Moldova Commercial News Digest July 2007

07.31.2007

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 July 2007.

BUSINESS CLIMATE AND ECONOMIC TRENDS

1. Moldova’s monthly inflation was flat at 0% in June versus 0.9% in May, according to the National Statistics Bureau. Cumulative inflation rate for the first six months of 2007 was unchanged at 3.9% compared with 7.4% a year earlier. In June 2007, prices fell 1.3% for food products and grew 0.7% for non-food products and 0.2% for services.

2. The average monthly salary in January-June 2007 was MDL 1,926 ($153), up 23.2% year on year, according to the National Statistics Bureau. The average monthly salary in June alone was MDL 2,221($181). State budget-funded institutions paid one employee in the first six months an average MDL 1,605 ($131) per month; businesses paid MDL 2,097 ($171).

3. Moldova’s trade deficit for January-May 2007 totaled $852 million, 46.8% wider than a year ago, with exports at $481.4 million (+25.9%) and imports at $1.3 billion (+38.4%), according to Infotag. The lion’s share of exports headed to the European Union – $244.9 million – up 40.1%. Shipments to the CIS suffered a decline of 46.2% to $179.5 million. Moldova’s main exports for the period were textiles – $102.1 million (+24%); food, alcohol and tobacco –$75.4 million (+49.7%); and machinery and equipment – $30.7 million (up 1.9-fold). Moldova imported $483.8 million (+25.9%) from CIS and $592.9 (+46.2%) million from the European Union. Among the key imports were mineral products – USD 297.6 million (+16.9%), and machinery and equipment – USD 166.7 million (+46.5%).

INTERNATIONAL ASSISTANCE AND PROJECTS

4. The Executive Board of the International Monetary Fund (IMF) completed on July 13 the second review of Moldova's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement, which enabled the release of the third tranche with an amount equivalent to SDR 21.7 million (about $33.1 million), according to www.imf.md. This brings total disbursements to the country under the PRGF arrangement to SDR 65.1 million (about $99.2 million) since May 5, 2006 when Moldova signed the arrangement with the IMF after a four-year break in financing relations. The IMF granted Moldova a waiver for the non-observance of the end-December 2006 performance criterion related to tariffs for district utilities. The fourth tranche under the arrangement will be discussed in October.

5. The Japanese Government granted Moldova in June additional $2.07 million in technical assistance under the 2KR project for the increase of food production. The assistance comprises 51 MTZ-82 tractors, 7 Deutz-Fanr combine harvesters, 10 Agroplus-100F tractors, used in horticulture and viticulture, one Dorado Classic conventional tractor and one Agrotron field tractor. The machinery is offered to Moldovan farmers under a four-year hire purchase plan on preferential conditions. The Government of Japan has granted Moldova $7.0 million under the project over the last three years. The funds have financed the purchase of 2,800 farming machines.

BANKING, FINANCE AND INSURANCE

6. Italian regional bank Veneto Banca has extended a 20 million euro ($27.2 million) credit line to its Moldovan unit, Eximbank, in support of its corporate lending for medium-term projects, according to SeeNews. This is the third credit line that Veneto Banca made available to Eximbank since acquiring it last May. In January Veneto Banca extended a 9.2 million euro line, which was followed by a second one, of 10 million euro, in April. The Italian bank bought Eximbank as part of its plans to set foot in eastern Europe. The value of the deal was not disclosed. Veneto Banca, based in northern Italy, owns 92.3% of Banca Italo Romena in Moldova's western neighbor Romania.

ENERGY

7. After some wrangling, Ukraine and Moldova agreed on the price of Ukrainian electricity to be supplied to Moldova until July 2009, according to Infotag. Starting from 1 July 2007, Moldova will pay 0.03 dollars per 1 kWh and the price will increase by 0.001 cents per kWh monthly. Ukraine insisted on a 15% increase in the price of electricity supplied to Moldova up to $0.031 per kWh, plus further monthly increases so that the price reaches $0.04 dollars per kWt (the price of electricity in Ukraine) by the end of the year. Moldova imports about 70% of electricity from Ukraine.

8. In response to demands from distribution companies after Ukraine raised electricity prices for Moldova, the National Energy Regulatory Agency (ANRE) decided in late July to increase electricity rates by at least 23%. Consumers connected to Spain’s Union Fenosa will pay MDL 0.96 ($0.079) instead of the previous MDL 0.78 ($0.064), while those connected to state-owned RED Nord and RED Nord-Vest will pay MDL 1.01 ($0.083) instead of MDL 0.7 ($0.058). The new rates take effect on August 3.

INTERNATIONAL TREATIES

9. After a decade-long dispute, Russia and Moldova finally signed July 19 a protocol on indirect taxation in the country of destination, according to www.mec.md. The intergovernmental agreement signifies that the value added tax on Russian goods and most notably gas and oil will be levied in Moldova, not Russia.

LEGAL DEVELOPMENTS

10. Moldovan Parliament voted in July the new law on prevention of and fight against money laundry and terrorism financing, according to BASA. The law compels real estate agencies, exchange offices, investment funds, capital market professionals, insurance companies and casinos to report monthly on suspicious transactions worth over MDL 500,000 (USD 41,000) to the Center for Combating Economic Crimes and Corruption (CCCEC).

11. In a bid to ease the effects of the ongoing drought and ensure the country’s food security, the Parliament voted in July that imports of grains be exempted from the 20% value added tax and customs duties. Moldova is experiencing a severe drought with record high temperatures in the last 120 years that compromised this year’s crops. The country harvested only 430,000 tons of grains, far less than the originally planned 750,000 tons. The drought is said to have affected 80% of the agricultural areas. Estimates put losses in agriculture from the drought at about $100 million.

12. Moldovan Parliament approved in July amendments to current legislation, obliging mobile operators to transfer 2.5% of their sales proceeds to the social security fund. Until recently, the government exacted a $2 fee from GSM mobile users as part of their subscription. The government estimates budget receipts from the new tax at $5 million.

COMPANY FOCUS AND PROJECTS

13. Moldova-registered Filatura Ungheni and Axiom announced combined investments of $5.2 million to launch operations in Moldova’s fastest growing free economic zone Ungheni Business, according to BASA. Filatura Ungheni will invest $5 million in a factory for wool and synthetic fibers with projected annual sales of MDL 160 million ($13 million). Axiom will invest $200,000 in a stone processing factory expected to generate MDL 15 million ($1.2 million) in sales. Ungheni Business, located in western Moldova on the border with Romania, has been experiencing the highest growing rates, surpassing output levels in the once leading Expo-Business-Chisinau zone located in Moldovan capital city Chisinau. As of April 1, 2007, investments in Ungheni Business totaled $21.2 million.

14. PGWM, a majority Italian-owned glass maker, will invest 1.36 million euros ($1.9 million) in the next five years to launch operations in the free economic zone Ungheni Business in October, according to www.mec.md. The company is set to produce glass for windows, doors and insulating glass units. It will invest 330,000 euros this year in production lines of insulating glass units, sliding doors and iceboxes. PGWM will employ 40 and projects annual sales of 3.2 million euros in Moldova, Ukraine and Russia.

15. Moldova offered in July for sale the assets of the insolvent canning factory Provit, leaving the starting price unchanged at MDL 30.87 million ($2.5 million) after no investors turned up at the previous auction held in June, according to SeeNews. The repeat auction will be held August 24. Provit, based in the southern town of Cahul, was declared insolvent in 2002. Several attempts by the government to sell its assets have failed since then.

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

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

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov)