulations under which Transnistrian companies
seeking to engage in cross-border trade had to
register in Chisinau. Despite initial protests by
the local regime, most of Transnistria's large
companies subsequently registered with Moldovan
authorities.


21. In 2000, a U.S. company claimed that it
exported packing equipment and other capital goods
to a privatized Transnistrian factory, only to be
forced out later by the local factory manager
working in collusion with local authorities. The
company's representatives reported that they had
been harassed by Transnistrian authorities until
they decided that the safety of their company's
employees could not be guaranteed and the company
decided to pull out.

A.4. Dispute Settlement
--------------


22. Moldova has a record of disputes over past
privatizations involving foreign investors. Party
of Communists (PCRM) officials, when in opposition
prior to 2001, were critical of what they regarded
as "sweet-heart deals" in many privatizations.
Consequently, once in power, the first government
appointed by the PCRM in 2001 increased its
scrutiny of the privatization process, including
previously concluded contracts. The GOM cancelled
some privatizations because of alleged
irregularities in the privatization procedures or
the failure of investors to meet an investment
timetable. In order to ensure the predictability

CHISINAU 00000021 006.2 OF 019


and credibility of the government's privatization
policy, the previous GOM has attempted to
introduce a statute of limitations of three years
on the investigation of privatization files.
There have been reports in recent years from
companies that they had become politically
motivated targets of investigations by the Center
for Combating Economic Crimes and Corruption
(CCECC),while others complained of bureaucratic
red tape or arbitrary decisions made by government
agencies, and police or tax authorities.


23. As a result of negotiations connected with
Moldova's accession to the WTO, 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. In recent years the previous GOM took
opaque measures, which violated WTO commitments,
to protect domestic producers from foreign
competitors. For example, the previous Communist-
led GOM introduced an environmental tax on bottles
and other packaging of imported goods while not
taxing bottles and packaging produced in Moldova.
The Embassy has also received reports of targeted
actions by politically-connected individuals
against profitable businesses. These measures
include abusive inspections and opaque
administrative sanctions. Major foreign investors
have also complained about the government's lack
of willingness to engage in constructive dialogue
on important issues affecting the business
community.


24. In 2003, the government restructured the
judiciary by eliminating the lower-tier of
appellate courts (called tribunals) and the Higher
Court of Appeals. The judiciary now consists of
lower courts (i.e., trial courts),five courts of
appeals, and the Supreme Court of Justice.
Moreover, a separate layer of courts covering the
judicial settlement of economic/trade-related
litigations was created. This quasi-separate
court system consists of the District Economic
Court as a trial court, the Economic Court of
Appeals, and the Supreme Court of Justice, whose
jurisdiction includes the adjudication of economic
litigations. Courts are nominally independent
from government interference. However, the
Ministry of Justice controls their administration
and budget, and reports of interference in law
suits by influential figures are commonplace. In
January 2008, a new department was created under
the Ministry of Justice - the Judicial
Administration Department Q which deals with all
judiciary-related administrative and financial
matters. Moldovan courts suffer from low levels
of efficiency, independence and citizen trust. In
2008, several lawyers representing Moldovan
nationals at the European Court of Human Rights
claimed that some judges were loyal to the
Communist-led government and that government
officials influenced their decisions.


25. The GOM accepts binding international
arbitration of investment disputes between foreign
investors and the state. By law, investment
disputes can be solved through Moldovan courts or
arbitration. In the event of ad hoc arbitration,
the law requires compliance with the United
Nations Commission on International Trade Law
(UNCITRAL) rules, arbitration rules of the Paris
International Chamber of Commerce (ICC) of January
1, 1998, and other rules, principles and norms
agreed upon by the parties.


26. Moldova is a signatory to the Convention on
the International Center for the Settlement of
Investment Disputes (ICSID - Washington
Convention) and the New York Convention of 1958 on
the Recognition and Enforcement of Foreign

CHISINAU 00000021 007.2 OF 019


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. Moldova has
also ratified various trade agreements
establishing bilateral investment protection with
35 countries, including with the United States.
Moldova enjoys normal trade relations with the
United States.

A.5. Performance Requirements/Incentives
--------------


27. Any incentives are applied uniformly to both
domestic and foreign investors. Unlike its
predecessor, the Law on Investment in
Entrepreneurship, in effect since 2004, no longer
protects new investors from legislative changes
for ten years. However, the new law left in
effect past privileges and guarantees granted to
foreign investors under the old Law on Foreign
Investment. One such privilege provides for
exemptions from customs duties on imports until
April 23, 2014, if the imports are used to
manufacture goods bound for export.


28. Effective January 1, 2008, a zero percent
income tax rate on re-invested corporate profits
entered into force as part of a GOM initiative of
"economic liberalization." The new GOM has
promised to do away with the zero percent income
tax rate on re-invested corporate profits in 2013.
The current Moldovan Tax Code also provides for a
series of corporate income tax breaks. Many of
these tax breaks were rendered redundant when the
new zero tax rate was introduced.


29. Companies with investments of more than USD
250,000 in charter capital enjoy a 50 percent
exemption from income tax for five consecutive
years. Companies with investments exceeding USD 2
million in charter capital enjoy full exemption
from income tax for three consecutive years.
Companies are eligible for such exemptions, if at
least 80 percent of their income-tax payments were
reinvested in production development or in
national or sectoral development programs. For a
minimum investment of USD 5 million, a company is
exempt for three years from income-tax payments,
if it reinvests locally 50 percent of what it
would otherwise have paid in income tax. A USD 10
million investment requires only 25 percent
reinvestment of income-tax payment for a full
three-year exemption from income tax. Four-year
exemptions are available for USD 20 million
investments with 10 percent reinvestment and USD
50 million investment with zero percent
reinvestment. Furthermore, upon expiration of
these exemptions, eligible companies investing an
additional USD 10 million can enjoy tax exemptions
for an extra three-year period. Also, fixed
assets contributed in-kind to the charter capital
are exempted from the value-added tax and customs
duties. Full income tax exemptions may also be
enjoyed by small businesses (three years),
software developers (five years),agribusiness
(five years),and scientific research and
innovations (unspecified). Commercial banks and
microfinance organizations are tax exempt on
income derived from loans with maturities over
three years. Other tax exemptions and deductions
are also available according to the Tax Code. The
loss carry-forward period was raised from three to
five years.


30. No formal requirements exist for investors to
purchase from local sources or to export a certain
percentage of their output. Informally, however,
such requirements, often decided in an arbitrary
and non-transparent basis, have been imposed by
Moldovan authorities in some industries.

CHISINAU 00000021 008.2 OF 019




31. 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.


32. While this is not official policy, in
strategic sectors of the economy, such as energy
and telecommunications, the GOM has always
preferred to have experienced foreign investors
instead of local investors. In all other sectors,
foreign and local investors are nominally treated
the same.


33. 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.


34. Enforcement procedures for performance
requirements to enjoy tax incentives are described
in the Tax Code and related governmental decisions
and Ministry of Finance instructions.
Foreign investors are required to disclose the
same information as local ones. Moldova has no
discriminatory visa, residence, or work-permit
requirements inhibiting foreign investors'
mobility in Moldova. However, the government
administers a quota system limiting the number of
available residence permits. The Embassy has
received complaints in the past that the issuance
process for work and residence permits is
unnecessarily complicated and seemingly arbitrary.


35. Moldova has commercial relations with over
100 countries. It has a liberal commercial
regime. According to the Tax Code, Moldovan
exports are exempt from value added tax. Although
there are no formal import-price controls, some
businesses have complained about arbitrary price
assessments on imported goods by the Moldovan
Customs Service.

A.6. Right to Private Ownership and Establishment
-------------- --------------


36. The Constitution of the Republic of Moldova
guarantees the inviolability of investments by all
natural and legal entities, including foreigners.
Key constitutional principles include the
supremacy of international law, a market economy,
private property, provisions against unjust
expropriation, provisions against confiscation of
property, and separation of powers among
government branches. The Constitution provides
for an independent judiciary; however, government
interference and corruption remain problems in the
application of laws and regulations and in the
impartiality of the courts.


37. Current investment legislation is based on
nondiscrimination between foreign and local
investors. Moldovan law ensures full and
permanent security and protection of all
investments, regardless of their form, although
application of the law remains spotty. There are
no economic or industrial strategies that have a
discriminatory effect on foreign-owned investors
in Moldova, and no limits on foreign ownership or
control, except in the right to purchase and sell
agricultural and forest land, which is restricted
to Moldovan citizens.


38. International treaties and Moldovan law
regulate business activity, including foreign
investments. Such laws include, but are not
limited to, the Civil Code, the Law on Property,
the Law on Investment in Entrepreneurship, the Law

CHISINAU 00000021 009.2 OF 019


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.


39. The current Law on Investment in
Entrepreneurship came into effect on April 23,

2004. It was designed to be compatible with
European legislative standards and defines types
of local and foreign investment. It also provides
guarantees for the respect of investors' rights,
non-application of expropriation or actions
similar to expropriation, and for payment of
damages in the event investors' rights are
violated. The law permits investment in all
sectors of the economy, while certain activities
require a business license.


40. There is no screening of foreign investment
in Moldova and legislation permits 100 percent
foreign ownership in companies. By statute,
special forms of legal organizations and certain
activities require a minimum of capital to be
invested (e.g., Moldovan Lei (MDL) 5,400 (USD 450)
for limited liability companies, MDL 20,000 (USD
1,650) for joint stock companies, MDL 15 million
(USD 1.23 million) for insurance companies and MDL
50 million (USD 4.1 million) for banks. The
current rate of exchange is 12.20 MDL per USD.

A.7. Protection of Property Rights
--------------


41. The legal system protects and facilitates the
acquisition and disposition of all property
rights. Moldova has adopted laws on property and
on mortgages. A system for recording property
titles and mortgages is in place; however, the
mortgage market is still underdeveloped.


42. Moldova adheres to key international
agreements on intellectual property rights.
Moldova is a signatory to the International
Convention Establishing the World Intellectual
Property Organization. However, the Business
Software Alliance consistently ranks Moldova among
the top ten offenders for the use of unlicensed
software in government agencies.


43. Moldova took measures to implement and
enforce the WTO TRIPS agreement before its
official accession to the WTO, and adopted local
laws to protect intellectual property, patents,
copyrights, trademarks and trade secrets. The
country has an agency for the protection of
copyright, the State Agency for Intellectual
Property. Although many basic policies are in
place and meet international standards in the
field, enforcement is sporadic. Also, Moldova
still needs to implement changes to its Criminal
Code to strengthen copyright protection.

A.8. Transparency of the Regulatory System
--------------


44. Bureaucratic procedures are not always
transparent and red tape often makes processing
registrations, ownership, etc. unnecessarily long,
costly and burdensome. Discretionary decisions by
state functionaries provide room for corruption.
The GOM has taken measures to fight corruption
with the implementation of the "guillotine law" in
2004, which eliminated costly and obsolete
regulations and forced the publication of all
business-related regulations. All regulations and
governmental decisions related to business
activity have been published in a special business
registry. These steps were intended to raise the
awareness of business people about their rights,
increase the transparency of business regulations,
and help fight corruption. A second "guillotine

CHISINAU 00000021 010.2 OF 019


law," the Law on Basic Principles Regulating
Entrepreneurial Activity, was enacted in August

2007. The GOM started applying a Regulatory
Impact Assessment to all draft laws and acts
bearing on business activity to enhance
transparency in the drafting of laws and
regulatory acts. The GOM vetted 100 laws with the
goal of reducing payments to regulatory and
control bodies and streamlining business-licensing
procedures and economic-financial controls.


45. The legal framework for anti-monopoly
regulation is the Law on Protection of
Competition. The law establishes the fundamental
principles, based on EU standards, for regulating
the activity of enterprises with a de facto
monopoly and for support and development of
competition. After several years of delay, the
government established a National Competition
Agency in 2007. However, the agency's targeted
actions against major foreign investors right at
its outset drew accusations of abuse, lack of
experience, and flawed antitrust legislation.
While the GOM has taken note of the business
community's complaints, it has not taken action to
change the law.


46. The government took measures to streamline
business registration with the implementation of a
"one-window" approach in 2004. Despite the
creation of a Licensing Chamber and a significant
reduction in the number of regulated business
activities requiring licensing, businesses must
still provide a great deal of supporting
documentation to receive a license. The GOM has
made progress in simplifying registration
procedures during the startup stage, but still has
a long way to go to ease day-to-day business
activity and simplify regulation of foreign trade
transactions, business licensing, and lending.


47. The government usually publishes significant
laws in draft form for public comment. Business
fora and trade associations represent other
opportunities for comment. The working group of
the State Commission for Regulation of
Entrepreneurial Activity, which was established as
a filter to eliminate excessive business
regulations, meets weekly to vet draft
governmental regulations dealing with
entrepreneurship. The working group's meetings
are open to interested businesses. The Foreign
Investors Association (FIA) was established in
2004 with the support of the OECD. The FIA
engages in a dialogue with the GOM on topics
related to the investment climate and publishes an
annual White Book of concerns and recommendations
for the improvement of the investment climate. In
2006, the American Chamber of Commerce (AmCham)
was registered in Moldova, representing another
voice for the business community. In fall 2009,
the AmCham produced a Roadmap for the Development
of Moldova's Business and Economic Climate which
it presented to the new Prime Minister. The
Roadmap makes a number of recommendations to
improve business regulation.


48. In 2003, the GOM passed new criminal and
civil codes and ratified several important
international conventions that, in general, create
a better environment for the market system.


49. Moldova introduced its National Accounting
Standards (NAS),based on International Accounting
Standards (IAS),in 1998. While this meant
greater transparency of financial information and
compatibility with IAS, the NAS has not been
updated since then, leaving it outdated. NAS is
not compatible with the International Financial
Reporting Standards (IFRS). A new law on
accounting took effect on January 1, 2008.
Moldova is moving toward adoption of IFRS by 2011.
Large and publicly listed companies that meet

CHISINAU 00000021 011.2 OF 019


compliance criteria set out in the law apply the
IFRS from January 1, 2009.

A.9. Efficient Capital Markets and Portfolio
Investment
-------------- --------------
--------------


50. Laws, governmental decisions, securities
regulations, National Bank regulations, and Stock
Exchange regulations provide the framework for
capital markets and portfolio investment in
Moldova. The GOM 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 only two bodies
Q the National Bank and the National Commission on
the Financial Market Q regulate financial and
capital markets.


51. Credit is allocated on market terms with
banks being the only reliable source of business
financing. The GOM regulates credit policy via
credits from the National Bank, auctions through
commercial banks, compulsory reserves, credits
secured through collateral, open market
operations, and T-bill auctions on the primary
market. Foreign investors may obtain credit on
the local market. However, local commercial banks
loan funds at high interest rates, and mostly on
short-term, which reflect the country's perceived
high economic risk and double-digit inflation in
the years prior to 2009. The situation was
further exacerbated in 2009 by the fallout from
the global financial crisis. Despite initial
confidence that the country would emerge from the
crisis relatively unscathed, the banking sector
faced difficulties as a result of dropping savings
deposits. Poor credit policy coupled with adverse
financial conditions brought one Moldovan bank
down in 2009. Large investments rarely can be
financed through a single bank and require a bank
consortium. Recent years have seen a growth in
leasing and micro-financing. In 2007, Raiffeisen
Leasing was the first international leasing
company to open a representative office in
Moldova.


52. The private sector's access to credit
instruments is difficult because of the
insufficiency of long-term funding and excessively
high interest rates. 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.


53. Moldova's securities market is generally
underdeveloped. In 2007, a "mega-regulator," the
National Commission on the Financial Market
(NCFM),replaced the National Securities
Commission. The NCFM supervises the securities
market, insurance sector and non-bank financing.
The NCFM is operationally independent. Starting
October 1, 2008, it acquired the right to issue
and to withdraw licenses for all non-bank
financial sectors it supervises. The Commission
adopted a Corporate Governance Code and passed new
regulations intended to simplify the issuance of
corporate securities and increase the transparency
of transactions at the Moldovan Stock Exchange.


54. Moldovan banks are the main source of
business financing, with non-bank financing,
albeit growing, poorly developed. The banking
system has two levels: the National Bank of
Moldova (NBM) and 15 commercial banks. The NBM
supervises the commercial banks and reports to the
Parliament. The GOM holds a controlling stake in
one bank, Banca de Economii. Foreign investors'
share in Moldovan banks' capital is more than 75

CHISINAU 00000021 012.2 OF 019


percent.


55. As of October 31, 2009, total bank assets
were USD 3.4 billion. Moldova's five largest
commercial banks account for about 68 percent of
the total bank assets, as follows (as of October
31, 2009): MoldovaAgroindbank: MDL 7,235 million
(USD 654 million) in assets; Victoriabank: MDL
5,547 million (USD 501 million); Banca de
Economii: MDL 5,026 million (USD 454 million);
Moldindconbank: MDL 4,269 million (USD 386
million);
Mobiasbanca: MDL 3,138 million (USD 283 million).

A.10. Competition from State Owned Enterprises
-------------- -


56. Moldovan legislation does not make formal
discriminations between state-owned enterprises
and private-run businesses. By law, governmental
authorities have to provide a level legal and
economic playfield to all enterprises.


57. The Law on Entrepreneurship and Enterprises
permits only state enterprises to participate in
the following activities:
- Some types of human and animal medical research;
- Manufacture of orders and medals;
- Production of symbols verifying payment of state
taxes and fees;
- Postal services (except express mail) and
production of postage stamps;
- Sale and production of combat and special
military technical equipment, explosives (except
gun powder) and all weapons;
- State registry, tracking and technical inventory
of real estate, restoration of ownership titles
and administration of real estate;
- Printing and minting of currency and printing of
state securities; and
- Certain scientific activities.


58. The GOM has privatized most state-owned
enterprises, and some sectors of the economy are
almost entirely in private hands. However, some
large enterprises are still controlled by the
government and their privatization has been either
postponed indefinitely or abandoned altogether.
The major government-owned enterprises are two
northern electrical distribution companies, the
Chisinau heating companies, the fixed-line
telephone operator Moldtelecom, the state airline
Air Moldova, the state railway company and the
majority state-owned bank Banca de Economii.
State-owned enterprises are sometimes seen to be
at an advantage relative to privately-run
businesses. Some of these state-run companies use
their dominant position in the industry to stifle
competition from the private sector. In recent
years, this has been particularly the case in the
telecom industry.


59. After a period of abated privatization
activity consisting of a selloff of residual
governmental shares in companies originally sold
during the mass privatizations of the 1990s, the
GOM picked up efforts to sell a series of
attractive assets. In 2008, the GOM privatized
the footwear manufacturer Zorile, the former
Soviet military-industrial complex Mezon, and the
hotel Codru. Many have questioned the sales which
sometimes appear to be made at rates far below
market price. As a result of the global economic
crisis and two parliamentary elections, GOM
privatization came to standstill in 2009.

A.11. Corporate Social Responsibility
--------------


60. Corporate Social Responsibility (CSR and a
culture of volunteerism and philanthropy are not
highly developed in Moldova. Many Moldovans still
have a view widely held from Soviet times of a

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paternalistic government being responsible for
maintaining the social welfare of all citizens.
With the entry of foreign companies into the
Moldovan economy, the concept of CSR is being
introduced. The American Chamber of Commerce
(AmCham) with its 64-corporate members has taken a
lead by organizing an annual CSR conference at the
end of October for the past three years. AmCham
has also set an example with its corporate members
in the business sector by engaging in a
forestation project, in the rehabilitation of
medical facilities, and in Christmas collection
projects for orphanages.


61. Foreign investors have incorporated CSR
principles into their operations. CSR activities
are viewed positively by Moldovans but are largely
centered in the capital of Chisinau.

A.12. Political Violence
--------------


62. The U.S. Embassy has received no reports over
the past ten years involving politically motivated
damage to business projects or installations in
Moldova. Following parliamentary elections on
April 5, 2009 when the Party of Communists won 60
of 101 seats, protestors severely damaged the
Parliament and the Presidential Administration
building across the street from Parliament.
However, the unrest did not target business
facilities or projects.


63. Separatists control the Transnistrian region
of Moldova along the eastern border with Ukraine.
Although a brief armed conflict took place in
1991-1992, the cease-fire of July 1992 has
generally been observed. Local authorities in
Transnistria maintain a separate monetary unit,
the Transnistrian ruble (current market exchange
rate is approximately 9.7 rubles per one USD),and
a separate customs system. Despite the political
separation, economic cooperation takes place in
various sectors. In recent years, the GOM has
implemented measures requiring businesses in
Transnistria to register with Moldovan authorities
(see paragraph 19). The Organization for Security
and Cooperation in Europe (OSCE),Russia, and
Ukraine acting as guarantors/mediators and the
U.S. and EU as observers continue to conduct
negotiations (known as the "five plus two"
format). Settlement talks stalled in 2006, but
negotiations resumed in 2008 following several
confidence-building initiatives announced by the
Moldovan President earlier in 2007. Any progress
in talks has been piecemeal at best.

A.13. Corruption
--------------


64. Moldova is making efforts to adopt European
and broader international standards to combat
corruption and organized crime. In 2007, Moldova
ratified the United Nations Convention against
Corruption, subsequently adopting amendments to
its domestic anti-corruption legislation. In
2008, the GOM developed and enacted a series of
companion laws designed to address current
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. However, in 2009, an
Anticorruption Prosecutor's Office report stated
that lack of experience and a rushed enactment
process of these laws led to a series of
shortcomings that were identified throughout 2009.


65. Moldova's Criminal Code (effective June 12,
2003) has also contributed to the effort to combat
corruption. It includes articles on public and
private sector corruption, combating economic
crimes, criminal responsibility of public
officials, active and passive corruption, and

CHISINAU 00000021 014.2 OF 019


trade of influence. These additions put the
legislation more in line with international, anti-
bribery standards by criminalizing the act of
offering a bribe. Under this definition, the act
of promising, offering or giving a bribe to a
public official is a crime. In 2009, GOM
initiated and implemented a comprehensive
legislative initiative generically called
"humanization of criminal penalties." This
initiative aimed at introducing a series of
amendments to the Criminal Code which were meant
to repeal certain terms that were not in line with
EU standards. In terms of penalties, the
amendments aimed at decreasing the imprisonment
time and increasing fines. This initiative has
also affected the corruption crimes category.


66. Both offering and accepting a bribe are
criminal acts. A bribe is not deductible for tax
purposes.


67. According to the Moldovan Criminal Code,
offering a bribe is regulated by Art. 325 entitled
"Active corruption." The minimum penalty for
offering a bribe is now imprisonment for up to
five years with a fine of 20,000 MDL
(approximately USD 1,600) to 60,000 MDL
(approximately USD 4,900). If committed by two or
more persons or on a large scale, the offering of
bribe is punishable with imprisonment from three
to seven years with a fine of 20,000 MDL
(approximately USD 1,600) to 60,000 MDL
(approximately USD 4,900). The maximum penalty
for offering a bribe in its aggravated forms, on
an especially large scale, in the interest of an
organized criminal group or criminal organization
is punishable with imprisonment from six to twelve
years with a fine from 20,000 MDL (approximately
USD 1,600) to 60,000 MDL (approximately USD 4,900)


68. Accepting a bribe is regulated by the
Moldovan Criminal Code under Art. 324 - "Passive
Corruption." The minimum penalty for accepting a
bribe by an official is imprisonment from three to
seven years with a fine from 20,000 MDL
(approximately USD 1,600) to 60,000 MDL
(approximately USD 4,900) and the deprivation of
the right to hold certain positions or practice
certain activities for two to five years. If the
offense is committed by two or more persons,
through extortion or on a large scale, the penalty
is five to ten years imprisonment with a fine from
20,000 MDL (approximately USD 1,600) to 60,000 MDL
(approximately USD 4,900) and the deprivation of
the right to hold certain positions or practice
certain activities for two to five years.
Aggravated forms of accepting a bribe by a high
ranking official on an especially large scale in
the interest of a criminal organization are
punishable by seven to fifteen years of
imprisonment with fine from 20,000 MDL
(approximately USD 1,600) to 60,000 MDL
(approximately USD 4,900) and the deprivation of
right to hold certain positions or practice
certain activities for three to five years.


69. Several international and local organizations
in Moldova work on combating corruption. In
December 2006, the Republic of Moldova and the
United States signed a two-year, USD 24.7 million
Millennium Challenge Corporation (MCC) Threshold
Country Program (TCP) agreement which targeted
corruption. Moldova's MCC TCP program focused on
combating corruption in the judiciary, the health
care, tax, customs and police agencies.


70. In 2005, the Council of Europe's Program
against Corruption and Organized Crime (PACO)
launched a one-year regional project called
"Support for the National Anti-Corruption Strategy
of Moldova." An agreement for a follow-up project
- the Project against Corruption, Money
Laundering, and Terrorism Financing in the

CHISINAU 00000021 015.2 OF 019


Republic of Moldova (MOLICO) - was signed in July
2006 by the Council of Europe, the European
Commission, and the Swedish International
Development Cooperation Agency. The MOLICO
project is aimed at ensuring the implementation of
Moldova's anti-corruption strategy on the basis of
annual action plans and strengthening the anti-
money laundering/counter- terrorist financing
system of Moldova.


71. 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.


72. The U.S. Embassy has received reports that
corruption and bribery are serious problems for
foreign investors. For example, when a foreign
investor discovered that he had under-paid 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 Embassy has received reports
of "informal" hostile takeovers of profitable
businesses. In these cases, business owners are
approached by politically-connected individuals
who wish to acquire part of the business. If
business owners refuse, they are soon forced to
close via non-transparent measures.


73. According to Transparency International
reporting and a recent survey, corruption is most
pervasive in the following areas: law enforcement,
customs, taxation and regulatory system; the
judicial system; the health care system; the
educational system, government procurement and
procurement in general; agricultural subsidies and
social assistance.


74. Moldova's ranking in Transparency
International's Corruption Perception Index (CPI)
improved in 2009 to 92 out of 180 countries. By
comparison, in 2008, Moldova was ranked 109 out of
180, behind such countries as Belize, Armenia,
Tanzania and Rwanda.


75. In December 2009, the Moldovan Cabinet of
Ministers approved the draft Law on bailiffs which
was developed by the Ministry of Justice. The
draft law provides for the creation of a private
bailiffs system. The process of drafting this
legislation is the first action aimed at bringing
a change to the enforcement system in Moldova.
The non-enforcement or tardy enforcement of court
judgments still remains a problem. This situation
affects the degree of trust that society has with
respect to the judiciary and also triggers
negative consequences in the development of a
sound business environment in Moldova. In 2009,
the Council of Europe organized a visit of
European experts in Moldova who assessed the
process of court judgments enforcement. The
experts concluded that the bailiffs system lacks
financial resources to pursue an effective and
timely enforcement of court judgments and orders.
Moreover, based on a complex analysis of cases
that Moldova lost at the European Court of Human
Rights, the experts advised the GOM to review the
status of the bailiffs and consider the
liberalization of this profession as a solution.
The private bailiffs will work in individual or
associated offices. Their program of activities

CHISINAU 00000021 016.2 OF 019


will be approved by the National Bailiffs Union
a professional organization representing this
profession.


A.14. Bilateral Investment Agreements
--------------


76. Moldova has signed bilateral investment
protection and promotion agreements with 35
countries, including Albania, Austria, Azerbaijan,
Belarus, Belgium, Bosnia and Herzegovina,
Bulgaria, China, Croatia, the Czech Republic,
Finland, France, Georgia, Germany, Greece,
Hungary, Israel, Italy, Kuwait, Kyrgyzstan,
Latvia, Lithuania, the Netherlands, Poland,
Romania, Russia, Slovenia, Spain, Switzerland,
Tajikistan, Turkey, Ukraine, the United Kingdom,
the United States, and Uzbekistan.


77. Moldova has a bilateral treaty with the
United States on the Encouragement and Reciprocal
Protection of Investment, but does not have a
bilateral taxation treaty with the United States.

A.15. OPIC and Other Investment Insurance Programs
-------------- --------------


78. In 1992, the Moldovan and U.S. governments
signed an investment incentive agreement that
exempts OPIC from Moldovan taxes on loan interests
and fees. OPIC became active in Moldova in
September 1997, providing political-risk insurance
to an American company investing in an
agribusiness. In 2002, OPIC provided nearly USD 1
million in political-risk insurance to two U.S.
companies operating in the telecommunications and
agricultural sectors. In 2004, OPIC extended a
USD 150,000 loan to a New York-based small
telecommunications business. In 2005, OPIC closed
on a USD 3 million loan to Procredit, a
microfinance institution providing loans to small
businesses in Moldova. In 2007, OPIC committed
USD 10 million in financing to a U.S. company to
support the expansion of its agribusiness
operations.


79. 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, the Ex-Im Bank and Moldova signed a
Framework Guarantee Agreement setting the terms
for the GOM to issue sovereign guarantees to
facilitate Ex-Im Bank financing of U.S. exports to
Moldova. Also in 2000, the Ex-Im Bank and Moldova
signed a Project Incentive Agreement that enabled
the Bank to consider financing of U.S. exports for
credit-worthy private sector projects in Moldova
on a non-sovereign risk basis, but which required
host-government support in project-related
activities such as permit and license approvals.
Under the agreement, repayment of Ex-Im Bank
financing is based on the capture of financed
projects' revenue streams in special escrow
accounts held in banks approved by the Ex-Im Bank.


80. In 2002, the Ex-Im Bank signed a memorandum
of cooperation with the Black Sea Trade and
Development Bank. Under the memorandum, the Ex-Im
Bank's financing products 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.


81. Moldova is eligible for U.S. Trade and
Development Agency (USTDA) funding of feasibility
studies, orientation visits, specialized training

CHISINAU 00000021 017.2 OF 019


grants, business workshops and other forms of
technical assistance. USTDA considers funding for
a wide range of sectors with export potential for
U.S. companies. In 2003, USTDA approved funding
for a study on upgrading the telecom system for
the Moldovan Customs Service.


82. 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),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.

A.16. Labor
--------------


83. Skilled labor is readily available in
Moldova, which has an adult literacy rate of 99.1
percent per UNDP's 2009/2010 National Human
Development Report. The labor force includes
numerous workers with specialized and technical
skills, but labor migration has led to some
shortages of workers. The Moldovan constitution
guarantees all employees the right to establish or
join a trade union. Trade unions have influence
in the large and mostly state-owned enterprises
and historically have been strong in negotiations
on labor relations, such as minimum wage and basic
worker rights. Unions are less active in small
private companies. Moldova is a signatory to
numerous conventions on the protection of workers'
rights.


84. The Moldovan General Federation of Trade
Unions has been a member of the ILO since 1992,
and has also been affiliated with the
International Confederation of Free Unions in
Brussels since 1997. After the Federation split
into two separate unions in 2000, the two merged
in 2007, forming the National Trade Union
Confederation.

A.17. Foreign Trade Zones/Free Ports
--------------


85. One of the GOM's stated economic policies is
the creation and development of free economic
zones (FEZ). At present, six FEZs and one
international free port Q Giurgiulesti Q are
registered in Moldova. According to Moldovan law,
export-oriented production is the main goal of
such zones. FEZ commercial residents are allowed
to sell no more than 30 percent of their products
in Moldova. FEZ activity is regulated by the Law
on Free Economic Zones (2001). 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 changes in the law for 10
years. The GOM announced the establishment of
three industrial parks in 2008, but their actual
operation has not yet begun. Businesses operating
in industrial parks will not enjoy special fiscal
treatment, but will have access to ready-to-use
production facilities and offices.

CHISINAU 00000021 018.2 OF 019




86. Similar to the FEZs, the Giurgiulesti Free
International Port 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 was 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.

A.18. Foreign Direct Investment Statistics
--------------


87. As of January 1, 2009, the total stock of
foreign direct investment (FDI) inflows in Moldova
since independence amounted to USD 2,565.7
million, according to the National Bank of Moldova
(NBM).


88. According to NBM data, annual FDI inflows (in
million
USD) to Moldova have increased steadily over the
past several years: 360.65(2006); 611.85(2007);
868.31 (2008); and 231.05 (Jan-Sept 2009).


89. FDI by country in 2008, according to NBM data
and based on charter capital (in million USD) was
as follows:
Cyprus 54.46
Germany 50.11
Romania 32.79
Italy 27.38
Ukraine 18.74
United Kingdom 18.42
Austria 11.90
Netherlands 10.96
United States 10.21
France 9.64
Other countries 197.09


90. According to the NBM, the stock of FDI
inflows (in million USD) by country of origin for
the ten largest investing countries for the period
1992 to 2008 was:

1. Russia 167.57

2. Italy 123.64

3. United States 112.50

4. Germany 101.80

5. Romania 94.01

6. France 91.95

7. Netherlands91.20

8. Spain 85.09

9. Cyprus 82.00

10. Austria 48.99


91. Based on figures from the National Bureau of
Statistics, FDI since 1992 by sectors was as a
percentage of total FDI:
--Food processing: 24.1 percent
--Financial activities: 21.8 percent
--Electricity, gas and water supply: 19.5 percent
--Wholesale, retail & repair services: 18.4
percent
--Real estate transactions: 7.1 percent
--Transportation and communications: 4.5 percent
--Hotels and restaurants: 1.8 percent
--Other activities: 2.8 percent


92. According to NBM data, at the end of 2008,
Moldova's direct investment abroad since
independence amounted to USD 57.30 million.


93. In 2008, FDI inflows were 14.4 percent of
annual GDP (USD 6.048 billion).


94. Major U.S. investors or representatives of
U.S. companies in Moldova include:
- NCH Group of Investment Funds: real estate and

CHISINAU 00000021 019.2 OF 019


financing companies;
- Horizon Capital: equity investment fund managing
the investments of Western NIS Enterprise Fund
(which is phasing out its local activity) and the
recently Emerging Europe Growth Fund with holdings
in banking, food processing and glass
manufacturing;
- McDonald's: fast food;
- Coca-Cola: soft drinks;
- Foodpro International: food processing;
- Development Group USA: food processing, wine and
media;
- Lion Gri: wine;
- Transoil Ltd.: farming, agribusiness and grains
trading;
- Mary Kay: perfumes and cosmetics;
- Avon: perfumes and cosmetics.

MICHELI