Assessing Competitiveness In Moldova's Economy - Economic Growth

More documents

Recommendations

Info

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
Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment learning to prosper in a competitive environment. They have found little support, and receive often confusing signals from successive governments, and at times open opposition in the policy environment. Nevertheless, market support structures and services, while woefully inadequate, are evolving. But much more needs to be done, especially in terms of the quality assurance system, infrastructure services (transportation and energy), and financial services, as outlined in this assessment report. Policy and Regulatory Reform The policy environment lags far behind that of other small open economies that have emerged from communist strictures. Uncertainties about the applicable regulations, frequent changes in key provisions, and wide administrative discretion in applying and enforcing legal and regulatory standards impose significant costs on doing business. In a recent analysis of the business environment in 27 transition economies by the Economist Intelligence Unit, Moldova ranked 19th, just ahead of Georgia. Overall, the cost of compliance vastly exceeds any benefits from regulatory and administrative requirements. Transformation of the economy demands investment. A recent USAID study of the potential of high-value agriculture concluded that an investment of US$2 billion was needed. Similar lessons apply to other sectors. Mobilizing such sums from within the country will prove difficult, if not impossible. Foreign direct investment (FDI) in the context of an integrated Europe is a prerequisite. Over the period 1998-2002, FDI per capita in Moldova was less than 9 percent of the corresponding amount for the newly accessioned EU members. Some of the factors influencing investors’ perceptions of country risk are beyond the control of the Moldovan authorities. The problem of a quasi-independent Transnistria, for example, which often trades internationally as part of Moldova’s economy, remains intractable. But resolute regulatory reform and a shift to rule-based governance would go a long way to build investor confidence, raise credibility, and attract FDI. The authorities have recently accelerated the process of policy and regulatory change through the establishment of a public/private commission with real powers to initiate regulatory reform. There is a public commitment of political support at the highest level to introduce and pass in Parliament, before the summer 2004 recess, a guillotine mechanism to streamline Soviet-era regulations and institutions drastically, adopting best practices from the new EU members. Market Support Structures The country’s quality assurance (QA) infrastructure reflects the transitional state of the economy. The infrastructure, in terms of standards, testing, and certification bodies, is in place for doing business with the CIS countries, but not Europe or the wider global market. The Moldova Standard (MS) conformity mark needs to be recognized and integrated into the system of European norms through reform of the QA system and harmonization of standards and regulations. The recently signed EU/Russia protocol in support of Russia’s application to join the World Trade Organization (WTO) underlines this strategic direction. There is a real July 2004 • Draft Page iv
Page 1 and 2: Assessing Competitiveness In Moldov
Page 3: Development Alternatives, Inc. / BI
Page 7 and 8: Development Alternatives, Inc. / BI
Page 37 and 38: Development Alternatives, Inc. Mold
Page 55 and 56:
Development Alternatives, Inc. Mold
Page 58 and 59:
Page 60 and 61:
Page 62 and 63:
Page 64 and 65:
Page 66 and 67:
Page 68 and 69:
Page 70 and 71:
Page 72 and 73:
Page 74 and 75:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117:
show all

Assessing Competitiveness In Moldova's Economy - Economic Growth

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?