Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. Moldova Competitiveness Assessment: The Textiles & Apparel Cluster
Introduction
THE TEXTILES AND APPAREL CLUSTER
The structure of the Moldovan textile and apparel cluster in many respects exemplifies the
notion of the “two Moldovas,” as the country’s economy passes through a long transition.
The larger companies are shells of the Soviet-era behemoths, built to meet the needs of the
USSR as a whole. The collapse of the Soviet Union all but annihilated their markets and
severed their economic linkages. Constantly teetering on the brink of bankruptcy, they often
survive only by gearing up for production when orders come in, and closing down once the
production run is completed. That business model shifts much of the risk to the workers, who
continue to depend on these temporary jobs, given the overall economic situation that offers
few alternatives.
However, the restructuring of the sector has created a number of medium-sized companies,
often in the form of joint ventures with partners from EU countries. The owners and
managers of these enterprises are adapting to evolving market architectures, taking steps to
upgrade their activities beyond pure processing services. With these growing capabilities,
Moldova’s apparel sector shows competitive potential; yet structural problems may block the
realization of that potential.
In 2003, Moldova exported some US$167.6 million of textiles and apparel; textiles
accounted for US$38.4 million of the total, and apparel for the remaining US$129.2 million.
Roughly 70 percent of apparel exports go to the EU, and the U.S. accounts for almost all of
the remainder. For textiles, the EU’s share in total exports is about 60 percent, with much of
the remainder going to Russia and other CIS countries. Textile exports to the EU were made
up of primarily household items, such as bed linens, almost exclusively produced in
Transnistria. 21 Apparel exports are mostly CM (cut and make) processing or tolling, services
for foreign partners; current estimates put the local value-added in total exports at around 35
percent. However, several firms have upgraded to include design, and to move into privatelabel
production. 22
21 The self-declared Transnistrian Moldavian Republic (TMR) is not recognized by the international
community, but is not under the control of the Moldovan government. It is effectively a self-governing entity,
with its own legal system, infrastructure, banking and monetary system, and external trade development.
However, in international trade statistics, Transnistria is treated as part of Moldova. Transnistrian exporters
present Moldovan certificates of origin. The analysis here does not examine these exports, although they would
of course be of interest in the case of a political solution.
22 There are some questions about the extent and direction of upgrading: the study conducted as part of the
World Banks’ Trade Diagnostic Study (2004) found no private-label activities, but the BIZPRO team visited
several factories that were engaged in private-label production for the French, Italian, and Russian markets.
July 2004 • DRAFT Page 1