Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment
Similarly, all leather exports (not shown in Figure 6, because the total value in 2003 was only
US$1.1 million) to the EU come from the country’s only tannery, an Italian-Moldovan joint
venture, with the Italian partner holding an 80 percent stake. The tannery started with wet blue
production, but has since graduated to producing leather meeting European quality standards.
The Italian partner handles all distribution in the EU.
Moldova has been capturing market share at a high rate for raw hides and skins, which are in
high demand worldwide, driven in part by the demand for leather seats in cars. The exports of
raw hides and skins, typically only minimally processed (preserved), have on average more than
doubled every year between 1999 and 2003.
One striking aspect of the structure of the leather cluster is the effective lack of integration. The
structure of the sector is characterized more by vertical relationships with the companies’ foreign
partners than linkages among the cluster elements. For example, virtually all of the leather
produced by the tannery is exported. Shoe producers aiming at the local market—including
Zorile—source their leather from Turkey, since there are no other tanneries in Moldova that
produce leather suitable for shoes, although two small ones are reportedly coming on line. There
is a small operation in Chisinau that imports and distributes other materials needed in shoe
production, including some leather. The exporters of raw hides and skins source their
merchandise from local suppliers as well as from Ukraine, relying on networks dating back to
Soviet times. Again, Moldova has an edge in terms of access to the EU. In turn, the local tannery
sources very little in the way of its raw materials locally, relying instead more on Ukraine.
Many elements of the cluster, in particular domestic shoe producers, are operating on the edge of
the informal sector, even if they employ 25 or 30 people. Their margins are small and pressure
from imports, especially for summer shoes, is intense. Efforts to upgrade and compete more
effectively are hampered not only by the business environment, but also by the weak
performance of the banking system, which provides no intermediation, leaving producers and
suppliers to come up with their own arrangements.
Clearly, Moldova has certain advantages in this sector—skills, an ample supply of raw materials,
and a good location. Moreover, Moldovan producers are demonstrating that they can meet
quality standards in one of the most sophisticated markets in the world. Yet leveraging these
advantages requires appropriate changes in the regulatory environment to reduce transaction
costs, and to encourage better services from the financial system.
Overview
INFORMATION AND COMMUNICATIONS TECHNOLOGY (ICT)
The information and communications technology (ICT) industry in Moldova is one of untapped
potential. During the Soviet era, Moldova was a center for technology in electronics and military
production. The region developed a high concentration of skilled professionals in physics,
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