Romanian Companies Invited to Invest Heavily in the Republic of Moldova
The law firms Țuca Zbârcea & Asociații and Turcan Cazac held the conference “Romanian Investments in the Republic of Moldova – Challenges and Perspectives” at the Intercontinental Hotel in Bucharest on Thursday, June 2, 2011. The event was organized in cooperation with the consulting and audit company Grant Thornton and with the support of Finmedia.
In attendance were Romanian and Moldovan businesspeople along with officials from the two States, representatives of employers’ organizations, banks, investment funds, law firms, consulting companies and other interested parties.
The Ambassador of the Republic of Moldova in Romania, Iurie Reniță, emphasized that the political climate in his country is now highly favorable, since the Alliance for European Integration won the 2009 elections. He added that this will help attract significant foreign investments. “I invite you to invest in the European future of the Republic of Moldova,” Iurie Reniță urged the Romanian businesspeople attending the event.
From exporting workforce to exporting goods and services
The Deputy Prime Minister and Minister of the Economy for the Republic of Moldova, Valeriu Lazăr, told the gathering that the current government had taken power in September 2009 at a very difficult time for the country. He added that, after economic growth of around 8% in 2008, his country had suffered a 6% decline in 2009. Following a stabilization program devised by the government, the Republic of Moldova had managed to achieve an economic growth rate of 6.9% in 2010.
“The greatest challenge for our economy and society is to change our development paradigm. We must move from the export of workers to the export of goods and services. Our government has the vision and power to make this happen,” declared Valeriu Lazăr. He pointed out that the Republic of Moldova ranks third in the world by the value of remittances from citizens working abroad in relation to GDP. “We have lost people and entrepreneurial intelligence,” bemoaned the Moldovan official. More than one million Moldovan citizens are currently living and working in EU States, while the population of the Republic of Moldova is now estimated to number fewer than 3.5 million inhabitants.
Romania’s example
Valeriu Lazăr argued that the Republic of Moldova can benefit from Romania’s example and expertise in the process of joining the European Union. “The strategic goal of the current government is to join the European Union. We understand that this process involves a very ambitious schedule of reforms,” he told participants. The Minister also outlined a series of planned projects in Energy, Health and Infrastructure. He added that, in the coming period, the government will finalize the privatization strategy for several interesting companies.
The Republic of Moldova could open the door to Romanian investments in the Russian Federation. “The Republic of Moldova could be a platform; it could open the door to Romanian investments in the Russian Federation,” emphasized Deputy Prime Minister Valeriu Lazăr.
The State Secretary in the Ministry of Commerce and the Business Environment (MCBE), Claudiu Constantin Stafie, expressed his conviction that “a real partnership between Romanian and Moldovan companies, the joint production of goods and the outsourcing of business to markets from the CSI and European Union are steps forward that now, more than ever, must be made. The most efficient policies for promoting long-term growth are those facilitating geographical concentration and economic integration, both in and among the countries.”
The MCBE State Secretary also assured the Moldovan guests that Romania will remain a central and reliable business partner to the Republic of Moldova, and that the MCBE will use all available instruments to support and make use of the cooperation opportunities presented by the two economies. An important step will be taken in June, when the governments of Romania and the Republic of Moldova will hold a common session in Galați.
In turn, the Chairman of the Foreign Policy Commission of the Romanian Senate, Titus Corlățean, stressed that the Republic of Moldova now has a professional and EU-oriented government. He added that the Romanian Parliament is to help its Moldovan counterpart adopt European legislation more quickly, and, to this end, a common European integration commission will be established at the level of the two Parliaments. Titus Corlățean noted the significant progresses made by the Republic of Moldova within the Eastern Partnership of the European Union (EU), with Moldova now in advanced discussions over the execution of the EU-Republic of Moldova Association Agreement. The Romanian Senator also asserted that local companies should work with companies from the Republic of Moldova in order to regain a foothold on the Russian market.
The Republic of Moldova has a well trained workforce and attractive fiscal regime
Doina Cebotari, advisor to the Moldovan Prime Minister on business matters, and Dumitru Dediu, advisor to the Moldovan Prime Minister on attracting foreign investments, presented the investment opportunities in the neighboring State. They told the assembled guests that the Republic of Moldova has a workforce that is relatively cheap (the average wage is EUR 190/month), well trained and educated, speaking several foreign languages (Russian, French, English and others). The country also has an attractive fiscal regime, low rate of inflation, steady exchange rate and, in general, an open economy, having signed commercial treaties with the CSI and EU. In addition, negotiations with the EU on the Deep and Comprehensive Free Trade Agreement (DCFTA), which will step up the commercial relations between the EU and the Republic of Moldova, will begin in the fall.
The main business sectors in the Republic of Moldova worth investing in include Energy, Infrastructure, the Agricultural Food Industry, IT&C Outsourcing, Transportation, Assembly and Manufacturing, the Automotive Industry and Services. The investments can be made directly, via the privatization program or through public-private partnerships (PPPs).
Romania and the Republic of Moldova must build a common business culture
The Chairman of the Association of Romanian Businesspeople (AOAR), Florin Pogonaru, highlighted the need to build a common Romanian-Moldovan business culture. He pointed out that it is important to maintain a predictable and stable environment, adding that, as Chairman of the European Institute in Romania, he wishes to establish closer relations with his counterparts from the Republic of Moldova.
In turn, Viorel Badea, Chairman of the Commission for Romanians Living Abroad, invited Romanian companies to invest in the Republic of Moldova. In his view, two of the sectors that will enjoy fast growth will be Agriculture and Energy. The Senator also underlined that it is necessary to develop the capital market, as well as the financial and banking system. “Large Romanian companies, such as Electrica, Transelectrica, Transgaz, Romtelecom, CEC and Eximbank, should participate in privatizations in the Republic of Moldova,” the Senator urged.
Florentin Țuca: Chișinău conquered me
Florentin Țuca, Managing Partner at Țuca Zbârcea & Asociații (the top law firm in Romania), invited participants to visit the Republic of Moldova and explore the business potential of the country. In his view, direct contact with the people is of the essence. “Chișinău has a cleaner, less aggressive and less tainted atmosphere than Bucharest. It reminded me of the city of Iași in 1997-1998. This city conquered me. It is very friendly and pleasant, a place for great meals and conversations,” commented Florentin Țuca.
At the end of September 2010, Țuca Zbârcea & Asociații announced the implementation of a cooperation agreement with the leading business law firm in Chișinău, Țurcan Cazac. The two firms are working together under a “best friend” principle, which allows the provision of tailored consulting services to a significant segment of the business community in the Republic of Moldova and Romania, encompassing both investors that already have a significant presence on the local market and those interested in developing commercial relations with the Republic of Moldova or Romania.
According to Țuca Zbârcea & Asociații representatives, discussions are being conducted on strategic projects, with the two law firms working, at different stages, with current and potential investors in the Republic of Moldova.
Grant Thornton works with many companies from the Republic of Moldova
Frenchman Stephane Bride, Managing Partner at Grant Thornton for Romania and the Republic of Moldova, presented the fiscal and business opportunities in the Republic of Moldova, including, among others: zero profit tax, a 15% dividend tax rate (charged only upon payment), progressive VAT rates (20% - 8% - 6% or 0%) and reimbursable VAT for investments made in certain towns, except for Chișinău and Bălți. Also, fixed assets are exempt from VAT and custom duties if they are subscribed to the share capital. The Republic of Moldova has signed 44 treaties for the avoidance of double taxation with various States, including Romania.
According to the Grant Thornton representative, even if the zero profit tax were to be increased to 12%, the Republic of Moldova would remain one of the countries with the lowest profit tax rates in the region. Also, companies investing in one of the seven free economic areas enjoy full exemption from the payment of profit tax for three years for investments of over USD 1 million, and five years for investments of over USD 5 million.
IFC has invested over USD 70 million in the Republic of Moldova
Ana Maria Mihăescu, Head of the IFC (International Finance Corporation) mission for Romania and the Republic of Moldova, mentioned that the IFC had invested over USD 70 million in the Republic of Moldova as of 2008. The IFC’s investments in various projects can reach up to 50% of the total project value. For greenfield projects worth more than USD 50 million, the institution can cover up to 25% of the costs and up to 35% of the total value for greenfield projects of under USD 50 million. The IFC’s portfolio in the Republic of Moldova contains eight companies, including Vinăriile Bostavan, Eximbank Moldova, Orange Moldova, PC Bank Moldova, UF Moldova and Victoriabank. The IFC also granted a USD 10 million loan to Chișinău town, for the execution of infrastructure projects, restoration and construction of aqueducts and sewage systems in Chișinău and its suburbs, as well as the repair of certain streets in the Moldovan capital.
The IFC, a member of the World Bank Group, boosts the durable economic growth of developing countries by financing investments in the private sector, mobilizing private capital on the local and international financial markets and providing consulting services for private companies and governments.
Russian is the business language in the Republic of Moldova
Alexander Țurcan, a Partner at Țurcan Cazac law firm in the Republic of Moldova, outlined a few specifics of the business environment in the country. He said that Russian is the business language in the Republic of Moldova, as Russian (Slavic) culture has deep roots in local business and the largest investments have been made by Russians. In fact, the main business partner of the Republic of Moldova is the Russian Federation, coming first (25.5%) in a 2010 ranking of exports, while Romania is second (16.3%) for exports and third (10%) for imports from the Republic of Moldova.
The lawyer listed a few of the advantages of establishing companies in the Republic of Moldova, such as the very accessible minimum share capital (both for limited liability companies and joint stock companies), the short time taken to set up a company (no more than three days, as compared to other neighbors of Romania, such as Bulgaria, where the process can take as long as 20 days), a relatively friendly and steady fiscal system, including progressive wage taxation, a 7% tax on individuals’ income for a wage under EUR 130/month and up to 18% for wages exceeding this level.
As regards access to justice, Alexander Țurcan remarked that corruption continues to affect the application of justice and advised the businesspeople attending the event not to file their disputes with Moldovan partners with Moldovan courts (commercial and civil), but with Romanian or neutral courts. In fact, Romanian investors in the Republic of Moldova are protected by a series of treaties concluded by the two countries for the promotion and mutual protection of investments, and may also take their disputes to the International Center for the Settlement of Investment Disputes (ICSID).
“The interests of Romanian investors in the Republic of Moldova should also be protected at an institutional level, with the establishment of a Moldovan-Romanian chamber of commerce being an important step in this direction,” concluded Alexander Țurcan.
In the first quarter of this year, commercial exchanges between Romania and the Republic of Moldova have been stepped up
The volume of commercial exchanges between Romania and the Republic of Moldova amounted to USD 1.2 billion in 2008, but declined to USD 800 million in 2010. In the first quarter of this year, business relations were revived: Romania’s exports grew by 33%, while Romanian imports from the Republic of Moldova increased by 83%.
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The presentations given at the conference “Romanian investments in the Republic of Moldova – Challenges and Perspectives” can be downloaded here.