July 1998

by Padraic J. Sweeney & Helen Midori

Moldova is a small but increasingly attractive market for U.S. companies seeking investments in the NIS. A growing number of American firms are establishing business operations there, in sectors as diverse as fast-food restaurants, consumer products, and oil and gas exploration. Positive macroeconomic conditions and a reform-minded government contribute to a favorable investment climate in Moldova.

Moldova's major industries are food processing, wine-making, engineering and metal processing, light manufacturing, building materials, and wood and wood products. Moldova is a significant producer of agricultural products, such as fruits, vegetables, tobacco, and sugar beets.

Foreign investment in Moldova exceeds $200 million. Energy and public utilities--electric power, natural gas, and water supply--accounted for 54 percent of the total in 1997. Other sectors with significant foreign investment include manufacturing, trade, and finance. Moldova is a small market for U.S. exports, totaling $20 million in 1997. Leading U.S. exports last year included diesel trucks, machinery, alcoholic beverages, dairy products, and meat. Shipments of U.S. goods to Moldova grew nearly 60 percent in the first six months of 1998, led by meats, dairy products, paper, and machinery.

U.S. Companies
U.S. companies have already made some significant investments in Moldova. One of the most visible is McDonalds, which opened its first restaurant in Moldova May 1, 1998, in the center of Moldova's capital, Chisinau. McDonald's has invested $2.5 million in Moldova, according to the firm's country manager, Valentin Balasoiu. "We have big plans for Moldova." Also catering to Moldovan consumers is Coca Cola, which has invested $9.5 million in Moldova since 1994. Robert Arseni, general director of Coca Cola's Moldovan operations, observes that the country's rapid transition toward a market economy has led to the creation of many new local businesses that buy and distribute consumer products, such as soft drinks.

An independent U.S. energy exploration company, REDECO International Energy, Inc., is making an important contribution to an economy still heavily dependent on energy imports. A joint venture between REDECO Ltd. of Oklahoma City and Costilla Energy, Inc. of Midland, Texas, REDECO International Energy's oil and gas concessions cover the entire country. Redeco is developing two gasfields and one oilfield, and in May signed a contract with MoldovaGaz to sell gas produced by REDECO's Moldova concession. "It's a wonderful place to do business," says REDECO Executive Vice President and Director William C. Baron. "People want to do business with Americans," and U.S. investment enjoys strong support from top leadership of the Moldovan Government.

Investment Climate
Moldova's investment climate benefits from stable and generally favorable macroeconomic conditions. GDP grew 1.3 percent in 1997. This figure is widely believed to underreport the rapid growth of the so-called shadow economy, especially in construction and the booming retail sector in Chisinau. Inflation remained low in 1997, according to the National Bank of Moldova, at an annual rate of 11.2 percent (compared with 15.8 percent in 1996). The national currency, the leu, was introduced in 1993 and has remained relatively stable ever since.

Moldova has steadily liberalized its foreign investment regime, enacting legislation to that end on joint-stock companies, the national bank, financial institutions, foreign investments, and other relevant areas of law. This legal framework ensures foreign investors equal treatment with domestic firms. It protects against nationalization and ensures the free transfer of investment proceeds in foreign currency and reinvestment of profits in local currency.

There are no restrictions on foreign capital participation in Moldovan enterprises, with the exception of certain state-controlled enterprises. Foreign equity participation in privatization of some government-owned enterprises is now possible. The "Law on Normative Land Prices," of July 1997, grants foreigners the right to lease or buy nonagricultural land.

Enterprises with foreign investment can operate under laws in force the day they are organized and for 10 years thereafter, to protect against adverse legal changes. Foreign property cannot be expropriated except when the national interest is involved, and then only with appropriate compensation. After payment of taxes, customs, and duties, foreign investors are guaranteed the right to remit abroad in foreign currency funds derived from their investment. Firms with foreign investment worth more than $250,000 which derive half their income from sales of goods and services are entitled to a 50 percent income tax break for the first five years of operation.

Moldova's privatization program also offers opportunities for foreign investors. Privatization currently focuses on the sale of state-owned assets for cash. Local investors can pay for an acquisition in installments, although foreign investors must pay the total sum on the spot.

Some Problems
Despite their enthusiasm, representatives of U.S. business in Moldova point out that improvements could still be made to the country's business climate. REDECO's Baron identifies standards and certification as a particular area of concern for his firm. The Soviet-era rules followed by many officials on a day-to-day basis "are just not realistic; things in the workplace have changed," Baron argues, especially for companies whose equipment and technologies are already certified to operation in many other countries. Baron--who is also Chairman of the American Chamber of Commerce in Moldova, and very upbeat about the country overall--and other successful U.S. executives urge American companies to work closely with their Moldovan partners and the Moldovan Government to make the most of the many opportunities the country offers. For more information, visit BISNIS Online at www.mac.doc.gov/bisnis/country/wstnis.htm#Moldova.

Padraic J. Sweeney is Managing Editor of BISNIS Bulletin. Helen Midori represents BISNIS in Chisinau.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)