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GRADUATION PAPER Specialty 364.

1 Finance and Banking ANALYSIS OF FOREIGN DIRECT INVESTMENT FLOWS INTO THE REPUBLIC OF MOLDOVA
Author: Iabanji Ecaterina Scientific director: Ph.D. Bunu Mariana

Actuality of research

In the present development stage, regardless of the countrys economic development condition, progress cannot be seen without foreign direct investments. Foreign direct investments are important for a number of reasons. Firstly, they constitute import of capital a scarce resource in any country, but in particular in transition and developing countries. Secondly, foreign direct investments allow knowledge transfer from the source country to the investment destination. Furthermore, foreign direct investments enable access to foreign markets and business networks.

The purpose of the research

Is studying the economic role of the foreign direct investment flows in the national economy, and study of the amount and structure of the FDI into the Republic of Moldova, in order to determine the specific of the foreign investments in the process of the economic development. Making the analysis of the FDI flows enable to determine the efforts and measures of the government in the field of attracting foreign direct investment, and to make conclusions about the improvement of the process of attracting FDI into the economy of the Republic of Moldova.

New economic development paradigm based on investments and export

Positive effects of FDI

Negative effects of FDI

realization of externalities

damaging competition for local firms

increases the competiveness of local industries

market dominance by MNC

Stimulation of export orientation


improvement of production process, technology transfer

public protest

environmental degradation

FDI Inflows to Selected Countries, 2001-11

Balance of payments and international investment position,

Types of investment
2007 Direct investment national economy equity capital reinvested earnings other capital in the 541,26 2008 711,46 2009 145,33 2010 197,41 2011 274,0

227,38 112,81 201,07

441,7 98,7 171,06 11,75

161,56 -11,56 -4,67 2,67

156,98 14,55 25,88 3,40

143,9 94,42 35,68 3,91

Foreign direct investment / 12,29 GDP (%)

Major investors
2500 2017

2000
1685.1 1500

number of enterprises

foreign investments (mil. MLD)

1256 944.4 1000 812 500 267 140 0 381 206 380 61 813.9 545.7 475.5 392.4 378.3 315.9 256.6 209.8 192.3 65 189.3 172.3 62 918 897 669

1296

Reason 1 to invest in RM

Fiscal incentives
Incentives when starting a business

VAT refund for capital expenses on long-term investments, except for housing and vehicles (not applicable in Chisinau and Balti) VAT and customs tax exemption for assets to be included in the share capital of the company
B.

Benefits when operating


12% Corporate Income Tax since 2012, with incentives for investors Double Taxation Avoidance Agreements (DTAA ) with 39 countries

Existence of Industrial Parks


The

Law on Industrial Parks ( 182 from 15 July 2010): 30-year term for the industrial park; Free change of land use; Free transfer of state land to the company administrator; Opportunity to lease state land with a 30% discount; State contribution to the infrastructural and technological development; Limited by and controlled Government inspections; Assistance from local authorities and the Council to promote investment projects of national significance;

Wine production

Biogas
Equipment and technology

New orchards

Wind power Alternative energy

Strawfired heating

Agribusiness Milk processing plants Livestock farms

Organic farming

Hydro Power
Solar energy

Energy efficiency

Software

FEZ

Business

Support

Mobile telephony

Successful Investors of the RM

State actions
In 2012 was adopted the National Development Strategy "Moldova 2020" aims at orientating the country towards a dynamic model based on local and foreign investments and development of exportoriented industries. An Association Agreement with the European Union is currently under negotiation Steady implementation of structural reforms has raised Moldovas competitiveness As a result, Moldova was ranked nr. 81 in 2012 by Doing Business Rank

The Most Problematic Factors for Doing Business in Moldova

Improvements needed to attract more foreign investment in the economy of the Republic of Moldova
Regional trade integration Privatization of public property Development of Free Economic Zones and of industrial parks Improving of labour and land regulation Realigning obsolete pieces of legislation to reality

Conclusions Competition for foreign direct investment (FDI) is tough as many potential investment locations try to attract scarce and increasingly footloose foreign capital. The data on Moldovas FDI inflows and stock suggest that the country has only been partly successful in attracting foreign investors. Trade integration with EU and CIS countries, improvements in the business climate, privatization, and healthy growth prospects are the factors that would further improve Moldovas potential for attracting FDI. Potential new investors frequently point out to severe problems which clearly outweigh the positive factors such as good access to foreign markets, the well-educated population, language skills, low wages and good agricultural land Investors reveals that there are a number of issues that inflate the cost and/or increase the risk of investing in Moldova, such as volatility of the political environment, the uncertainty of the economic situation, the ambiguity of the legal system, and the high level of corruption.

Recomendations

improve the investment climate and legislation a strategy for higher FDI into agro-food industries should be developed and implemented improve the quality of labor force to improve the existing problematic relationship between government and business, which is a major barrier for FDI to improve the activity of MIEPO as the investment promotion agency according to best international practice