Moldova Commercial News Digest May 2007

Moldova Commercial News Digest

May, 2007

05.31.2007

Author: Iulian Bogasieru, BISNIS Representative, U.S. Embassy Chisinau, Moldova

This report summarizes press reporting on business developments in the Republic of Moldova for the month of May 2007.

BUSINESS CLIMATE AND ECONOMIC TRENDS

1. Agricultural output was up 3.1% in the first quarter of 2007 at MDL 1.05 billion (USD 81.8 million), according to the National Statistics Bureau. The growth was ascribed primarily to the positive trends in the livestock sector continuing from 2006. In 1Q2007, animal production increased 3.1% year on year. In 2006, agricultural production started with a 0.8% growth rate in the first quarter, but finished the year with a 4.6% decline blamed on a harsh winter that compromised most fruits, grapes and cereals. The 4.4% growth in the livestock sector was not sufficient to offset the 2006 agricultural decline.

2. Retail sales through March rose 16.8% on the year, reaching MDL 3.3 billion lei (USD 267.4 million), according to SeeNews. Over 59% of retail sales in the first quarter were made in the capital Chisinau. The second largest city in Moldova, Balti, followed with a 8.4% share of retail sales through March.

3. The average monthly salary in January-March 2007 was MDL 1,783 (USD 139), up 22.6% year on year, according to the National Statistics Bureau. State budget-funded institutions paid one employee an average MDL 1,416 (USD 110) per month in the first quarter, businesses paid MDL 1,991 (USD 155).

4. Moldova’s first quarter 2007 exports rose 7.8% to USD 270.6 million, while imports grew an impressive 39% to USD 747.1 million over the same period, according to the National Statistics Bureau. As a result, the country’s trade deficit through March rose 66.4% to USD 476.5 million. Russia lost its leading position to become now Moldova’s second most important export market with a share of 15.6% (versus 31.7% in 1Q2006), putting it behind Romania’s 17.3% (versus 11.9% in 1Q2006). The European Union provided the main export outlet in the first quarter with 54.2%. Exports to Romania and Bulgaria rose despite concerns that the two countries’ joining the European Union economic area on January 1, 2007 would slow down trade after their withdrawal from the free trade arrangements with Moldova. In contrast, the CIS had a share of 33.7% in January-March 2007 versus 50.4% a year earlier. With Russian wine ban still in place, exports of alcoholic beverages plunged 81.4% in the first quarter. Moldova exported mainly textiles, vegetal products, and foods and drinks. Import growth was driven by metals, transport equipment, mineral resources and chemicals. Russia and Ukraine remain by far the main source markets for Moldovan imports. Moldova projects a USD 1.94 billion trade deficit for this year. The deficit rose 36.7% in 2006, mainly as a result of the ban imposed by Russia in March. Around 80% of wine used to go to Russia.

5. Moldova’s housing construction was growing in January-March 2007, with over 115,000 square meters of housing (894 flats) built during the period, which is 15% above the 1Q2006, according to Infotag. The overall value of construction works in the first quarter was MDL 592 million (USD 46.14 million), up 42% year-on-year, more than 70% of it in Chisinau.

6. Remittances from Moldovan workers abroad in the first quarter of 2007 rose 40.3% on the year to USD 209.77 million, according to BASA. Official statistics show a total of 334,000 Moldovans work abroad, while some economists believe the figure is at least twice as high. About 70% of the money is remitted through the rapid transfer systems.

7. Moldova’s monthly inflation quickened to 1% in April from 0.5% in March, according to the National Statistics Bureau. Cumulative inflation rate for the first four months of 2007 stood at 3% versus 5.9% a year earlier. In April 2007, prices grew 2% for food products, 0.5% for non-food products and 0.4% for services. Among the highest price climbers were fresh vegetables with 11.8%, fresh fish 5.7%, eggs 5.4%, pork 3%, bread 2%, building materials 1.4%, apparel 1.2% and medicines 1%. The country’s government forecasts a 10% inflation rate for the 2007 year end.

8. Moldova’s Gross Domestic Product (GDP) will grow 5% in 2007, according to the Transition Report Update 2007 released by the European Bank for Reconstruction and Development (EBRD) cited by BASA. EBRD projects a 10% inflation rate at year end. The EBRD notes that “economic growth in the short term will be further hindered by high energy costs, delays in the effective resuming of wine and agricultural exports to the Russian market and difficulties with diversifying export markets.” Long-term prospects will depend on productivity gains and further expansion of export-oriented production capacity. This in turn requires effective implementation of reforms and improvements in the business environment to facilitate investment and the transfer of know-how.

9. Moldova plans to harvest around 700,000 tons of wheat in 2007, the same it gathered in 2006 due to unfavorable weather conditions, according to the Moldovan Agriculture Ministry cited by SeeNews. Ministry of Agriculture officials say that dry weather in autumn, winter and spring will affect the crop adversely this year too. Moldova planted 284,000 hectares of wheat in 2007. The average yield is expected at 2.7 tons per hectare, flat from the last year. The annual wheat consumption in the country of four million people is around 580,000 tons. The country’s lowest wheat harvest - some 300,000 tons - since World War II was in 2003, forcing Moldova to import grain and flour from Kazakhstan, Russia, Canada and the United States.

10. The overall Economic Sentiment Index in January-March 2007 was 114.14 points, higher than in neighboring Romania (109.3) and Ukraine (108.2), according to the NGO Institute for Development and Social Initiative (IDIS) Viitorul quoted by BASA. Calculated for the first time in Moldova on OECD methodology, the 2007 first quarter sentiment index is interpreted by IDIS Viitorul as reflecting a positive economic situation and a slight economic growth. Despite a downsize in industry, the industrial confidence index was 97.6, a no-change expectation. The construction confidence index was 99.8, indicative of a neutral sentiment, despite a construction boom attested in Moldova. Trade and services showed increased confidence indexes of 124.2 and 140.97 points, respectively. The Economic Sentiment Index is an average of the indexes in four economic sectors – manufacturing, services, construction and trade – based on surveys conducted among company managers. An index below 90 shows negative expectations, while above 90 a no-change expectation, above 110 increased confidence and above 155 high confidence. The survey has a 7% error margin.

INTERNATIONAL ASSISTANCE AND PROJECTS

11. An International Monetary Fund (IMF) review mission visited Chisinau in late April-early May 2007 and recommended the disbursement of the next tranche of USD 33 million to Moldova under the Poverty Reduction and Growth Facility (PRGF), according to Infotag. The formal approval by the IMF Board of the disbursement is due in late June. The IMF noted the positive economic performance despite the twin economic shock from the doubling of gas prices and Russian embargo on Moldovan wines. The IMF three-year (2006-2008) PRGF program for Moldova was approved in May 2006; the final arrangement totals USD 167 million. So far, Moldova has received two PRGF tranches of USD 16.9 and 48.2 million. A fourth tranche of USD 16.9 million will be disbursed sometime in October provided the government sticks to the performance criteria set out in the memorandum signed with the IMF.

12. The World Bank Board of Executive Directors approved on May 29, 2007 a USD 4,562,000 Global Environmental Facility grant for the Moldova Environmental Infrastructure Project, according to the World Bank. The project will assist Moldova in treating municipal wastewater in the north-eastern city of Soroca on the Dniestr. The project will improve the quality of the Dniestr River that separates Moldova and Ukraine and will pioneer innovative and low-cost constructed wetlands to reduce the nutrient loads on the Dniestr and the Black Sea. The project will finance, among other things, the rehabilitation of wastewater collection system and pressure pipelines and the construction of a wastewater treatment facility using constructed wetlands technology in Soroca. Other project components include feasibility studies for 10 towns and pre-feasibility studies for 5 more.

BANKING, FINANCE AND INSURANCE

13. Moldova-Agroindbank, Moldova’s largest commercial bank, leads in the 2007 first quarter efficiency ranking of domestic banks drawn up by Estimator VM rating and evaluation agency, according to the weekly Eco. Following next are Victoriabank, Moldova’s first private commercial bank; Banca de Economii, the state-controlled commercial bank slated for privatization; Moldindconbank; and Mobiasbanca, owned by Societe Generale de France. The rating agency’s methodology takes into account the banks’ total sales, net profit, return on equity, return on sales and assets turnover.

14. The European Fund for South East Europe extended in May two loans worth 15 million euros (USD 20.3 million) to Moldova's largest bank Moldova-Agroindbank to support its lending activities, according to SeeNews. Moldova-Agroindbank received a five-year loan of 5 million euros for financing of small- and medium-sized enterprises. EFSE also extended a 10-year loan worth 10 million euros to support long-term lending for buying or construction of residential buildings. EFSE was set up in 2005 as a successor to a development finance initiative launched by several donors in the region in 1998. Its shareholders include sovereign donors, national and international financial institutions and the European Commission. EFSE plans to open a representative office in Moldova on June 22, 2007.

15. The French banking group Societe Generale raised May 15, 2007 its stake in Moldovan bank Mobiasbanca to 95.35% by acquiring 24.78% of the bank for 110.2 million lei (USD 9 million), according to SeeNews. Societe Generale has acquired 1.763 million shares at a price of 62.51 lei each, the bourse said in a statement. The French bank acquired a blocking stake of 70.57% in Mobiasbanca, Moldova's fifth-largest bank by assets, for 18.4 million euros (USD 25 million) in January.

16. The Black Sea Trade and Development Bank plans to extend USD 30 million in loans to Moldova by 2010, according to BASA. The funds will primarily go to developing the food and processing industries, retailing and real estate. The bank’s chief priority is projects that spur the development of Moldova's regional cooperation with Black Sea countries. The BSTDB has provided USD 10.5 million in three different commitments to Moldova since 2002. Capitalized with USD 1.5 billion, the bank was set up by 11 Black Sea regional countries, including Moldova, in 1999.

ENERGY

17. Moldova consumed 451.3 million cubic meters of natural gas through March, a 22% drop year-on-year, and 816.3 million kWh of electricity versus 816.51 kWh a year earlier, according to Infotag. The decrease in consumption was attributed to warm weather last winter and a two-fold rise in gas tariffs prompting consumers to economize. Even the energy sector, the main customer of gas supplier Moldova-Gaz, cut gas consumption by 16.3% to 218.77 million cubic meters in the first quarter of 2007. Individual users reduced consumption by 35.3%, public institutions by 21.5% and businesses by 12.8%.

TRANSPORTATION

18. The construction of a 50-km railway track linking Moldova’s Danubian town of Giurigiulesti on the border of Romania and Ukraine to Cahul, a district center in southern Moldova, started May 24, according to Infotag. The section will link the port and oil terminal currently under construction on the Moldovan portion of the Danube with the rest of the country and with the railway networks of neighboring Ukraine and Romania. Moldova plans to complete the work by November next year. The cost of the construction is estimated at MDL 837 million (USD 66 million). Local media has also reported that the Government plans to call an international tender to select a construction company.

INTERNATIONAL TRADE FAIRS

19. Moldexpo, the country’s largest exhibition center, held the Food & Drinks. Food Technology and Packaging. Depot international trade shows during May 16-20. This year’s event featured some 200 companies from 14 countries including Armenia, Belarus, Bulgaria, Germany, Israel, Italy, Poland, Romania, Turkey, and Ukraine.

LEGAL DEVELOPMENTS

20. Moldova has toughened import regulations for dairy and meat products by introducing special permits to be issued individually for each consignment, according to Infotag. Previously, similar regulations would apply only to imported meat.

21. Moldovan Parliament passed May 4 the Law on State Property Administration and Denationalization together with a list of state enterprises not subject to privatization, according to Infotag. The new law supersedes older privatization laws and bylaws, switching the emphasis from privatization of state assets to their efficient management. The law introduces such concepts as the concession and trust management of state assets as well as public-private partnerships. The cabinet and local authorities may now directly decide about the fate of state-owned assets without a parliamentary vote. The Parliament has only the prerogative to decide on the list of state companies not subject to privatization. This list currently includes state-owned utilities companies, MoldExpo exhibition center and Cricova winery. In 1997-2006, the government privatized 672 enterprises earning 1.26 billion lei (USD100 million). At present, Moldova has a total of 350 100% state-owned companies, 341 municipal companies and 395 joint stock companies in which the government holds some shares (the government holds a majority in 259 of them).

COMPANY FOCUS, PROJECTS AND TENDERS

22. Leinum Invest, a Danish investment fund, has completed in May the construction of an 8-suite building in downtown Chisinau after one and a half years, investing 1 million euros in the project, according to Infotag. The new hotel will cater for diplomats and VIP guests on short- or long-term visits to Moldova. Among other amenities, the hotel provides security vaults and digital TV service with over 300 channels; a monthly stay costs around 600-800 euros or 60-120 euros per day. Leinum Invest has bought a 1,200 square-meter plot in downtown Chisinau and plans to start the construction of a new business center estimated at 2-3 million euros.

23. Pedersen & Partners, one of the largest executive search firms in Central and Eastern Europe, has set up an office in Moldova, according to Infotag. The Chisinau office will be part of the Pedersen & Partners worldwide network of 24 offices. The company will hire 20 employees to run a call center to accept applications from potential candidates. The company attaches great importance to having on-the-ground presence to stay in close touch with the candidate pool and to provide real guidance on cultural issues across the fast developing markets of Central and Eastern Europe.

REGIONAL CORNER: TRANSNISTRIA

24. Inflation in Moldova's breakaway region of Transnistria quickened to 2.02% in April from 0.84% in March, according to Infomarket. Cumulative inflation for the first four months of 2007 was 8.56%. In April, prices were up 2.44% for food, 0.85% for non-food items and 1.69% for services. The region’s authorities reported that last year inflation was 8.9%, down from 10.8% in 2005. Transnistria is located on the left bank of the Dniester and has been seeking full independence from Moldova since 1991.

25. Industrial output in Transnistria rose 75.5% in the first four months of 2007, SeeNews quoted regional authorities. The region’s industrial production through April totaled USD 246.4 million. Output of the power generating sector rose 73% on the period. The output of the main industrial sector of the region, the ferrous metallurgy, doubled.

The U.S. Embassy appreciates feedback on this report. Please share comments and suggestions with:

BUSINESS INFORMATION SERVICE FOR THE NEWLY INDEPENDENT STATES (BISNIS)

U.S. Embassy Chisinau

str. Mateevici 103

Chisinau MD 2009, Moldova

Tel. +373 22/40-89-05

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Email: Iulian.Bogasieru@mail.doc.gov

cc: Irina_Mitchell@ita.doc.gov

For more information on Moldova, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/moldova.cfm

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