The Economy of Moldova

Last updated: 31.10.2006.

Agriculture is the prevailing sector

I guess you could say that Moldovan economy is very specialised. A large part of its GDP is generated in the agricultural sector - approximately 39%. And about 37% of Moldovan workforce is engaged in agriculture. There are several reasons for such one-sidedness. For one, Moldova has traditionally been an agricultural region due to the lack of resource base - apart from the soils, the main natural resource here is limestone used in construction. Another reason is the Soviet policy, according to which most of the heavy industry was installed in Transnistria, which has had a separatist status for the past 15 years. Thus, the industrial sector is represented mainly by the food processing segment. Among the main segments within the agricultural and food processing industries is the wine-making industry, wines being the main export item for Moldova. Unfortunately, Moldovan wine producers have failed to conquer western markets, due to three main reasons:

1. Poor or inconsistent quality of product to satisfy the demands of western customers;
2. Quotas and tariffs imposed by the EU on imported agricultural produce. We all know that France is especially protective of its farmers and sadly, France is the biggest wine producer in Europe
3. Most investors in the wine industry being from Russia and Russian market being big enough to absorb Moldovan wines, little effort was put in establishing a presence elsewhere. This cost Moldova a lot when in Spring 2006 Russia banned all imports of Moldovan wines.

There are also a number of sewing factories, but now these have been bought by foreign investors (mainly Italian and Turkish), and they use imported textiles to sew clothes exclusively for export. In recent years construction has intensified (mainly in residential segment) and as a result, the production of construction materials has also picked up.

Energy dependence

With gaining political independence, Moldova has become dependent in terms of resources. The biggest pain is virtually complete lack of energy resource. Moldova has no oil of its own, and very little natural gas in the south of the country, enough to power only a few villages. Electricity is produced in Moldova from burning imported oil and natural gas, as well as from several hydro plants on the Dniester river. Unfortunately, the biggest power plant on this river - the Kuchurgan power plant - is under the control of the separatist regime. But domestic power plants do not have the capacity to generate enough electricity, so a large part of consumed power is imported - from Russia, Ukraine and Romania. In such a situation, it would make sense to centrally stimulate the development of alternative sources of energy, such as wind and solar power, but there have been no actions in this direction among the authorities.

Human resources

In terms of human resources, Moldova has also seen some negative trends. The birth rate is low, while mortality among children is high. At the same time, a huge part of active population is abroad, trying to make a living through illegal work in Russia, Italy, Spain, Portugal and other countries. Various organisations quote different estimates, saying that between 500,000 and 1,000,000 people are working abroad (Moldova's total population is around 4 million people). Ironically, they are the ones financing the consumption in Moldova, with an estimated $1 billion sent back to their families every year. In an attempt to find work abroad, many women become victims of human trafficking, ending up as sex slaves in the EU.

My ideas to change the situation

This situation should call for immediate and radical actions by the government. Instead, it is trying to repeat the 150-year history of economic development of Western Europe. I would suggest several ways to change the situation:

1. Actively study the experience of smaller nations like Ireland, Singapore etc. to see how these countries have managed to attain the high level of development. Setting up a task force to analyse and implement the best solutions. Also, the business sector and NGOs must be involved in the decision making process.
2. Set up some sort of a tax free regime for investment (both local and foreign). Some provisions of this kind exist in legislation, but these are too weak to be effective. Corruption and red tape, as well as volatility of state policy must be rooted out through drastic punishment measures for the corrupt ones and extra protection for investors. Free economic zones must be promoted (we have some, but these are pathetic at the moment).
3. I really like the idea to build a huge casino or two in Moldova and invite a big casino corporation to manage it. Moldova being in Europe and a low-cost country, this represents very interesting opportunities for gambling tourists.
4. Set up a fund and stimulate adoption and research in the field of alternative energy. Wind map must be created to appraise the feasibility of installing wind turbines. Solar energy, biofuels etc. are also possible in Moldova.
5. Stimulate intensive form of agriculture, to release the population from subsistence farming and to engage them in producing exportable added value. Simply releasing them from agriculture will be like a death penalty - people must immediately receive some sort of compensation in the form of viable alternative work or at least financial benefits until the alternative is provided.
6. While I'm at it, I will also mention that the justice system needs to be made truly independent of the government. Once this has been achieved, large financial penalties for breaking laws could be introduced to both fund the public budgets and also cut on crime (such as breaking traffic rules etc.)

These are just a few ideas, I haven't thought them through, but I am sure they make sense

Main Economic indicators for the years of independence

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