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Moldova: Market Profile

Picture: Moldova factsheet
Picture: Moldova factsheet

1. Overview

Moldova is a small lower-middle income economy. Although it remains a low-income country by European standards, it has made significant progress in reducing poverty and promoting inclusive growth since the early 2000s. The economy has expanded considerable over the last two decades, driven by consumption and fuelled by remittances from emigrant Moldovans that account for a quarter of GDP.

Sources: HKTDC, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

March 2016
Moldova's constitutional court ruled that presidential elections will be decided by popular vote and not by parliament.

April 2016
Moldova set its presidential election for 30 October, the first time a new head of state will be appointed by popular vote since 2001.

November 2016
Pro-Russian candidate Igor Dodon beat pro-European candidate Maia Sandu and won the presidential election.

June 2018
A mayoral election victory by a pro-European Union (EU) candidate in the capital Chisinau was annulled by the judiciary, which ruled that both candidates had broken campaigning rules.

November 2018
The EU announced that it was cutting its financial assistance to Moldova over concerns about the rule of law. The Macrofinancial Assistance programme, which is worth more than EUR100 million, was suspended.

February 2019
Parliamentary elections will be held on February 24, 2019, once again pitting pro-EU parties against pro-Russian parties.

Sources: BBC Country Profile – Timeline, Radio Free Europe

3. Major Economic Indicators

Graph: Moldova real GDP and inflation

Graph: Moldova real GDP and inflation

Graph: Moldova GDP by sector (2017)
Graph: Moldova GDP by sector (2017)
Date last reviewed: August 28, 2018
Graph: Moldova unemployment rate
Graph: Moldova unemployment rate
Date last reviewed: August 21, 2018
Graph: Moldova current account balance
Graph: Moldova current account balance
Date last reviewed: August 21, 2018

e = estimate, f = forecast
Sources: IMF, World Bank
Date last reviewed: November 21, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Moldova merchandise trade
Graph: Moldova merchandise trade

Source: WTO
Date last reviewed: November 21, 2018

Graph: Moldova major export commodities (2017)
Graph: Moldova major export commodities (2017)
Graph: Moldova major export markets (2017)
Graph: Moldova major export markets (2017)
Graph: Moldova major import commodities (2017)
Graph: Moldova major import commodities (2017)
Graph: Moldova major import markets (2017)
Graph: Moldova major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: November 21, 2018

4.2 Trade in Services

Graph: Moldova trade in services
Graph: Moldova trade in services

Source: WTO
Date last reviewed: November 21, 2018

5. Trade Policies

  • Moldova joined the World Trade Organisation (WTO) in July 2001. Although overall Moldovan customs and trade laws comply with WTO requirements, the inconsistent implementation of WTO rules – such as the imposition of arbitrary requirements of additional certificates or permits – and the informal use of quotas on some imports or discriminatory treatment of businesses importing foreign-manufactured goods can constitute non-tariff barriers to trade.

  • Moldova's average tariff rate is 4.4% for manufactured products and 13.5% for agricultural products. At the same time, Moldova applies a 0% rate on more than 35% of products in the tariff schedule.

  • In addition to import tariffs, imported goods are usually subject to a 20% value added tax (VAT). Furthermore, companies have to pay customs processing fees, which are determined on a case-by-case basis and depend on the value and final destination of goods, but the general rule is to apply a 0.4% fee on the value of processed goods.

  • Besides the customs duties, the Moldovan Customs Service may also levy exceptional duties, such as safeguard duty, anti-dumping duty or countervailing duty. The only exceptional duty applied in the past was a safeguard duty on sugar imports.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. The Central European Free Trade Agreement (CEFTA): This agreement – between Albania, Bosnia and Herzegovina, Serbia, Moldova, Montenegro, Macedonia and Kosovo – came into force on May 1, 2007. CEFTA helps to increase trade between regional counterparts and fosters non-EU bilateral relations.

  2. Moldova-Armenia Free Trade Agreement (FTA): This bilateral FTA covers trade in goods and entered into force on December 21, 1995. Armenia is Moldova's 54th-largest export market and as of 2017 Moldova exported 0.1% of its total exports to Armenia, of which pharmaceutical products made up the highest percentage.

  3. Moldova-EU FTA: This bilateral FTA, covering trade in goods and services, entered into force on September 1, 2014, as an association agreement and became a Deep and Comprehensive Free Trade Agreement (DCFTA) in July 2016. The EU is Moldova's biggest trade partner. An important part of the DCFTA is aligning Moldovan trade-related laws to selected EU legislative acts. The aim of Moldova's adoption of EU approaches to policymaking is to improve governance, strengthen the rule of law and provide more economic opportunities by widening the EU market to Moldovan goods and services.

  4. GUAM FTA: This plurilateral agreement – between Georgia, Ukraine, Azerbaijan and Moldova – came into force on December 10, 2003. It covers goods and services and is an economic integration agreement.

  5. Moldova-Kyrgyz Republic FTA: This bilateral FTA covers trade in goods and entered into force on November 29, 1996.

  6. Moldova-Commonwealth of Independent States FTA: This agreement – between Moldova, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Ukraine – covers trade in goods and entered into force on September 20, 2012.

  7. Moldova-Turkey FTA: This bilateral FTA covers trade in goods and entered into force on November 1, 1996.

  8. Moldova-Ukraine FTA: This bilateral FTA covers trade in goods and entered into force on May 19, 2005.

  9. Black Sea Economic Co-operation (BSEC): The BSEC came into existence on May 1, 1999 as a model for regional multilateral political and economic co-operation. The member states are Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Serbia, Turkey and Ukraine. Areas for co-operation include agriculture and agro-industries, banking and finance, combatting crime, culture, customs, education, emergency assistance, energy, environmental protection, the exchange of statistical data and economic information, healthcare and pharmaceuticals, information communication technologies, institutional renewal and good governance, science and technology, small- and medium-sized enterprises, tourism, trade and economic development, and transport.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Moldova FDI stock
Graph: Moldova FDI stock
Graph: Moldova FDI flow
Graph: Moldova FDI flow

Source: UNCTAD
Date last reviewed: November 21, 2018

7.2 Foreign Direct Investment Policy

  1. Under Moldovan law, foreign companies enjoy equitable treatment in most respects. In principle, the government views foreign direct investment (FDI) as vital for sustainable economic growth and poverty reduction. However, the amount of FDI received is far below what Moldova needs to create jobs and promote economic growth.

  2. The government has approved an activity program for 2016-2018 that centres on EU integration, with the ultimate goal of applying for EU membership.

  3. 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, utilisation, acquisition, extension, or disposal of investments.

  4. 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 privatised enterprises and land designated for construction.

Sources: WTO - Trade Policy Review, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
At present, seven free economic zones (FEZs), one international free port - Giurgiulesti - and one international free airport - Marculesti - are registered in MoldovaAccording to Moldovan law, job creation, attraction of foreign and domestic investments, and export-oriented production are the main goals of such zones. The Law on FEZs regulates FEZ activity. Foreigners have the same investment opportunities as local entities. FEZ commercial entities enjoy the following advantages:

- 25% exemption from income tax;

- 50% exemption from tax on income from exports;

- For investments of more than USD1 million, a three-year exemption from tax on income resulting from exports;

- And for investments of more than USD5 million, a five-year exemption from tax on income from exports;

- Zero VAT;

- Exemption from excises; and protection of residents against any new changes in the law for 10 years;

- Furthermore, residents investing at least USD200 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.
Giurgiulesti Free International PortCommercial residents of the port enjoy the following advantages:

- 25% exemption from income tax for the first 10 years following the first year when taxable income is reported;

- 50% exemption from tax on income for the remaining years; exemption from VAT and excises on imports and exports outside Moldova's customs territory;

- Zero VAT on imports from Moldova;

- And protection of commercial residents against any changes in the law until February 17, 2030.

Sources: US Department of Commerce, International Business Company Welcome.MD, Fitch Solutions

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Worker Migration

The government is currently drafting amendments to the Labour Code and a new law on foreign work and migration. The changes are intended to make the legislative framework better equipped for modernisation of the labour market, skills development and vocational education training reform.

Foreign citizens who want to engage in employment in Moldova must obtain a work permit from the National Agency for Employment (NAE) of the Ministry of Economy. To be granted the right to work, the employer or its legal representative must submit a variety of documents to the NAE. These documents include confirmation of the activity of the company (a certificate from the Tax Inspectorate on the lack of arrears to the national public budget, a copy of the financial report for the last period of management under the law in force), an original of the individual employment contract and confirmation of the provision of a rental space for the period requested (the owner’s declaration/rental agreement/sale-purchase contract).

9.2 Work Permits

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.

Sources: Ministry of Foreign Affairs and European Integration of the Republic of Moldova, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B3 (Stable)
02/11/2018
Standard & Poor'sN/AN/A
Fitch Ratings
N/AN/A

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
52/18944/19044/190
Ease of Paying Taxes Index
78/18931/19032/190
Logistics Performance Index
93/160N/A116/160
Corruption Perception Index
123/176122/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank114/202
Short-Term Economic Risk Score49.455.644.6
Long-Term Economic Risk Score60.762.249.5
Political Risk Index Rank119/202
Short-Term Political Risk Score4149.645.8
Long-Term Political Risk Score48.450.158.2
Operational Risk Index Rank115/201
Operational Risk Score46.747.2
46.2

Source: Fitch Solutions
Date last reviewed: November 21, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Moldova’s economic environment is weighed down by persistent current account deficits and foreign debt accumulation. With growth in exports and remittance inflows vulnerable to shocks on account of challenging economic conditions in Russia, the country is exposed to balance of payments pressures that could affect exchange rate stability. Considerable structural reforms are needed in order to attract meaningful private investment growth and to reduce exposure to disruptions in the agriculture sector or remittance inflows. Meanwhile, the bank rescue of 2015 has put a strain on public finances, limiting the government's capacity to invest in growth and development.

OPERATIONAL RISK
Moldova continues to face a number of structural challenges that include inadequate energy infrastructure and a dwindling workforce due to large-scale outmigration and decreasing fertility rates. With encouragement from Brussels, Moldova is moving towards closer EU integration which should offer long-term benefits, but deep-rooted corruption and economic hardship are damaging confidence in the government. Although there are impediments to developing a positive investment climate, Moldova's long-term growth potential remains compelling, particularly if wide-reaching reforms are implemented in the short-to-medium term.

Sources: Fitch Solutions, World Bank
Data last reviewed: November 25, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Moldova short term political risk index
Graph: Moldova short term political risk index
Graph: Moldova long term political risk index
Graph: Moldova long term political risk index
Graph: Moldova short term economic risk index
Graph: Moldova short term economic risk index
Graph: Moldova long term economic risk index
Graph: Moldova long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 21, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Moldova Score46.239.849.252.243.4
Central and Eastern Europe Average61.855.063.466.262.5
Central and Eastern Europe Position (out of 11)101110109
Emerging Europe Average56.954.158.458.556.8
Emerging Europe Position (out of 31)2530242223
Global Average49.649.749.949.149.8
Global Position (out of 201)11515910378117

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Moldova vs global and regional averages
Graph: Moldova vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Czech Republic71.4
57.7
70.0
73.5
84.5
Estonia71.3
59.1
77.2
72.0
77.0
Poland
69.5
55.6
69.2
74.8
78.4
Lithuania68.5
55.2
71.8
75.5
71.5
Latvia66.0
57.5
68.4
71.4
66.6
Hungary64.3
55.6
63.4
66.8
71.3
Slovakia63.6
49.7
67.7
63.3
73.5
Belarus57.2
56.5
59.2
63.3
49.9
Russia55.9
63.6
56.2
62.9
40.9
Moldova46.2
39.8
49.2
52.2
43.4
Ukraine45.754.9
45.6
52.0
30.5
Regional Averages61.8
55.0
63.4
66.2
62.5
Emerging Markets Averages46.8
48.0
47.5
45.7
46.0
Global Markets Averages49.6
49.7
49.9
49.1
49.8

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Moldova

Graph: Major export commodities to Moldova (2017)

Graph: Major export commodities to Moldova (2017)

Graph: Major import commodities from Moldova (2017)
Graph: Major import commodities from Moldova (2017)

Note: Graph shows the main Hong Kong export to/import from Moldova (by consignment)
Date last reviewed: November 21, 2018

Graph: Merchandise exports to Moldova

Graph: Merchandise exports to Moldova

Graph: Merchandise imports from Moldova

Graph: Merchandise imports from Moldova

Note: Graph shows the main Hong Kong exports to/imports from Moldova (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: November 21, 2018


2017
Growth rate (%)
Number of Moldovan residents visiting Hong Kong164-18.8

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824-0.2

Source: Hong Kong Tourism Board
Date last reviewed: November 21, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Moldovan companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

 

11.3 Treaties and agreements between Hong Kong and Moldova

  • Moldova has a Bilateral Investment Treaty with China that came into force in March 1995.

  • The Double Taxation Agreement (DTA) between China and Moldova was signed on June 7, 2000 and has entered into force in both countries on May 26, 2001.

Sources: UNCTAD, Fitch Solutions, State Administration of Taxation of the People's Republic of China

11.4 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa for Moldova for a period of up to 90 days.

Source: Hong Kong Immigration Department
Date last reviewed: November 21, 2018

Content provided by Picture: Fitch Solutions – BMI Research
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