Assessing Competitiveness In Moldova's Economy - Economic Growth

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Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures permits do not have enough trucks to take advantage of the permits. There are barriers to entry because of (1) the shortage of road permits, (2) the capital needed to invest in trucks complying with EURO standards, and (3) the strong market position of incumbents. Transportation companies in neighboring countries have been renewing their fleets to meet higher EURO standards, financed mostly through leasing arrangement. Moldovan companies rarely use leasing because of its limited availability and high interest rates. They prefer to buy new equipment with equity, but they are doing so at a much slower rate then their international competitors. The competitiveness of the trucking industry—and of the exporters who are relying on road transport—suffers from the lack of suitable financial instruments, in particular an effective leasing option. The small and medium enterprises development project BIZPRO/Moldova has begun to work with financial institutions to develop more innovative instruments and services. The trucking sector is a specific target for these initiatives. Railroad Rail transport is used for trade with CIS countries and domestic traffic, but not for trade with western countries, with the exception of Romania, because of the different rail gauge and complicated connections. Moldova’s monopoly provider, CFM, was restructured towards a market-based strategy. It started making a profit in 2000 and its profits have been climbing steadily, based mostly on the high rates it charges for exports. Air Freight Most scheduled air cargo takes off and lands outside of Moldova (in Budapest, Kiev, and Bucharest) and cargo is trucked in and out of Moldova. Air cargo could be transported in the holds of scheduled passenger flights through Chisinau airport, but little is. Cargo handling is the monopoly of the airport. The only competitor that had operated there went bankrupt in February 2003. The cargo handling is deemed poor by freight forwarders, cargo release is often postponed a day or two to include extra charges. Half a dozen Moldovan cargo airlines exist, but run questionable operations (reportedly including illegal arms trafficking in Africa) and are rarely used. They use Soviet-era cargo aircraft and do not operate any scheduled routes. Moldova’s uncompetitive transportation services explain why only a few of the companies we interviewed outsourced their transportation. Over 40 percent of respondents in the Exporter/Importer survey for the World Bank study indicated that they provide their own transport. Summary Cluster-oriented approaches to building a more competitive economy in Moldova might include such activities as the following: July 2004 • DRAFT Page 9
Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures 1. Organize to understand the gaps in value chains, particularly the need for wholesalers, distributors, and retail stores for nonfood items and encourage entrepreneurs to provide these business services. 2. Organize to lobby for better customs/border crossing procedures. 3. Organize to examine the basis for rates the railroad charges for exports, and develop alterative rate schedules, if appropriate. 4. Organize to understand the need for better (specialized) transportation services—make wholesale changes related to permits, treatment of foreign companies, leasing arrangements, and the like. July 2004 • DRAFT Page 10
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