Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment
EXECUTIVE SUMMARY
“In the last six years, one-third of the young people have left to make a decent living
abroad.” Moldova today? Actually, the comment referred to Ireland in 1959. Moldova’s
experience in the first years of the 21st century mirrors that of other countries throughout
recent European and American history. There are parallels with the “guest workers” from
Italy, Spain, Portugal, Greece, and Turkey working in Germany during the 1960s and 1970s,
and today’s exodus echoes the migration from the deep South to the Midwest and the
Northeast of the United States after World War II.
Although these episodes of economic and social transformation bring stress to communities,
and often personal suffering—as well as instances of amazing individual success—renewal
of society and economy, however gradual or abrupt, is necessary for survival and growth.
This economic and social renewal is driven by the competitive demands of individuals,
companies, and public and private institutions for resources to supply what the markets
require for growth. A successful transition entails structural change of unprecedented
magnitude, and success is neither preordained nor assured by recent history. For instance, in
1991 over 45 percent of the people of Moldova made their living from agriculture-related
activities, while the average in western Europe and the United States was less than 5 percent.
Although intense, modern horticulture, including vineyard development, may warrant a
somewhat higher percentage; the transition will mean vast sectoral shifts.
In many respects, Moldova today is at a crossroads: the country is the poorest on the
European continent, but is not without endowments, notably its soil and climate, its location
as a bridge between the expanding European Union and the countries of the Commonwealth
of Independent States (CIS), and a skilled and inexpensive labor force. However, Moldova
has largely failed to capitalize on these endowments or on the opportunities of European
market integration. Agricultural production suffered as the rush to decollectivize resulted in
the fragmentation of landholdings, along with an inability to cope with the collapse of
traditional market relationships. Likewise, there has been no systematic attempt through
sustained regulatory reform to leverage the competitive advantage as the land bridge between
the European Union (EU) and the CIS.
Moldova may yet grasp the opportunities before it by rapidly opening all of the access points
to the expanded European market to attract investment and create job opportunities that
would bring back its young people. Even now, workers’ remittances are fueling a residential
construction boom, as well as the acquisition of new skills and understanding of market
architectures. In fact, the growing depopulation of rural areas, where often only the very
young and the very old remain, may facilitate the necessary consolidation of landholdings
needed for mechanized and competitive production.
Moldova’s private sector producers and exporters have shown great resilience in coping with
an adverse business environment. The legacy of the “old Moldova” may still dominate much
of the country’s economy, but the transition is moving forward. Entrepreneurs are adapting to
new market architectures—changing expectations and standards, emerging rules, and
evolving market channels and patterns of intermediation. They are willing to invest in
July 2004 • Draft Page iii