Moldova - 0-Executive SummaryMoldova - Executive Summary

Former Soviet republic Moldova has made some progress towards adopting the principles of a free-market democracy since gaining its independence in 1991, but still has significant shortcomings in its investment climate. After multiple government changes in 2015 and political demonstrations in early 2016, Moldova regained some stability in 2016 providing the new cabinet room for reform work that it has formally committed to. The government has to deal with the fallout from the massive bank fraud and wide-spread perceptions of pervasive corruption that has undermined trust in the state and political-economic institutions.

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. Moldova hopes that implementation of the DCFTA will integrate it further into the European common market and create 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.

After political volatility stalled reforms in 2015, a Democratic Party-led parliamentary majority installed a new government in early 2016, which declared its intent to pursue greater integration with the EU. The cabinet’s immediate efforts focused on judicial reforms, public administration restructuring, measures ensuring independence of financial and banking regulators, bank fraud investigations, and enhanced regulatory transparency. These measures helped restore donor support and secure a three-year IMF program worth about USD 180 million.

The business climate is challenging. Although the many underdeveloped sectors offer opportunities, investors should proceed with caution. 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.

The Moldovan government has also identified seven priority areas for development and reform in its National Development Strategy “Moldova 2020”: education, access to financing, road infrastructure, business regulation, energy efficiency, justice sector reform, and social insurance. Based on that strategy, the government will set out a new 2016-2018 action plan for a business regulatory framework reform to facilitate day-to-day business activity.

The major investment climate concerns in 2017 include uncertainties related to opposing political agendas between the cabinet and the president, the lack of public trust in the government as well as public and private institutions, continuing fragility of the banking sector, and instability in the wider region.

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