Moldova Commercial New Digest

December, 2006

 

 

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

 

SUMMARY

 

This report summarizes press reporting on business developments in the Republic of Moldova for the month of December 2006.  End summary.

 

12.29.2006

 

 

BUSINESS CLIMATE AND ECONOMIC TRENDS

 

 

1.         In the first nine months of 2006, Moldova’s GDP amounted to MDL 33.139 billion (USD 2.526 billion), up 4.6% year on year, according to the National Statistics Bureau.  A double rise in the price of Russian gas imports and a Russian ban on imports of Moldovan wine rocked the Moldovan economy, fueling inflation and disrupting the country's trade balance.  The economic shock determined the Government to revise its GDP growth forecasts from the previous 6.5 percent down to 4 percent.  The IMF has also put down its 2007 GDP growth outlook from 6 percent to 3 percent, below the average GDP growth of 6.8 percent expected in CIS.  GDP rose 7.1 percent in 2005 or 43 percent since 2000, when the Moldovan economy started its pickup.  The World Bank has recently stated that Moldova achieved progress in cutting poverty and promoting sustainable economic growth, but has yet to do more to step up economic and social reforms and reforms in the areas of business climate, agriculture, energy and governance.  The World Bank noted that while the country is moving ahead, so are the countries with which Moldova competes for investment and exports.

 

2.         In November 2006, inflation was 1.7%, bringing the cumulative rate over the first eleven months to 12.7%, according to the National Statistics Bureau.  The government had to revise twice its 2006 inflation target, from the initial 10% to 14.7%.  Food products grew dearer by 2.5%, non-food items 1.7%, and services 0.5 %.  The highest price climbers of the month were grapes (41.9%), fresh vegetables (19.5%), fresh fruits (12.5%) and diet eggs (14%).

 

3.         In the first ten months of 2006, Moldovan exports totaled USD 815.7 million, down 6.9% year on year, according to the National Statistics Bureau.  Exports dropped significantly as a result of trade restrictions imposed by Russia on Moldovan wine, a major export item in the country’s foreign trade.  Imports stood at USD 2,108.7 billion, up 16.2% year on year, widening the foreign trade gap to a record high USD 1,293 million.  CIS remains the main export market for Moldovan products with 41.5% (50.9% in the corresponding period of 2005) despite a 46.9%-drop in exports to Russia.  Following next were EU countries with 33.7% and Central and East European countries with 16.7%.  On a country basis, the top export destinations were Russia (USD 153.4 million), Romania (USD 120.2 million), Ukraine (USD 100.8 million), Italy (USD 94.5 million), Belarus (USD 54.9 million), Germany (USD 38.5 million), Poland (USD 26.7 million), Turkey (USD 23.7 million), United Kingdom (USD 21.7 million) and Kazakhstan (USD 18.5 million).

 

4.         In the first eleven months of 2006, the average monthly salary stood at MDL 1,657.6 (USD 126.7), up 15 percent in real terms year on year, according to the National Statistics Bureau.  State employees earned monthly on average MDL 1,432.8 (USD 109) over the same period, while private sector employees MDL 1,778.5 (USD 135.4).  The highest paid over the period were employees of the energy and gas enterprises with foreign investment, earning monthly on average MDL 6,604 (USD 502.7).  Private farmers earned the lowest monthly salary of MDL 769 (USD 58.5).

 
5.         In the first eleven months of 2006, industrial output totaled MDL 19.9 billion (USD 1.51 billion), down 7.1% year on year, according to the National Statistics Bureau.  The industrial contraction was blamed primarily on the decline in wine industry (-50%), distilled alcoholic beverages (-36%), tobacco items (-22%), fats and oils (-9%), paper and cardboard (-10%) and glass containers (-6%).

 

6.         In the first eleven months of 2006, total freight volume shipped by Moldovan carrier companies dropped 5% to 13.16 million tons, according to the National Statistics.  Railway transport accounted for 76.6% of all freight transport.

 

7.         In the first ten months of 2006, air passenger traffic at the Chisinau International Airport rose 13.9% to 466,511 and most travelers flew with domestic air carriers, according to the Moldovan Civil Aviation Administration.   The three Moldovan airlines –  Air Moldova, Moldavian Airlines and Tandem Aero – carried most passengers, 321,755 in January-October.  The leading foreign air carrier was the Turkish Airlines, which operates the Chisinau-Istanbul flights. Three other foreign air carriers operating in Moldova were Austrian Airlines, Romania's Tarom and Italy's Club Air.  Istanbul, Moscow and Budapest were the most popular destinations out of the 16 offered.

 

8.         In the first ten months of 2006, Moldova's output of bottled still wine fell 61% to 7.8 million decalitres, after Russia banned imports of Moldovan wine in March, according to SeeNews.  Sparkling wine production also fell by 60% to 4.7 million bottles.  The output of divin, a type of brandy, fell by 30% year-on-year to 473,000 decalitres.  Production of brandy and other spirits in the first ten months fell by 26% on the year to 1.3 million decalitres.  In response to the Russian ban, Moldova’s state wine agency Moldova Vin introduced a series of measures, including introduction of special trade stamps and quality checks at the wineries.  Russia that lifted the Moldovan wine ban after the November CIS summit will set up a single customs checkpoint for Moldovan wines entering the country.  Exports of Moldovan wine are expected to resume in early 2007.

 

9.         In 2006, Moldova’s output of white sugar produced from domestic sugar beet amounted to 148,400 tons, rising 11.2%, according to Prime Tass.  Moldovan-German joint venture Sudzucker Moldova produced 83,300 tons of sugar, while Marr Sugar Moldova accounted for another 65,100 tonnes. The two firms increased their purchases of sugar beet from domestic farmers by 8.8% to a combined total of 1.074 million tons.

 

 

INTERNATIONAL ASSISTANCE AND FINANCING

 

10.        On December 12, 2006, the Donors' Consultative Group held jointly by the European Union and the World Bank in Brussels indicated support of USD 1.2 billion to Moldova over the next three years, of which 25% is in budgetary and balance of payment support.  The financial assistance will support in particular the implementation of the EU-Moldova European Neighbourhood Policy (ENP) Action Plan and the Moldova Economic Growth and Poverty Reduction Strategy Program (EGPRSP).  http://www.imf.md/press/news06/news-061213.html

 

11.        On December 15, 2007 the IMF Executive Board reviewed Moldova’s Economic Reform and Poverty Reduction program under the three-year Poverty Reduction and Growth Facility arrangement approved in May 2006 and approved an augmentation to a total equivalent of SDR 110.88 million (about USD167 million) from the original amount of SDR 80.08 million (about USD120.6 million), according to www.imf.md.  Completion of the review made available a disbursement of SDR 31.97 million (about USD 48.2 million) to Moldova.  The Executive Board also granted a waiver for the non-observance of the end-September 2006 quantitative performance criterion on net international reserves of the National Bank of Moldova.

 

 

BANKING AND FINANCE

 

12.        In the first nine months of 2006, remittances from Moldovans working abroad totaled USD 603.75 million, up USD 108 million from the same period last year, according to Infotag.

 

13.        Only two weeks after the previous raise, Moldova’s central bank, the National Bank, decided in early December to raise the basic interest rate on two-month REPO transactions with government securities by 0.5 percentile points to 14.5%, according to BASA.  The central bank left unchanged rates on overnight credits at 18%, overnight deposits 2%, and long-term credits 10.5%.  The third raise in interest rates over the last three months is a response to higher inflationary expectations.  In the first ten months inflation was 10.8%; the Moldovan Government had to revise its earlier projections of 10% inflation to 12%.

 

14.        The National Bank reported December 22, 2006 that its foreign exchange reserves soared to a record high USD 776.02 million.  The increase was the result of the new USD 48.1 million disbursement by IMF and central bank’s interventions on the foreign currency market.  According to the May 2006 IMF Memorandum, the country’s central bank had to raise its year-end forex reserves to USD 750 million.

 

15.        Eximbank, the Moldovan unit of Italian regional bank Veneto Banca, raised its share capital by MDL 170 million (USD 13.2 million) to support its lending activities, Eximbank said on Thursday.  As a result, Eximbank's share capital has reached MDL 385 million lei, making the bank the largest by equity among the 15 lenders in Moldova.  The capital hike was the second since May, when Veneto Banca bought Eximbank.  In August, Eximbank's capital was raised by MDL 150 million to MDL 215 million lei.

 

 

ENERGY AND GAS

 

16.        After weeks of talks and speculations, Moldovan government and Gazprom reached in late December an agreement on gas supply to the country in 2007.  The gas price was thus increased from the previous USD 160 per cubic meter in 2006 to USD 170 in 2007.  The price will gradually rise over the next years to reach European levels by 2011.  Local media quoted Gazprom representatives as saying that Moldova will pay USD 170 in 2007, 75% of the European netback price in 2008, 80% in 2009 and 90% in 2010.  A medium-term agreement on gas supply was signed on December 30 between Gazprom and Moldova Gaz.  Earlier reports also said the agreement had to stipulate Gazprom’s increased share in Moldova Gaz, in which the former currently controls 50% plus one share.

 

 

IT/TELECOMMUNICATIONS

 

17.        In the first nine months of 2006, the number of Internet connections in Moldova stood at 392,400, up 92% year on year, according to the National Regulatory Agency for Telecommunications and Informatics (ANRTI).  Dial-up accounted for almost 96% of all Internet connections, the rest being represented by broadband, which experienced a 3-fold increase.  Internet penetration rate in Moldova nearly doubled to 11.6% from 6% at the end of 2005.  Total sales revenues in the sector were MDL 127.6 million (USD 9.7 million) in the first nine months.

 

18.        In the first nine months of 2006, the number of fixed-line subscribers in Moldova rose 17.2% to 972,000, according to ANRTI.  The fixed telephony penetration rate rose to 28.6% from 27.4% at the beginning of the year.  The fixed-line penetration rate in one of Europe's poorest countries is expected to grow to 35% by 2010.  State-owned fixed telephony company Moldtelecom remains a de facto monopoly on the market, even though the fixed-line telecommunications sector was liberalized starting 2005.

 

19.        On December 25, 2006 ANRTI announced Eventis Mobile, a Moldovan-Cypriot joint venture, winner in a tender for the third GSM 900/1800 license, according to BASA.  The runner up in the tender was Russia’s Vympelkom, known under its brand Beeline.  Eventis Mobile, virtually unknown on the mobile market, is 51% owned by Cyprus-registered Eventis Telecom Holding, which is involved in the mobile market of Kyrgyzstan, Kazakhstan, and Uzbekistan.  Eventis Mobile committed to start operating a new mobile telephony network by the end of 2007 and to invest about USD 100 million by 2010.  The company intends to use Nokia equipment to build the mobile network.  Eventis Mobile will have to pay USD 8 million for the mobile license.  Reports from Russian media linked the owners of Eventis Telecom Holding, two Russian businessmen Dmitrii Ivanter and Vladimir Androsik, to the interests of another big Russian mobile company Megafon.  Moldova currently has two GSM mobile operators – Voxtel/Orange, majority owned by France Telecom, and Moldcell, majority owned by Fintur Holding – and one CDMA mobile company operated by the state-owned fixed telephony company Moldtelecom.

 

INTERNATIONAL TREATIES

 

20.        On December 19, 2006, Moldova signed the Central European Free Trade Agreement (CEFTA), which replaces the patchwork of 32 bilateral and free trade agreements among the South-eastern European countries.  CEFTA harmonizes trade rules across the region, covering areas such as trade in services, intellectual property rights, competition, public procurement and investment promotion.  The agreement will be enforced on May 1, 2007, if the sides submit the ratification instruments by March 31, 2007.  CEFTA brings together Croatia, Bosnia, Serbia, Montenegro, Albania, Macedonia, Moldova and Kosovo in a market of 29 million people.  Created in 1992 to help former communist states harmonize economies along EU demands, CEFTA had as members Poland, Hungary, Slovakia, Slovenia, the Czech Republic, Romania and Bulgaria, all of which eventually graduated from CEFTA to join the EU.

 

 

COMPANY FOCUS

 

21.        Germany's Bio Company Raps has invested five million euros (USD 6.6 million) in a rapeseed oil plant in Moldova, the first in the country, according to SeeNews.  The plant, situated in Lipcani in northern Moldova, has a processing capacity of 50 tons of rapeseeds daily and will process domestically cultivated rapeseeds.  Rapeseed is used for the production of animal feed, vegetable oil and biodiesel.

 

22.        On December 14, Germany’s Metro opened the third cash and carry store in Moldova following a USD 15.9 million investment, according to SeeNews.  The new store, located in Balti in northern Moldova, covers more than 5,500 square meters and has a parking lot for 550 cars.  Metro Cash & Carry Romania operates outlets in Moldova.  The new store employs 252 and offers some 17,500 products.  Metro has already two outlets in Moldova, both located in the capital city of Chisinau.

 

23.        Moldova's largest vegetable oil producer Floarea Soarelui, majority owned by U.S company W.J. Group, announced plans in December to invest USD 12.4 million in a new factory over the next 18 months, according to SeeNews.  Floarea Soarelui, located in Balti in northern Moldova, will spend some USD 6 million to buy production lines for the factory. The remaining ISD 6.4 million will be used for buying a small power plant that would cover the electricity needs of the factory. The facility will produce oil from soybeans and rapeseed.  It will be able to process 600 tons of soybeans and 500 tons of rapeseed daily.

 

24.        In December, Russia's largest mobile phone and accessories retailer Evroset acquired Moldovan sector company Eurotel, according to www.rynok.biz.  The Russian chain acquired 44 Eurotel outlets, of which 31 are operable and the rest are under development.  Some 25 of the outlets in operation are located in the capital city Chisinau.  Evroset will redesign all the newly-acquired Moldovan stores to match the group's branding.  The company plans to increase the product range and service quality.  Evroset is active in Russia, Ukraine, Kazakhstan, Uzbekistan, Lithuania, Estonia and Moldova.

 

25.        Pending board’s approval, the European Bank for Reconstruction and Development (EBRD) will invest USD 8.0 million in the development of the largest cable TV operator in Moldova SUN Communications, according to SeeNews.   The EBRD will invest half of the money in equity and the other half 4 in long-term debt along with the founder and shareholder of the company.  U.S. majority owned SUN Communications is the largest cable TV operator in Moldova and Internet provider with a client base of more than 65,000 subscribers.  The network of the company covers 83% of the capital Chisinau.  SUN also operates a cable TV network in Balti, the second largest city in Moldova.

 

 

REGIONAL CORNER: TRANSNISTRIA

 

26.        In November, inflation in Moldova's breakaway region of Transnistria slowed to 0.78% from 2.3% in October, according to SeeNews.  The cumulative inflation rate for the first eleven months slowed to 7.8% from 9.3% for the same period of 2005.

 

 

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

Fax/voice mail + 373 22/40-89-62

Email: Iulian.Bogasieru@mail.doc.gov

cc: Irina_Mitchell@ita.doc.gov