Economic Policies on October 19–31, 2009

Real sector

Structural policies — “cart seems get along”…

The Ministry of Economy has worked out a plan on removing restrictions on business environment, which was discussed during a sitting of the working group in charge with regulating the entrepreneurial activity. The plan was devised and worked out by experts from the Ministry of Economy after an in-depth analysis of the multitude of constraints and problems faced by the domestic business environment. It regulates a series of concrete proposals aimed to improve the business environment in 15 areas such as construction, business start-up, licence issuance, safety of food products, state price regulation, transportation etc.

The plan also indicates necessary legislative and normative changes to combat double controls in construction sector and seeks the revision of the list of licensed activities. It recommends the suppression of the so-called mandatory permissive document such as “state trademark” from legislation for export of bottled wines. As well, seeks the liberalisation of export of ferrous and non-ferrous metals. As for the fiscal sector, it seeks a lower VAT and better VAT redemption procedures for exports. The actions foreseen by the plan are expected to be implemented in late 2009 and all 2010. The plan on removing constraints on business environment will be shortly delivered to the Government.

Agriculture

Cinderella of domestic economy…

The drought this year and effects of the economic crisis have certainly hit the agriculture, the sector which last spring was the hope of economy in this recession year. The recession in turn hit the demand for agricultural production both internally and externally. Both branches — crop protection and livestock — were affected at the same extent. However, while all indicators for phytotechny production were negative, the livestock sector, particularly meat production, meat industry increased by about 14 percent and milk production by about 1 percent, being the key sectors which tempered the recession in agriculture, but were however on the decline for the period concerned (by more than 10 percent).

The new Government has reconfirmed its massive support to farmers, but there are too little “revolutionary” measures addressing the agro-industrial sector in the current governing programme^[1]. Its key objectives such as ensuring the food security of the country, harmonising the national standard system or optimising the subsidising system for agriculture were generally part of the working agenda of the former government.

Of course, there are some actions worth of attention such as removing internal barriers (all obstacles specified) for export of agricultural products; or supporting access of agricultural producers to investment projects financed from European funds, by providing from state budget the amounts needed for co-funding,v which is actually an important action; extending access to irrigation services (it is already known that the Millennium Challenge Account will provide irredeemable financial assistance worth over 100 million dollars to renovate some central irrigation systems); or liberalising and developing the land market (though the programme does not specify if foreigners will be allowed to buy farm land).

So far, it is hard to affirm that Moldova has enough intellectual, financial and managerial skills to impel and promote a quick modernisation of the agriculture. The Moldovan agriculture crosses an agony period for more than a decade. This is a proof that authorities did not clearly know until now how the agriculture should look like after 15–20 years. It shall not intervene with indications and control crops, the way it has done until now. It shall find other ways to get involved.

The Government should focus on developing the infrastructure needed by agriculture — irrigation, all storing, processing, trading facilities, access to information, cooperation with agricultural producers, in order to collect more production, sell, export its production independently. In addition, the Government should think about developing the risk compensation system in agriculture.

Foreign trade

Exports record lowest lever ever seen…

Exports decreased by about 37 percent in the first nine months, as for statistics. Indeed, this is the low level ever seen linked to recession in Europe, key trade partners of Moldova (more than 52 percent of Moldovan exports go to Central and Western Europe). The rise pace of 19–20 percent for exports planned for this year was very optimistic. And the value of exports in 2009–2010 will probably stagnate at 1.6–1.7 billion dollars. The fall in internal and external demand and supply for exports and crediting for foreign trade, reciprocal debts for supplied goods have certainly fuelled the decline in exports.

Perhaps, authorities should think about structure and diversification of exports. Statistics reveal that textiles and items hold the largest share of more than 20 percent in Moldovan exports. Even more, many textiles are processed not finished fabrics, which are also called in lohn in economic terms. Finally, the large share of goods supplied in lohn in overall exports reveals the poor quality of Moldovan supplies.

In addition, food products, wines and cognacs hold an important share in exports. That means low value-added goods. But this is the reality and no way to change it given the economic structure. For example, about 40 percent of the economically active labour force is employed in agriculture, while this sector contributes with between 18 and 20 percent to GDP formation. Even more, profitableness in agriculture is more dependent on weather than state policies on this sector.

Perhaps, domestic managers invest too little in marketing and promoting commodities, despite the great importance of these actions. For example, the great majority of companies in Romania allocate between 5 and 10 percent of their turnover to promote their products, while surveys reveal that Moldovan businesses allocate maximum 1–3 percent of turnover for this purpose. On the other hand, Moldovan companies will face serious problems should they fail to enhance productivity and quality in future as well (managers of enterprises are directly in charge with this task, less than state authorities).

Enhancing productivity and quality shall be a strategic priority of Moldova in the immediate future, so that Chisinau authorities to be able to provide concrete evidence while negotiating a more advantageous trade system with the West. The incompatibility of Moldovan quality, certification, standardisation and conformity standards with those from EU hardens the access of Moldovan goods to the West.

↑ Government’s Action Programme “European Integration: Freedom, Democracy, Welfare”, www.gov.md

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