Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment
danger that Moldova’s market support system will fall behind the pace of reform within the
core of the CIS itself.
The efficiency of internal market architectures for exports, imports, and domestically
produced goods is inadequate for competitive performance. Major gaps in market support
structures, including transport and logistics services, raise costs and impair key dimensions of
quality, such as on-time delivery. The inability to understand and adapt to global market rules
adds costs to consumers and undermines the competitiveness of locally produced goods.
Distribution systems are rudimentary, often forcing manufacturers to run their own retail
shops, and other weaknesses, such as a lack of bonded warehouse space, result in greater
working capital requirements and higher transaction costs.
Selected Clusters
Moldova’s exporters have been losing ground in their traditional markets to the east, as
market architectures evolve and competitors from the enlarged EU and Asia are moving in.
The prime example is wine, where Moldovan exporters are losing market share in Russia’s
growing market. The only major commodity where Moldovan exporters have been able to
increase their share in the Russian market is fresh fruit, mostly apples. In the EU 15 markets,
virtually all of Moldova’s significant exports have been gaining market share, as buyers look
beyond traditional suppliers.
This assessment of the performance of clusters selected either for their economic importance
(wine), their role in evolving market architectures (information and communications
technology), or because of evidence of competitive performance in export markets
(agribusiness; light industry, including apparel and leather) provides some indication of
priorities for moving toward European market integration. One principal lesson is to stay
closer to the market. Where Moldova’s exporters are relying on the market architectures
inherited from the past, as in the case of wine for Russia, they are being outflanked by more
nimble competitors and are losing market share. Where they rely on cooperation with
partners who know the markets and their architectures, as in the case of the EU, they do well.
In the case of wine, Moldovan producers need to accelerate the transition to produce a New
World-style wine, and to match competitors in the Russian market in the battle for market
share. These improvements will require significant new investments, in particular foreign
direct investment. The wine cluster has been the target of some FDI, even though much of
that involved debt-for-equity swaps with Russian interests.
In the case of fresh fruit for Russia, there is also a need to adopt new technologies, such as
controlled atmosphere storage to take advantage of better prices during the off-season. With
respect to walnuts for the EU market, a somewhat serendipitous rising star, this offers
opportunities for value-added production.
In the apparel industry, as well as in footwear, Moldova’s low-cost skilled labor has attracted
European, especially Italian, buyers for contract manufacturing, with some encouraging signs
July 2004 • Draft Page v