The economic freedom score for Moldova is 62.0, making it’s economy the 87th freest in the 2020 Ranking. Its overall score rose by 2.9 points, with better ratings for transparency of the government and government expenditure.
This year the Moldovan economy is heading to the category of moderately open. Over the last five years GDP growth has been stable.
|Benefits of Doing Business in Moldova||The Drawbacks of Doing Business in Moldova|
|Skilled Labour Force||Bureaucracy|
|Favorable Business Location||Non-Transparent|
|Tax Incentives are There||Political Instability|
Advantages of Doing Business in Moldova
- Strategic Location for Conducting Business
Moldova lies between Ukraine and Romania. Thus Moldova will be neighboring the EU from 2007 onwards. Most Moldovan people speak both Romanian and Russian languages, making economic relations with neighboring countries easier due to barriers to the language.
Despite Moldova’s Communist Party being at the control, the government pursues the goal of eventually entering the EU. Reforms are being introduced and enforced to align in the fields of economic growth, social guarantees, and others with EU norms.
- Living Cost is Favourable
Living costs are relatively low with Moldova being a low-cost country. Global experts may be deployed to Moldova for a fraction of the usual US or Western European expenses. Around the same time, it is much easier to support the local workers.
- International Trade Agreements
Moldova has a WTO member status. Moldova is also a member of the CIS and profits from free trade agreements with the CIS countries. Moldova also benefits from the EU GSP Plus arrangement (Source: Generalized Arrangement of Preferences Plus) and the South-East European States Free Trade Agreements. Moreover, Moldova is expected to join CEFTA (Central European Free Trade Agreement) soon.
- Privatization Process
Since gaining independence in 1991, Moldova has moved from the form of a centrally controlled economy to a free one. The privatization of many of the formerly state-owned businesses, assets, and land have characterized this process. State-owned properties are also being privatized.
- Tax Incentives
Companies spending more than USD 250,000 will get a cut in corporate income tax payable under some circumstances for up to five years. The corporate income tax rate has fallen from 28 percent to 15 percent in 2007 over the past few years.
Over the last few years, corporate income tax has also been reduced, with the highest individual income tax rate being 20%.
- Stabilized Economy
Moldova has been in a stable economic situation. Its real GDP has been steadily rising since the end of the 1998 Russian economic crisis, and even the Russian authorities’ ban on exporting Moldovan wines to Russia has not crippled economic growth, although it has slowed it down somewhat.
Rates of growth for real GDP, Moldova. Moldovan Leu’s exchange rate, Moldova’s national currency, against the US Dollar has oscillated over the past 10 years mainly between 10-13 MDL.
- Foreign Investments
The Moldovan authorities welcome foreign investment. A number of foreign companies successfully worked in Moldova. Lafarge, Sudzucker, Union Fenosa, Metro Cash & Carry, and others are among others. As calculated by Heritage Base, Moldova’s Index of Economic Freedom compares well with its neighbors.
At the same time, several changes are underway to improve the country’s business environment, and while several may argue that these changes are too trivial, they still demonstrate the authorities’ appetite for positive change.
- Commuting is Easy
The Republic of Moldova is a relatively small nation with 3 million people. People live between Romania and Ukraine, in Eastern Europe. The Republic of Moldova is geographically situated in Europe, but the country is not part of the European Union, which serves as a benefit.
From Europe to Chisinau, the capital of the Republic of Moldova, there are regular direct flights costing less than € 100, the flight takes 2-3 hours. All EU people can fly within the Republic of Moldova for 3 consecutive months without a visa.
Public transport is available, a taxi ride begins at € 2 (the cost starts at € 20 for the country road trips). The average price for a one-room hotel room in the capital city center costs an average of 50.
- Logistical Support
The transport infrastructure which connects Moldova with Romania and Ukraine include roads and railways. Very slowly, motorways are being restored. A new eastward railroad route has recently been launched to reach Ukraine bypassing the Transnistria area, thereby significantly reducing the risk of road blockades.
There is also an International Airport in Chisinau. A port was opened on the Danube River on October 26, 2006, which is planned to be open to passengers and freight transit within the next two years (until then it will be used for oil imports-the main purpose of its construction).
- Telecommunications are at a Boom
Telecommunications are also making rapid headway. The government has set a goal to provide telephone service for every household in the country and is aggressively pursuing that aim through the currently state-owned company Moldtelecom.
A number of providers in Chisinau have broadband internet available, and Moldtelecom provides access to ADSL services in other parts of Moldova. Internet rates have fallen significantly in recent years, rendering it available to the general public and companies.
Disadvantages of Doing Business in Moldova
- Widespread Corruption
Property rights are violated by a poor and corrupt judiciary while guaranteed by Moldovan law. Widespread corruption and associated advantages impact regular business operations and impede equal competition for politically aligned business owners.
The judiciary is vulnerable to political interference restricting its independence. Corruption is prevalent in government at all levels, and current anti-corruption laws are ineffective.
- Tax Rates are High
The highest taxable income and rates of corporate tax are 12 percent. Some taxes include the VAT. The gross tax burden is equivalent to 33.2 percent of total domestic revenue. Over the past three years, government spending has been at 30.8 percent of the country’s GDP (GDP), and budget deficits have averaged 1.2 percent of GDP. Public debt is 27.1 percent of GDP.
- Political Uncertainty
Private companies have to contend with political instability, poor management capability, and entrenched bureaucratic interests. The abolition of redundancy in the registration has facilitated starting a corporation. An inadequate education system is nourishing the inadequate labor market.
Better trained Moldovans also leave for another place to live. Government spending on agriculture and other subsidies increased ahead of parliamentary elections in 2019.
- Lack of Transparency
The combined value of goods and services exports and imports amounts to 86.7 percent of GDP. The average tariff rate applied is 3.5 percent, but there are several nontariff barriers and a lack of transparency that raise the cost of a trade.
International and domestic investors are handled equally but the investment environment as a whole is not conducive to competitive growth in business. The extent of the financial intermediation overall remains shallow.
- Stricter Employment and Migration Laws
Recent years have seen a series of incremental reforms to labor legislation, rebalancing employers’ and workers’ rights and responsibilities, and signaling a clear departure from the old employee-friendly legal system.
Employee dismissal grounds have increased, labor union legal rights have diminished, and administrative interference in the employment relationship has been minimized.
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