Moldova cleans up its act to attract foreign businesses

https://www.bbc.com/news/articles/cly0zwpxjmwo

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Dutch entrepreneur Luc Vocks runs his business from Moldova

The Eastern European country of Moldova is continuing efforts to attract overseas firms, as it tries to move past political uncertainty.

"I went with a backpack, and set up a business," says Dutch entrepreneur Luc Vocks, recalling how he moved to Moldova in 2007.

Mr Vocks had first visited the former Soviet republic three years earlier, and recalls experiencing "the cliché that one would have of Eastern Europe at that time".

"Everything was dirt cheap, and if you were a foreigner you'd get attention," he says.

Today, Mr Vocks is the owner of a Moldovan company called DevelopmentAid. Based in the capital Chisinau, it employs 180 people in the country, and runs a website that lists job vacancies in the international development community.

Mr Vocks is one of a growing number of foreign entrepreneurs in Moldova. The government wants to attract more like him and hopes that low business tax rates will help.

The country's standard corporation tax rate - the amount that firms have to pay on their profits - is just 12%. This compares with 25% in the UK, and 25.8% in the Netherlands where Mr Vocks had initially launched his company before relocating it to Moldova.

There's an even better deal for tech firms. In 2018 the Moldovan government launched an initiative to grow the country's IT sector - the Moldova IT Park (MITP).

This isn't a physical business park. Instead it is virtual scheme open to all IT firms in the country - and those that wish to move there from overseas. Firms that sign up only have to pay a corporation tax rate of 7%.

The MITP is part of a wider effort by the Moldovan government to modernise and expand its economy ahead of a bid to join the European Union in 2030.

This drive is being led by Moldova's pro-EU President Maia Sandu, who this week was re-elected for a second term. And last month Moldovans voted "yes" on pro-EU constitutional changes.

However, the vote was extremely close, with Yes getting 50.46% and No receiving 49.54%. Although Russia denied interfering in the vote, Moldova’s authorities said attempts had been made to buy up to 300,000 votes in what Maia Sandu described as an "unprecedented assault on freedom and democracy".

Moscow is opposed to Moldova joining the EU, and supports Moldova's breakaway region of Transnistria economically, politically and militarily.

Moldova’s President Maia Sandu has been re-elected for a second term of office

Dumitru Alaiba, Moldova's deputy prime minister and minister for economic development and digitalisation, is positive about where Moldova is heading.

"Moldova in the past 10 to 15 years has really proven that it's a country that can change very fast," he tells the BBC.

"This used to be a highly corrupt country, a country where, exactly 10 years ago, a billion dollars from our central banks just disappeared."

"We are moving very fast towards joining the EU, and we are reforming our economy at top speed. Of course, we have a long way to go."

He pointed to Moldova's rise on the global Corruption Perceptions Index, produced by anti-corruption watchdog Transparency International.

Out of 180 countries - with a lower placing meaning that a country is less corrupt - Moldova is now in 76th place,, external up from 91st a year earlier.

"Now entrepreneurs can breathe freely without fear of repercussion, without fear of corrupt inspectors, without fear of a filthy justice sector that commits crazy abuses."

Mr Vocks agrees that Moldova is now a much easier place in which to do business than when he first set up his company there back in 2007.

"Back then, it was extremely bureaucratic. It was hard to get a residence permit. It was painful to register a company, especially as a foreigner.

"It was painful intersecting with the tax agency. The banks were rough to work with."

The main government building in Chisinau is very clear about the administration's desire to join the EU

Member companies of the MITP don't just benefit from the 7% corporation tax rate. They also don't need to make employer social security contributions, and staff don't have to pay income tax. Mr Volks signed up DevelopmentAid almost immediately.

The MITP has also simplified immigration procedures through the IT Visa program.

More than 2,000 companies are now registered with the MITP, 300 of which have come from overseas. The most common countries these have moved from being the US, UK, Germany, Netherlands, and Ukraine.

In the first half of 2024, MITP firms generated a combined €365m ($397m; £308m) in revenues, according to official figures. And now employing 22,000 people in general, they are said to contribute around 6% of the country's GDP.

While the MITP scheme has worked to boost Moldova's IT sector, the influx of foreign tech companies has driven up salaries in the industry considerably.

Sven Wiese, a German expat who has set up a small IT services business in the country called Trabia, says he is now finding himself priced out when it comes to employee pay.

He says that the biggest firms signed up to the MITP can offer IT specialists more than €100,000 a year, "because that is still cheaper than hiring people within a bigger country like the US or Germany".

Deputy Prime Minister Dumitru Alaiba says corruption in the country has been tackled

At the same time he says that many Moldovan IT sector workers still want to leave the country. "Fewer people are now leaving Moldova, but emigration is still high."

Another negative issue is the continuing war in neighbouring Ukraine, which is likely making some Western IT firms think twice about investing in Moldova. Mr Alaiba says is confident that Moldova is safe "as long as the free world is supporting Ukraine".

Marina Bzovii, MITP's administrator and an assistant professor at the Technical University of Moldova, already sees Moldova as a regional business hub. "Moldova is connecting even Central Asia, countries like Kyrgyzstan, Tajikistan and Uzbekistan, who are culturally much further from Europe.

"However, Moldova understands both of the cultures. So it's the kind of business hub that Europe needs... and Chisinau is now really vibrant."