Topic 2.

The Investment Environment

The concept of investment

environment

Determinants of investment environment Investment environment of the Republic of Moldova (individual work) Definition of investment environment The investment environment can be defined as a system of factors, influence of which can interfere in the investment process, modifying the investment behavior. The investment environment can be analyzed on a large number of factors

Definition of investment environment Developing this idea we can say that the investment environment is a component of the economic situation of one country, region or branch which is formed under the influence of political, economic, juridical, social, geographical or demographical factors, which determine the conditions of performing the investment process in an economy. By United Nations Economic Commission for Europe, the investment climate could be described as the conditions that make up the favourable environment in which private enterprises prosper thrive! by investing and producing. "ccording to the World Bank definition, investment environment is a policy, institutional and behavioral environment, that influences the returns and risks, associated with investment. Investment environment investment ima e The investment climate is determined by a range of factors which reflects a general investment ima e of a country. Investment image is formed as a result of all processes and real phenomena that produces in the investment area of an economy. #t represents merely a pre$condition for direct investment attraction, and is a determinant for investor who is lookin for a ood opportunity to invest. Investment environment ! investment attractiveness #nvestment environment can indicate the level of attractiveness of one country or region or branch for the investments.

The investment attractiveness can be defined as the capacity of an economy to meet the re uirements and interests of investors through investments receipt. The main elements used to describe the investment environment are" %&Investment potential& the objective&opportunities of one enterprise, region or country to invest!. Investment risk the risk factors, which contribute at the increase of the investment risk, will stop the investment behavior to go on, and so will damage the investment attractiveness!

#i ure 2$ The main elements of investment climate

Investment %limate

Investment potential" $the de ree of natural

Investment risks" 'political instability&

resource covera e& 'economic trends& ! production& 'financial instability& ! consumption& 'bud et issues& ! infrastructure& 'le islative 'uality and ! the potential to innovate& chan es& $labor force& 'social( criminal( ecolo ical $the institutional frame& $access to financin etc$ aspect

2$2$ Determinants of investment environment " country(s investment climate is determined by a number of parameters which reflect the full picture of the country, of the country(s ability to attract investments, develop investment process, etc. The factors of investment climate of the country are usually defined through various macroeconomic indicators of the country whole performance, the combination of which, form an integral picture of investment climate in a specific country or region. #actors of the investment climate that can be rouped accordin to different criteria$ ). #irst( accordin to the manifestation level can be" #actors on macroeconomic level( that refer to macroeconomic conditions budget situation, balance of payments situation, public and e*ternal debts, inflation, e*change rate, interest rate!+ politic and social factors policy uncertainty, corruption and criminality, unemployment rate, the living standards!+ institutions the legal and regulatory system that promotes competition, good governance and improves access to financial services!+ physical and market infrastructure. #actors on microeconomic level, economic factors !access to resources, market advantages, cost reduction, overcoming trade barriers, financial factors enterprise financial situation, the efficiency of the enterprise activity, access to financing sources for investment!+ factors "hich determine the market con#uncture buyers, providers, competition!+ administrative factors the -uality of management, the e*istence of e*perience and assessment of investment perspectives!. psychological factors investment culture, individual preferences of investors, natural barriers like culture or language! )ccordin to their nature are$$ Economic factors $ocial factors %olitical factors& factors of internal policy situation social structure, institutional framework, control mechanism!+ factors of e'ternal policy situation instability of regional policy, geopolitical importance, belonging to one of the political group, regional economic situation!. )ccordin to the risk!return relation"

.actors which determine the country potential of investment assimilation resources, productive potential of the country, infrastructure, labor force, institutions efficiency!. .actors that describe the investment risks political, economical, social risks etc. Dependin on the possibility of influence by the society( are" /bjective factors, those include natural and climatic conditions, endowment with power raw material resources, geographical positioning, demographic situation, neighbor$countries etc. 0ubjective factors are those related to human resources management.

The assessment of investment climate

The assessment of investment climate can be used by many stakeholders, it can help 1overnments and policymakers identify which dimension of their business environment need improving and what actions need to be taken for this. #t obviously helps investors in their decision makin , whether to invest or not. The assessment of investment climate 2evertheless, a country investment climate -uality represents the determinant indicator of rationality to invest or of the continuity of the investment activity. Depending on the users preferences the investment climate is estimated according to different levels, country, region, municipal, branch, city, enterprise, etc. "ll these levels are correlated and interdependent. Investment environment rankin 3ountries are ranked by various inde*es depending on their investment potential in order to help investors choose the most favorable and profitable country. The results of investment climate assessment are presented in form of rating tables. 4ating is a classification or ranking of territories countries, regions, etc! based on a comparative assessment of different aggregate indicators.5ethodological approaches 4atings are computed annually or within a specified period of time based on accumulated set of indicators. These indicators are selected by different rating agencies and represent the fundamentals for an integral estimation of the investment climate conditions.

#t is noteworthy, that all methodological approaches used for evaluation of rating structure are fre-uently revised by rating agencies, because these ratings are influenced by both world and local market conjuncture 4ating #nstitutions The assessment of the investment climate of one country on worldwide frame is made by, #mportant Banking institutions, such as 3itibank, Bank of "merica, "merican 0ecurity Bank etc, .irms specialized in evaluation of country risk Business Environmental, 4isk #nformation, The Economist #ntelligence 6nit E#6!, 7.4.0. 1roup, Dun 8 Bradstreet. 0pecialized 5agazines, Euromoney, .orbes,#nstitutional #nvestors. 4isk rating agencies 0tandard87oor9s 4atings 1roup, cu o cota de :;<, 5oody9s #nvestors 0ervice cu =><, si .itch$#B3" ? )@<. E*port credit agencies 4ankings for investment environment The assessment of investment climate includes a large classification, from favorable to risky. " favorable investment climate lead to revitalize the investment activity, to carry on investment processes of enterprises, stimulating domestic savings and economies, and attracting considerable amounts of foreign investments. #t also gives investors confidence in the market and encourages them to invest more capital. "n unfavorable or risky investment climate has an opposite action, fact that impedes the investment processes of domestic economic agents and also the interest of potential foreign investors for business activity in this environment. The most problematic factors of doin business for Moldova accordin to the *lobal %ompetitiveness Inde+ 0uggested 4eadings 0trategy of investments attraction and e*ports promotion for A;;B$A;)@C D"T4", 1eet+ E"6.5"22+ Daniel, 0T/2E, "ndrew. Investment Climate (round the World. )oices of the *irms from the World Business Environment $urvey. Forld Bank, A;;=. )@: p. Forld Bank 1roup. Improving Investment Climates& (n Evaluation of World Bank +roup (ssistance. /peration Evaluation Department, A;;:. www.doingbusiness.org ? Doind Business Gome. Forld Bank 1roup. www.heritage.org ? 3onservative 7olicy 4esearch and "nalisys. The Geritage .oundation.