Assessing Competitiveness In Moldova's Economy - Economic Growth

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Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures Clothes, Shoes, and Carpets Figure 4: Construction materials distribution Several of the better known apparel and shoe factories have factory stores located next to their factories (such as Ionel, Zorile). Even smaller domestic producers operate their own retail stores. Both carpet manufacturers, Coavare and Floare have a retail operation at their factory sites as well as in offices in downtown Chisinau. Moldovan clothes, shoes, and carpets are also sold in retail spaces at TSUM, the state store. The Moldovan apparel being sold in Chisinau retail stores comes directly from factories, is typically of poor design, is not known for its high quality, and has few buyers. The best places to buy clothes produced in Moldova are the outlets of factories known for good quality and decent designs. If traders are interested in buying Moldovan products and selling them in GEMINI, it appears that they could do this; but most prefer to sell imported items. Furniture We expect the demand for furniture in Moldova to boom as Moldovans furnish the houses and apartments they are building, refurbishing, and buying. There are few Moldovan companies poised to fill this growing demand and we expect foreign imports to fill the gap. The Moldovan furniture companies already benefiting from the building boom have limited retail options. As a result, one successful factory in Balts has opened five of its own retail shops, sells via a catalog and the Internet and runs large advertisements in the local newspapers directing potential customers to their web site and telephone number. They sell both customized and standard furniture, with their main competition coming from Poland. Others rent small retail areas at TSUM. July 2004 • DRAFT Page 7
Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures Transportation Services Overview There are no Moldovan companies that offer more than one transport mode, cargo handling, and related information services. There are a limited number of Moldovan trucking companies, freight forwarding, warehousing, and other logistics-related services—and not much competition among them. Only a few of these companies have international experience and none of the major international logistics firms have established operations in Moldova. Foreign firms regard Moldova as a “logistically unfriendly” place, with complicated customs regulations, unpredictable rules and procedures, and often corrupt practices. As a result, the quality of services is low and the prices are high. According to the World Bank’s Moldova Trade Diagnostic Study, total logistics costs in Moldova are about 22 percent of Gross Domestic Product (GDP)—the highest in Europe. The corresponding figure for the EU accession countries is between 10-16 percent of GDP. Domestic distribution is poorly developed: there are no logistics operators that offer a countrywide terminal network or regular parcel services. Over 80 percent of Moldova’s exports and over 66 percent of its imports are time-sensitive goods. Just-in-time European producers are increasingly sourcing from nearby Eastern Europe and Moldova, but they require on-time deliveries of inputs. Manufacturers assembling electronic and mechanical goods require accurate inbound shipments of components, careful inventory management practices, and accurate paperwork. The fashion industry is highly time-sensitive and requires that producers of ready-made garments deliver on time and quickly. The home furnishings industry, including home textiles such as tablecloths, napkins, and bed linens, is also becoming fashion-oriented and thereby more time-sensitive. Unfortunately, delays at the Moldovan border crossings are notoriously lengthy. “While total border crossing waiting time is usually around 5 to 15 percent of total transport time in import and export to and from Romania, Bulgaria, Bosnia and Herzegovina … it tends to be 30 to 50 percent in Moldova in comparable cases.” Border delays and time-consuming paperwork severely reduce Moldova’s competitiveness in trade and in the goods they trade. As a result, imported items become unnecessarily costly; firms must hold higher inventories, reducing their efficiencies and raising their costs; and Moldovan exporters lose their competitive advantage in fast and on-time deliveries and are thrown back to competing primarily on cost—exploiting an elusive advantage. Trucking There are three types of operators in the Moldovan trucking industry: (1) operators with multilateral permits that allow them into Europe and with some equipment complying to EURO standards, (2) operators with aging equipment meeting CIS standards and having bilateral permits into CIS countries, and (3) domestic operators with old equipment and no permits allowing them to bring good into or out of Moldova. There is excess capacity in the last two categories and a shortage in the first category. And the operators with multilateral July 2004 • DRAFT Page 8
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