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Socioeconomic Commentaries

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Social-economic analysis on Transnistrian region
Maxim Kuzovlev, December 16, 2007

Transnistria is paid a very intense attention. The advancement of the European Union border to the Republic of Moldova is the first explanation in this respect. This way, Europe is unexpectedly discovering a frozen conflict at its eastern border with a country, which was born after a state called Transnistria (Moldovan Transnistrian Republic – MTR), unrecognised by the international community but which exists as an independent state with own constitution and legislation as part of the Republic of Moldova for 17 years, appeared.

More than one third of all industrial production of the republic was manufactured on the left bank of the Dniester River of MSSR in the Soviet times. The industrial complex was made of the following branches: electro-energy, siderurgy, engineering and iron processing, electro-technical industry, chemical industry and wood processing industry, furniture industry, polygraph industry, glass industry, light industry and building industry. The Cuciurgan and Dubasari power plants are based in Transnistria. The Cuciurgan plant was both supplying the entire MSSR with electricity (in case of a functional industry) and exporting electricity to Soviet Ukraine and several member states of the Reciprocal Economic Assistance Council (REAC). All steel and laminated products and 90 percent of the electricity of MSSR were produced in Transnistria[1].

The collapse of the Soviet Union also destroyed the economic relation system, and this fact destabilised the economy of the region very much. Some industrial branches decayed completely. The entire post-Soviet area faced these processes. The social-economic situation in Transnistria is complicating inclusively because of its indeterminate status and permanent conflict between Chisinau and Tiraspol officials.

The presence of the large Operative Group of the 14th Army, the 14th Russian Army starting 1992, should be also noted in social-economic terms. Majority of employees and military of this army resided the region concerned. Starting 1994, the personnel were essentially reduced and the weaponry withdrawal process started later. Therefore, the currency inflow was stopped and it actually remained in the region. The currency of the Campaign Bank of the 14th Army was carried by a plane from Moscow to the Tiraspol military airport (which is inactive now, but had a landing off and getting off capacity like other aircraft, with different modifications and carriage capacities). The former Russian Army 14 is known now as the operative group of Russian troops in the Transnistrian region of the Republic of Moldova (with less than 1,500 military). It does not have an essential economic importance in the region at present.

Transnistrian enterprises had covered a pretty long way from the 100-percent state property (the early 1990s) till a general privatization (2002–2003). The industry included 144 enterprises with different property forms before the privatisation process, in particular, 113 state enterprises, 11 joint stock societies, and 6 collective businesses. The dependence on imported raw material is a typical feature of the Transnistrian industry. Otherwise the majority of enterprises would stop manufacturing. There are very little ores in Transnistria. In addition, all Transnistria-based economic agents have to get registered as enterprises of the Republic of Moldova, since the world community does not recognise the "Transnistrian economic agents". Thus, they are constrained to keep a double accountancy – in the Republic of Moldova and in Transnistria – and this fact hardens their work and does not encourage a better economic climate.

Foreign investors (particularly from Russia) and domestic investors privatised the majority of big enterprises. However, the Chisinau authorities do not recognise the results of the privatisation.

Some enterprises have changed their shareholders more than once, passing from ones to others. The Rabnita-based Moldovan Metallurgical Factory (MMF) founded in 1985 and reorganised into a closed stock society in 1998 is an evident example. Transnistria held a "golden share" at the beginning, which restricted the Russian investor, ITERA Company, from managing the enterprise. However, the "golden share" was sold and Ukrainian investors became owners of the factory. Ukrainians sold the factory to Russians after the "orange revolution". Now the company managed by Russian billionaire Alisher Usmanov, director-general of Gazprominvestholding, owns the Moldovan plant. The Moldovan Metallurgical Factory S.A.T.I. is now a modern and high-output enterprise of ferrous metallurgy, which has world technologies to manufacture half-finished steel products, small slight laminated products, laminated steel wire with a low and high carbon composition, allied steel accordingly to international standards (DIN, ASTM, BS, EU etc.). The factory is orienting its production successively and successfully to meet the increasing requirements of the international market. The projected capacity of the plant is 684,000 tons of steel and 500,000 tons of finished laminated products a year.

The factory is a member of international organisations and unions IISI (International Institute of Steel and Iron), IREPAS (International Rebar Producers and Exporters Association), International Union of Metallurgists, Balkan Union of Metallurgists, Council of Ferrous Metal Producers and Exporters.

The production of the plant was calculated for the regional consumption market of Moldova and neighbouring regions of Ukraine. But the factory also sells semi-finished steel products, laminated and concrete steel on the world market. Thus, it exported its products to the United States, Western Europe and CIS. This is one of few enterprises in Transnistria which both maintained its personnel and permanently modernise their production.

The sale of the Moldovan Regional System Power Plant (RSPP) to the Russian-Belgian company Seint Gidon Invest in late 2003 in exchange for 29 million dollars is another example. A control by the parliamentary commission (the commission of the Supreme Soviet) on execution of the law on privatisation aimed to evaluate the efficiency in Transnistria revealed actions for which Transnistrian minister of justice Victor Balal was finally dismissed. Transnistrian speaker Evgeny Shevchyuk stated that the only result of the work of the minister of justice was "the investment of 42.8 million dollars outside of the republic (Transnistria) and laundering of 17 million dollars of RSPP. The investor imported gas but did not pay for it, raising an 18-million debt." The Moldovan RSPP was purchased by the Russian power giant RAO EAS in early 2005 via an affiliated company.

Many enterprises were bought to be resold later in exchange for a higher price. This year, Transnistrian authorities started controlling the execution of privatisation contracts. A commission of the Transnistrian Ministry of Economy was created to control the respect for privatisation contracts. It warned new owners of enterprises this year.

The specifics of the Transnistrian export consist of its strong mono-structure, and the growth of the share of supplies by ferrous metallurgy has a stable trend: 44.3 percent in 2002 and 65.3 percent in 2005.

Important commodity exporters to Transnistria are: Ukraine (246.8 million dollars) and Russia (245.3 million dollars), which cover 28.8 percent and 28.7 percent of the imports. Following main exporters may be observed among European countries: Germany (57.0 million dollars), Poland (44.1 million dollars) and Italy (35.3 million dollars), as well as the Netherlands (13.3 million dollars). Good trade relations with the United States and China increased the exports to the republic by 26.4 percent and 50.5 percent; that means 76.5 percent of deliveries by other countries. Three groups especially built the commercial structure of the imports: non-precious metals, food products and mineral resources. Non-precious metals hold the highest share – 29.0 percent or 247.7 million dollars, of which 89.1 percent are deliveries by Ukraine and Russia.

Sheriff Company, known far away outside the republic, is the biggest enterprise in Transnistria. The activity of this company is so wide after Transnistrian criteria that Transnistria is often called "Sheriffland" or "Sheriffia". This company was founded in 1993 as a foreign limited society. Sheriff based on two founders at the beginning: former employees of the Ministry of Interior Affairs (here is the origin of its name) and accountants. It focussed on commerce then. At present, the company has 3,000 workers on average. As of data for July 2006, 12,500 persons were working in the holding which includes Sheriff. The company has built large facilities in Transnistria in the past years, created structures aimed to help develop the basic activities. It established business relations with suppliers and partners from neighbouring countries and other states such as Ukraine, Russia, Estonia, Germany, the U.S., the Czech Republic, Poland, Hungary, the Netherlands, Argentina, Brazil, Spain, and others.

Sheriff supermarkets opened starting 1996. There are 10 Sheriff supermarkets in Transnistrian cities, in particular, four in Tiraspol, two in Rabnita, by one in Dubasari, Slobozia, Grigoriopol and Bender, three wholesale markets, a wholesale depot and three minimarkets. The Sheriff sport club was founded in 1997. The Sheriff football team was champion of Moldova seven times and won the Moldovan Cup four times; it also won the Cup of Commonwealth and the Super Cup of Moldova.

In August 1997, the company founded a multi-channel television which covers the entire Transnistrian territory. The multi-channel television implemented the MMDS airing system. It has a satellite port, a principal broadcasting station, a retransmission network, distribution and reception networks, and individual reception systems are being installed. A so-called hybrid network is being built, and it corresponds to the norms of optical network and coaxial wire network.

The repairing and building directorate Sheriff was founded in 1998 to install and repair alone. A fuel depot was built and opened in July 2000; the oil base in Tiraspol opened in February 2003 after privatisation and renovation. The Rabnita-based oil base was privatised and renovated in October 2005.

The printing company Delo was founded in early 1999. The Mercedes Benz Centre, official dealer and commercial representative of the Mercedes Benz Company, opened in 1999. The centre was awarded the exclusive right to service, delivery of auto parts and accessories and sale of Mercedes cars in the region. The motor saloon Mercedes opened in 2002. The main football arena rated at maximum by FIFA was put into operation in June 2002. This complex includes a small stadium, 8 training fields, a football school, and a residence complex for Sheriff club members, a hotel and a football college for children.

An advertising agency with an exclusive cycle was founded in January 22, 2004 on basis of the advertising agency Clasica created in 2002.

The domestic Sheriff Company privatised the Toraspol-based grain plant and bakery on May 23, 2005. The first elite gambling club opened in 2005. It is equipped with modern play stations. A gambling club opened in Bender in 2006. The Wine and Cognac Company KVINT in Tiraspol (featured on the 5-rouble banknote) was privatised in 2006.

Besides this long list of a permanent triumph of the business, it is worth to note that Sheriff is an official co-owner (owner de facto) of the close joint stock society Interdnestrkom, CDMA mobile telephony operator and key Internet operator in the region. The mobile telephony networks CDMA 800 and CDMA 450, developed in Transnistria in 1998 and 2005, cover more than 95 percent of the Transnistrian region and over 90 percent of the population. In turn, Interdnestrkom bought the Transnistria-based Telekom Company, exclusive wire telephony operator, calling it Transtelekom. At the same time, the Ukrainian CDMA operator Intertelekom was created thanks to the Transnistrian Interdnestrkom, being a branch of Interdnestrkom (but not formally).

In 2005, Interdnestrkom was awarded a licence to operate in the mobile telephony sector in Moldova. However, the licence was annulled later under a decision by the Constitutional Court of Moldova, but the tax paid for the licence (one million dollars) was not repaid.

Sheriff is a beneficiary of the Transnistrian bank Agroprombank. It owns the largest textile enterprise in the region, Tirotex, and the Moldavizolit factory. Enjoying such economic possibilities, the holding has actively joined the Transnistrian politics. The Republican Party Obnovlenye is the political representative of Sheriff. The Obnovlenye faction controls the Supreme Soviet and its leader heads the Soviet.

Gazprombank is another important economic agent in Transnistria. It is the basic creditor of gas providing, trade and light industry enterprises. It participates in funding the state programme on gasification of Transnistria. UMM has become a beneficiary of services of this bank. The bank also participates in privatisation processes, it cooperates with Russian banks (in particular, known banks Commercial Bank European Trust Bank PJSC, Alfa Bank Uralsib, Impeksbank), and the Transnistrian Gazprom can cooperate with foreign beneficiaries outside of the republic thanks to them.

The National Bank of the Republic of Moldova does not recognise the Transnistrian bank, but the latter develops its activity. The Transnistrian Republican Bank issues licences to Transnistrian commercial banks and their branches.

According to data for 2006 reported by organisations and specialised state bodies of Transnistria, the Group-7 big tax-paying enterprises included: Sheriff – 31.3 million dollars (11.2 percent of revenues of all budgets), UMM 16.3 million dollars (5.8 percent), Moldovan RSPP 4.2 million dollars (1.5 percent), SRL Tiraspoltransgaz-Transnistria 3.8 million dollars (1.34 percent, Banca de Economii in Transnistria 2.6 million dollars (0.94 percent), Electromas 2.2 million dollars (0.78 percent), Retelele Electrice de Sud-Est approximately 2.1 million dollars. These enterprises paid more than 45.6 million dollars to the budget. The Group-5 tax-paying banks comprised Banca de Economii in Transnistria – more than 2.6 million dollars, Agroprombank about 1.5 million dollars, BCA Ipotecinii about 700,000 dollars, BCA Gazprombank about 630,000 dollars, and Tiraspromstroibank more than 472,000 dollars.

As regards staffs, following companies were leaders: Sheriff (13,810 persons), UMM (4,120 workers) and RSPP (2,330 persons).

Two international highways, three main gas pipes, two thoroughfares cross Transnistria. Regretfully, the railway becomes the object of Transnistria’s pressures on Chisinau authorities because of the indeterminate status of Transnistria (the railroad is often blocked), if the Moldovan side tries to control the region. For this reason and in order to prevent unexpected circumstances, transportation companies pass by the highways and look for alternatives. These factors affect the economy of the region in particular and of Moldova in general for sure.

The so-called "debt for Russian gas" is another factor that affected the social-economic situation in Transnistria. According to official accounts published in Vestinik PRB, a publication of the Tansnistrian Republican Bank, "…the net foreign debts amounted to 1,532,700,000 dollars on January 1, 2006." The gas problem may be interpreted differently. Majority of specialists are sure that the biggest energy company in the world, Gazprom, which promoted its interests and accomplished its goals (particularly to "extort" debts from debtors) at all costs, would unlikely let gathering such a big debt which Transnistria is incapable to pay (given the population of this region and its material condition). The cause of this situation and when these huge debts will be paid is a taboo.

One third of the residents of Transnistria who are able to work earn their lives outside of the republic. If workers count for 273,000 persons in Transnistrian economy in 1991, this number declined down to 130,000 in 2006 and only 60,000–70,000 people work in economic, productive sector. According to Vestnik PRB, "…savings of population in foreign cash have increased approximately 2-fold and exceeded 500 million roubles (60 million dollars) due to large remittances in foreign currency from people working abroad and seasonal workers." It continues: "Although earnings and expenditures of population grow faster than other important macroeconomic indicators, this did not modify the quality structure of consumption. Like before, most of currency was spent on current needs: the share of expenditures for commodities and services reached 73.2 percent. In addition, real expenses for consumption needs, fees and taxes were by 16 percent lower than the average amount of the minimum consumer budget. It means that the real living standards of population do not fit the Transnistrian norms, not quite the world life quality standards."

According to new data on industry for the first half of 2007, the production of all branches (except for wood processing industry and furniture industry) has grown; in addition, key enterprises of the republic have reported the highest production growth rates. The branch structure of industrial production has also changed. The ferrous metallurgy has recovered some of its former positions. According to indicators, the production of this branch has increased by 6.4 percent compared with the 1st quarter of 2006, up to 46.6 percent. However, this indicator is lower than in 2005, when the production of the ferrous metallurgy reached 53.2 percent. The enterprise has really increased the steel and laminated production by 27.4 percent and 66.8 percent.

The resolution of the problem regarding the supply of the RSPP-made electricity to important markets and of perspective such as Russia and Romania was the main factor to increase the production volume by 72.5 percent. The share of this branch has also grown, up to 18.6 percent. The plans of the RSPP administration to enlarge the market and increase the deliveries forecast the maintenance of the rise paces of this company for the end of this year.

There is a true boom of constructions in Transnistria, like in Moldova and Ukraine, but in comparative sizes. For this reason, the building material industry is a leader regarding price rises for the second year in a row. The boom of constructions in Transnistria has encouraged the growth of production on almost all basic segments.

As regards Transnistrian- Moldovan economic relations, they are interpreted in different terms. Transnistria promotes a policy to obstruct Moldova to sell its production on Transnistrian market. Most of food products in markets are made in Ukraine. Full customs fees are applied on Moldovan products. Instead, citizens are allowed to import small quantities of goods from Moldova for themselves.

As regards the agriculture, Transnistria will not reach the Soviet level soon. The Transnistrian agriculture was pretty developed in the Soviet times. But the agriculture regressed very much because of the economic stagnation in the post-Soviet period, and this affected the canning industry, too. Transnistria does not have a private land property. Although a referendum on land ownership of farmers was held, it failed because of the low turnout of population. However, the private land property could be legalised in perspective. The state owns the land and it cannot be rented at present.

The region had a positive migration rate until the 1990s. High living standards, economic and political stability, good weather, soft climate, and fertile land explained the interest for Transnistria. Now the migration for labour purposes is massive. The problem is becoming national. The number of residents who left the country to work abroad cannot be established. According to official data, the number of people who left Transnistria in 2006 (only 10,908 people, by 3,500 less than the number of those who came) does not reflect a real picture of migration for labour purposes, as statistic bodies take into account only the number of persons who officially cancelled their residence permits. These persons left Transnistria forever. Statistics do not cover the temporary migrants who leave the region, in particular, for labour purposes. Experts say that the long stagnation of economy, dissatisfaction of people with their salaries, living standards and welfare, permanent reduction of jobs, indeterminate legal and political status of the region are the main reasons of migration for labour purposes.

Transnistria had 750,000 residents in early 1990. According to updated data, it has now 540,000 residents and the decline pace of this number is increasing both through natural losses and through migration of population. The number of Transnistrian residents decreased by 6,900 people in 2006, or by 1.3 percent compared with 2006. The birth rate is 8.9 children per 1,000 residents, while the death rate is 15.4 persons per 1000 residents. According to doctors, the cancer and cardio-vascular diseases kill most of people. The low social-economic standards, alcohol addiction are an indirect cause of deaths. Statistics reveal that 10,000 residents of Transnistria are alcohol addicts. However, the real number is at least 5-fold higher. As many as 2,000 persons are drug addicts.

Transnistria registers 134,000 retirees. Many citizens born after the war retire this year, in particular, men born in 1947 and women born in 1952. Last year, 59.4 divorces were registered per 100 marriages. This family instability is also a result of poverty and bad social-economic condition.

If not taking into account the empty statistics and analysing the simple human relations, it should be mentioned that authorities complicate these ties sometimes. For example, Transnistria introduced a migration tax for Moldovan citizens who do not reside the region. Of course, people get used to everything but these actions cannot encourage the approach.

If studying economic development prospects of Transnistria, the resolution of this problem will regretfully depend on political conjuncture. If the Transnistrian problem is settled at least in terms of recognition of privatisation results, this will attract potential investors who will have a guarantee that they will not lose their investments. Otherwise, enterprises will be bought in continuation in order to be resold later for a higher price. Or enterprises will be purchased in order to move their equipment to a more peaceful place like in Ukraine, for example, because they failed certain commitments.

According to recent surveys conducted in Transnistria, the population of the region wants stability above all. The permanent instability and indeterminate status extenuated it. However, the stress of post-Soviet years has passed long ago. If common people do not see any perspective here, they cardinally change their lives and quit.

One thinks that a convention on rights on privatised property would facilitate the activity of the Transnistrian industry and would improve the quality of life, stopping the massive migration this way. The Transnistrian region is experiencing a shortage of qualified workers in certain sectors. Those knowing their skills do not want to lose their specialty, labour dexterity and qualification and they leave. Those who stay have to readjust and lose their qualification. For this reason, even if the privatisation-related problems would be remedied and many investments would be made in industry, a serious lack of qualified workers would be experienced and it would affect the results of investments.

1 "Атлас Приднестровской Молдавской Республики", 2nd edition, Tiraspol, 2000





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