Topic 3.

INVESTMENT POLICY

Lecture Contents:
1. Enterprises investment policy: concept, objectives 2. Investment policy at macroeconomic level and states investment policy in the Republic of Moldova 3. The legal and institutional framework for investment activity in the Republic of Moldova

General definition
The investment policy represents set of principles and measures of organizational and economic influence, at a level of the country, region, city or the enterprise, in order to assure the optimum conditions 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 in determining the long term success of it. When making an investment, several things should be considered, including the financial cost of the investment, how long to hold the investment and the anticipated return from the investment.

The purpose of the Investment Policy

is to guide the enterprise in effectively supervising, monitoring and managing its investments. The policy statement is designed to allow for sufficient flexibility in the management and oversight process, while setting forth reasonable parameters to ensure prudence and care in the execution of the investment program.

The investment policy sets the rules for the investment portfolio
Based on the careful examination of the long term and short term funding needs, the investments 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 should state both: the organizations objectives for the investment portfolio and the investment performance goals aimed to ensure that those goals were met. To specify risk tolerance and other constraints. It is necessary to identify which risk factors are relevant to the investment, to spell out how these factors will be measured, and to define the role that they will play in governing the investment activities. To specify appropriate investments. Different investments have different characteristics, which include level of risk, potential yield, and liquidity. The policy should determine appropriate investment types and forbid investment that should not be included in the portfolio. Ensure diversification. Diversification is the way to manage risk. It enables portfolio for goals (short term or long term needs, insurance, etc.) and spell out limits on the amount of any single investment.

By investment policy it should be

identified the investment decision and specified reasons and arguments regarding the decision under technical and economic aspect, under financial aspect as well as concerning the effects that are expected (economic, financial, social, etc).

A sound investment policy is a key to the maximization of the additional money that effective investments can bring to the enterprise while minimizing the attendant risks.

Investment policy vs. investment strategies

Investment objectives are established in the investment strategies of enterprises. The investment strategy includes information, researches and actions which are to be realized for medium and longterm development expressed in new investment projects or the development and modernization of the existing ones.

Investment strategy includes

priorities and objectives, their ways of achievement, financing mechanisms of investment projects based on some researches, analyses, etc., taking into consideration the firms potential, investment perspectives based on technical and scientific progress, market demand etc.

Individual task
Discover the types of investment strategies

Concluding..
Objectives of the enterprises investment policy are :

creation of a real or financial investment, the maximization of income or profit of the investor company, achievement of a proper level of profitability and minimization of investment risk.

Macroeconomic approach
An investment policy is related any government regulation or law that encourages or discourages the investment activity in the local economy. At macroeconomic level the investment policy is correlated with economic and social orientation established by decision bodies like: government, parliament, ministries etc.

It is very important.
that government creates proper conditions for the investment processes in an economy and at the same time participates as the main investor in social-oriented fields like: health, education, infrastructure etc.

Government investment policy

a set of goals and actions of organizational and economic matter, that are elaborated and realized by public administration bodies in collaboration with commercial and noncommercial organizations oriented to investment increasing and their profitable use for the purpose of a stable social and economic development of the society, increasing of national economys competitiveness and enhancement of its investment attractiveness.

The government investment policy can be 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.

Methods and tools for the realization of the government investment policy
Government investment policy is realized through

Administrative methods (Direct)

Economic methods (Indirect)

Laws, regulations

Offering financial incentives

(tax holidays, tax exemption)

Establishing investment promotion agencies

Creating privileged zones (free economic zones)

Concluding investment agreements

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 attraction and exports promotion Strategy for 2006-2015 would contribute to the stimulation of the economic growth of the country and a well defined policy that will help to simulate, attract and maintain investment in our country. State policy in the field of investment attraction and export promotion for the period 2006-2015 should be geared toward prior directions given in the scheme below.

Strategic Directions

For the period 2006 -2010

1.1. Improvement of policy framework on investment attraction 1.2. Promotion of Infrastructure Investment

For the period 2010 - 2015

2.1. Strenghtening

of the capital market role

2.2. Goods and services export development

1.3. Denationalization and improvement of public asset management

1.4. Financial market

development

1.5. Investment

stimulation

1.7.1. Development of preferential trade regime

1.7.2. Development of quality infrastructure

1.6. Free economic zones development and industrial parks creation

1.7.3 Export promotion

The Strategic Directions of the Investment attraction and exports promotion strategy for 2010-2015 period is strengthening of the role of the capital market.

The Strategic Directions

diversification of the existing financial instruments in the market by stimulating the derivative securities issuing (futures and options, issuing and transaction of preferential rights (rights and warrants), synthetic fnancial instruments (future and options for stock market indices etc.) ; development of the electronic transaction system of fnancial instruments within the framework of the formal markets (stock exchange) by implementation of leading information technology and transactions involving financial securities on the internet; provision for the development of new information systems designed for additional services in securities transactions (for example, 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 investment activity 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

 UNCTADs Investment Policy Reviews provide an objective evaluation of the countrys legal, regulatory and institutional framework for FDI to attract 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 country needs. Recommendations are concrete and actionoriented

The Law nr. 81-XV from March, 18 2004 on investment in entrepreneurial activity
is the basic act which regulates the activity of investors in the Republic of Moldova. According to it, Moldovas government is ensuring: freedom of investment, nondiscriminatory investment environment, transparency, guarantees for the observance of investors rights, safeguards against investment expropriation and for repairing the prejudices, amiable settlement of investment disputes, as well as special provisions related to foreign investors and foreign investment.

 The Constitution of the Republic of Moldova guarantees the inviolability of investments by all natural and legal entities, including foreigners. Enforcement procedures for performance requirements to enjoy tax incentives are described in the Tax Code and related governmental decisions 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 Economy

that is the body of central public administration endowed to promote a unique state policy in the field of investment attraction, state economic growth assurance, the structural, commercial transformations.

Moldovan Investment and Export Promotion Organization (MIEPO), www.miepo.md

is a state organization under the Ministry of Economy of the Republic of Moldova. Its main mission is to advise and support foreign investors and the development of external trade and cooperation among Moldovan and foreign companies. In fact MIEPO has two main objectives: To help local enterprises to achieve profitable exports values and to assist in promoting exports that match the international competition; To promote foreign direct investment in Moldova and their role as a main driving power for economic development of the country.

Suggested readings:
De Norman M. Boone,Linda S. Lubitz. Creating an Investment Policy Statement. Business One Irwin, 1993 Investment Reform Index 2010: Monitoring Policies and Institutions for Direct Investment in South Est Europe. Organisation for Economic Cooperation and Development