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Topic 3.Topic 3.Topic 3.

INVESTMENT POLICYINVESTMENT POLICY



Lecture Contents:1. Enterprises’ investment policy: concept,

objectives2. Investment policy at macroeconomic

level and state’s investment policy inthe Republic of Moldova3. The legal and institutional framework

for investment activity in the Republicof Moldova



General definitionThe investment policy representsset of principles and measures oforganizational and economic

influence, at a level of the country,region, city or the enterprise, inorder to assure the optimumconditions directed on creation for

investments.



At microeconomic level…for realization of investment activity,enterprise develops the investment policy.Writing an investment policy for a

business can play a significant role indetermining the long term success of it.When making an investment, several thingsshould be considered, including thefinancial cost of the investment, how long

to hold the investment and the anticipatedreturn from the investment.



The purpose of the

Investment Policy • is to guide the enterprise in effectively

supervising, monitoring and managing itsinvestments.

• The policy statement is designed to allowfor sufficient flexibility in themanagement and oversight process, whilesetting forth reasonable parameters toensure prudence and care in the execution

of the investment program.



The investment policy

sets the rules for theinvestment portfolioBased on

• the careful examination of the long term

and short term funding needs,• the investment’s tolerance for risk,• the likely return on investments that fit

the expectations,• and investment concerns confronting the

enterprise



An investment policy should perform the following:

– To specify goals and objectives. The policy shouldstate both: the organization’s objectives for theinvestment portfolio and the investment performancegoals aimed to ensure that those goals were met.

– To specify risk tolerance and other constraints. It isnecessary to identify which risk factors are relevant tothe investment, to spell out how these factors will bemeasured, and to define the role that they will play in

governing the investment activities.– To specify appropriate investments. Differentinvestments have different characteristics, whichinclude level of risk, potential yield, and liquidity. Thepolicy should determine appropriate investment typesand forbid investment that should not be included in theportfolio.

– Ensure diversification. Diversification is the way tomanage risk. It enables portfolio for goals (short termor long term needs, insurance, etc.) and spell out limitson the amount of any single investment.



By investment policy it

should beidentified the investment decisionand specified reasons and argumentsregarding the decision undertechnical and economic aspect, underfinancial aspect as well as concerningthe effects that are expected

(economic, financial, social, etc).



A sound investment policy is a key to

the maximization of the additionalmoney that effective investmentscan bring to the enterprise whileminimizing the attendant risks.



Investment policy vs.

investment strategiesInvestment objectives are established inthe investment strategies of enterprises.

The investment strategy includes

information, researches and actions whichare to be realized for medium and long-term development expressed in newinvestment projects or the development

and modernization of the existing ones.



Investment strategy includespriorities and objectives, their ways ofachievement, financing mechanisms ofinvestment projects based on some

researches, analyses, etc., taking intoconsideration the firm’s potential,investment perspectives based ontechnical and scientific progress, market

demand etc.



Individual task• Discover the types of investment

strategies



Concluding…..

Objectives of the enterprise’sinvestment policy are :

• creation of a real or financialinvestment,

• the maximization of income orprofit of the investor company,• achievement of a proper level of

profitability and

• minimization of investment risk.



Macroeconomic approachAn investment policy is related anygovernment regulation or law thatencourages or discourages the investment

activity in the local economy.At macroeconomic level the investmentpolicy is correlated with economic and socialorientation established by decision bodies

like: government, parliament, ministries etc.



It is very important….that government creates properconditions for the investmentprocesses in an economy and at thesame time participates as the maininvestor in social-oriented fields like:health, education, infrastructure etc.



Government investment policy

a set of goals and actions of organizationaland economic matter, that are elaboratedand realized by public administration bodiesin collaboration with commercial and

noncommercial organizations oriented toinvestment increasing and their profitableuse for the purpose of a stable social andeconomic development of the society,increasing of national economy’s

competitiveness and enhancement of itsinvestment attractiveness.



The government investment policy canbe classified under several principles:

• Under territorial criteria it can be divided on:

• national

• regional investment policy

• According to the methods of realization, can be:

• based on economic methods or

• based on administrative methods or• mixed

• On the time period, investment policy can be:» short –term

» medium term

» long term.



realization of the government

investment policyGovernment investment policy is

realized through

Administrative

methods (Direct)

Economic methods

(Indirect)

Laws, regulations

Establishing investment promotion

agencies

Concluding investment

agreements

Offering financial incentives(tax holidays, tax exemption)

Creating privileged zones (free

economic zones)

Exemption from customs duties

etc.



Acts that stipulates priorities of

investment policy in the R. of Moldova• “Investment attraction and exports

promotion Strategy for 2006-2015”

• National Development Strategy for

2008-2011 years• Moldova 2020 Strategy

• Government's plan of action for 2011-2014 years….etc



• Implementation of Investment attractionand exports promotion Strategy for2006-2015 would contribute to thestimulation of the economic growth of thecountry and a well defined policy that willhelp to simulate, attract and maintaininvestment in our country.

• State policy in the field of investmentattraction and export promotion for theperiod 2006-2015 should be gearedtoward prior directions given in thescheme below.



For the period

2006 -2010For the period

2010 - 2015

1.1. Improvement of

policy framework on

investment attraction

2.1. Strenghtening

of the capital

market role

Strategic Directions

1.2. Promotion of

Infrastructure

Investment

1.4. Financial market

development

1.5. Investment

stimulation

2.2. Goods and

services exportdevelopment

1.7.1. Development of

preferential trade regime

1.7.2. Development of

quality infrastructure1.6. Free economic

zones development

and industrial

parks creation

1.3. Denationalization

and improvement of

public assetmanagement

1.7.3 Export promotion



The Strategic Directions of theInvestment attraction and exportspromotion strategy for 2010-2015

period is strengthening of the role ofthe capital market.



The Strategic Directions• diversification of the existing financial instruments in the market

by stimulating the derivative securities issuing (futures andoptions, issuing and transaction of preferential rights (rights andwarrants), synthetic fnancial instruments (future and options forstock market indices etc.) ;

• development of the electronic transaction system of fnancial

instruments within the framework of the formal markets (stockexchange) by implementation of leading information technology andtransactions involving financial securities on the internet;

• provision for the development of new information systemsdesigned for additional services in securities transactions (forexample, on-line security deposits by means of automatic systems,etc.);

• development and consolidation of outsourcing financial services

within the financial market.



The legal frame for investmentactivity in the R. of Moldova

• The Constitution of the Republic of Moldova• The Civil Code of the Republic of Moldova• The Tax Code• Law on investments in entrepreneurial activity, Nr. 81-XV from

18.03.2004• The Law on Entrepreneurship and Enterprises• Law on Free enterprise zones, Nr. 440-XV from 27.07.2001, as

well as, the acts on the corresponding zones• Law about industrial park, Nr. 164-XVI from 13.07.2007• Law on scientific-technological parks and the innovation incubators• Law on Limited Liability Companies – nr.135-XVI from 14.07.2007• Law on Joint Stock Companies – nr. 1134 from 02.04.1997,

modified by Law 163 from 13.07.2007 etc.• 40 signed bilateral agreements in relation to

promotion and reciprocal protection of investments• agreements for the avoidance of double taxation



• UNCTAD´s Investment Policy Reviews provide anobjective evaluation of the country´s legal,regulatory and institutional framework for FDI toattract increased foreign and direct investment,as well as how to maximize the benefits from it.

The review includes FDI entry and establishment,treatment and protection of investment, taxation,the business environment and sectoral regulations.The strategic analysis is tailored to countryneeds. Recommendations are concrete and action-oriented



The Law nr. 81-XV from March, 182004 on investment in

entrepreneurial activity• is the basic act which regulates the activity

of investors in the Republic of Moldova.• According to it, Moldova’s government is

ensuring: freedom of investment, non-discriminatory investment environment,transparency, guarantees for the observanceof investors’ rights, safeguards againstinvestment expropriation and for repairingthe prejudices, amiable settlement of

investment disputes, as well as specialprovisions related to foreign investors andforeign investment.



• The Constitution of the Republic of

Moldova guarantees the inviolabilityof investments by all natural andlegal entities, including foreigners.

• Enforcement procedures for

performance requirements to enjoytax incentives are described in theTax Code and related governmentaldecisions and Ministry of Finance

instructions.



Since 2012, the Tax Code• contains new provisions designed to

stimulate investment activity



The institutional frame is

represented by:• The Ministry of Economy;• The MIEPO• Foreign Investors Association• The Chamber of Commerce amd

Industry etc.• National Agency for Protection of

Intellectual Property of Moldova etc.



The Ministry of Economythat is the body of central publicadministration endowed to promote aunique state policy in the field of

investment attraction, stateeconomic growth assurance, thestructural, commercialtransformations.



Moldovan Investment andExport Promotion Organization

(MIEPO), www.miepo.mdis a state organization under the Ministry of Economy of

the Republic of Moldova. Its main mission is to advise andsupport foreign investors and the development of externaltrade and cooperation among Moldovan and foreigncompanies.

In fact MIEPO has two main objectives:• To help local enterprises to achieve profitable exports

values and to assist in promoting exports that match theinternational competition;

• To promote foreign direct investment in Moldova and theirrole as a main driving power for economic development of

the country.



Suggested readings:

• De Norman M. Boone,Linda S. Lubitz.Creating an Investment PolicyStatement. Business One Irwin, 1993

• Investment Reform Index 2010:

Monitoring Policies and Institutionsfor Direct Investment in South EstEurope. Organisation for Economic Co-operation and Development

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Tema3 Engl