Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment
Supporting Economic Activities
Competitive performance in an economy hinges on the performance of market support structures
that can be grouped into five categories:
Physical and social infrastructure
Moldova’s physical infrastructure is no longer up to the task of supporting competitive
performance in export markets or efficient distribution in domestic markets. The road transport
network, although extensive, has fallen into disrepair, by some estimates increasing vehicle
operating cost by as much as 50 percent for heavy trucks. The telecommunication infrastructure
is inadequate for pursuing any aspirations to become a trade hub between West and East. Finally,
while primary energy—natural gas and oil—is in effect subsidized by Russia (charging the
domestic price, which is significantly below the world market price), Moldova’s electricity sector
on the whole is inefficient, and carries some risk: aside from three small combined heat and
power (CHP) plants in Chisinau and Balti, the country’s major generating capacity is located in
Transnistria. As a result, larger enterprises find it preferable to invest in their own generating
plants, although the economics of these investment decisions are likely to be affected by the
upcoming price increases for primary energy.
Market intermediation services
For the most part, market intermediation services—market information, sourcing, facilitation,
consolidation, freight forwarding, storage and warehousing, wholesale, and so on—are
rudimentary. Intermediation activities, and wholesale operations in particular, tend to be viewed
with suspicion, that translates into special regulatory and administrative attention. In addition,
the benefits of more efficient market architectures are generally only dimly understood, and
producers are unwilling to “give up” margins to intermediaries, thereby cutting themselves out of
critical elements of their respective value chains.
In export markets, Moldovan producers rely almost exclusively on foreign partners. In the CIS
countries, these partners tend to be part of networks developed during Soviet times, often
reinforced through cross-ownership. In the West, the partners may be either clients in
outsourcing arrangements or joint venture partners. In either case, they provide market
information, handle customs formalities in the destination countries, and distribute goods to end
consumers. For imports of fast-moving consumer goods (FMCG), distribution channels are fairly
well organized. Similarly, market access channels for the construction materials industry, perhaps
the major beneficiary of the surge in demand sparked by the rise in workers’ remittances, are
among the most sophisticated. Several levels of distributors are organized geographically, and
producers sell their products at varying discounts so that prices for end consumers are the same
no matter where they buy.
July 2004 • Draft Page 8