BISNIS Moldova Commercial News Digest

Moldova Commercial News Digest

August 2007

08.31.2007

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 August 2007.

BUSINESS CLIMATE AND ECONOMIC TRENDS

1. Industrial production rose 0.5% year-on-year in January-July 2007, even though output in the key wine sector continued its decline, according to SeeNews. Wine production fell by 49.3% through July 2007, as the sector failed to recover from an eight-month Russian ban on Moldovan wine imports last year. Manufacturing output rose 0.8% during the period, while mining production jumped 12.6% and utilities output declined 4.6%. Construction materials and textiles branches experienced strong growth, rising 14.2% and 12.9%, respectively. Industrial output fell 6.9% in 2006.

2. Retail sales in the first half of 2007 were up 13.9% at MDL 7.3 billion ($612.4 million), according to SeeNews. Food sales rose by 15.8%, while sales of non-food products increased by 12.1%.

3. Moldova’s inflation quickened to 1.1% in July after being flat in June, according to the National Statistics Bureau. Cumulative inflation rate for the first seven months of 2007 stood at 5% compared with 7% a year earlier. Prices rose 1.1% for food products, 1.4% for non-food products and 0.4% for services. The severe drought that hit Moldova translated into price increases for wheat flour (13.5%), pasta (5.3%), bread (4.5%), meats (2.9%) and dairy products (3.8%). Fuel prices also rose, as did prices for railway transportation and medical services. Despite higher inflation in July, seasonal price cuts were reported for agricultural produce – fresh vegetables and fresh fruits at 3.8% and 2.7% respectively.

4. Trade deficit in January-June 2007 was up 45% year-on-year at $1.01 billion, according to BASA. Exports rose 27.6% to $596.6 million and imports grew quicker, by 38%, to $1.6 billion. Moldova had the greatest deficit, $222.8 million, with Ukraine, followed by Russia, $132.8 million dollars, Germany, $108.1 million, Romania $87.0 million and China $77.3 million. The EU was Moldova’s main export market with 50.4%. Moldova’s export to the EU amounted to $300.6 million, up 37.5% year-on-year. Exports to CIS represented $231.6 million, up 10.2%. The share of the CIS in Moldova’s exports decreased significantly in the wake of the Russian ban on Moldovan wines.

5. Remittances from Moldovans working abroad in the first six months of 2007 jumped 34.2% year on year to $475.06 million, according to BASA. Remittances to GDP ratio went up from 8% in 1999 ($89.62 million) to 27% in 2006 ($854.57 million). 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. Hard currency remittances that have been growing over the years put pressure on exchange rates in Moldova, where the local currency, the leu, has been appreciating against the U.S. dollar.

6. After starting 2007 with an exchange rate of 12.9050 lei to US dollar, Moldova’s national currency, the leu, has appreciated almost 7% during the year crossing in August the psychological barrier of 12 lei, according to BASA. The leu’s highest rate in August was 11.9566 lei to 1 US dollar, a level previously recorded in the summer of 2004. The national currency has appreciated only 4% against the euro over the same period. Moldova’s central bank, the National Bank, attributes the leu’s appreciation to U.S. dollar’s depreciation in world markets and similar trends in Moldova’s neighboring trade partner countries. Independent experts also point to the pressure exerted by massive hard currency supply through incoming remittances from Moldovans working abroad. A strong leu, they argue, also helps the National Bank contain inflation and increase official foreign exchange reserves. Over the recent years, the national currency has usually been appreciating most prominently in the summer, swinging into a reversal trend in the fall at the height of agricultural works.

7. Tourist arrivals in Moldova through June rose by 15.5% in 2007 to 33,093, according to SeeNews. Visitors from neighboring Romania and Ukraine, and from Russia topped the list, providing a share of 23%, 11% and 9% respectively of all tourist arrivals. Turkey and the United States followed next with 7.8% and 5.5%.

8. Moldova’s sugar beet harvest will be halved to around 600,000 tons in 2007 as a result of this summer’s drought, according to SeeNews quoting the country’s Sugar Producers Association. The area under sugar beet fell to 31,000 hectares this year from 34,000 hectares in 2006. Annual sugar demand in Moldova, a country of a four million people, is 80,000 to 90,000 tons. Moldova produced 150,000 tons of sugar in 2006.

9. Moldova's exports of wine and spirits through June fell by half on the year to $52.2 million after Russia’s ban on imports of Moldovan wine, according to SeeNews. Sales of wine and spirits abroad usually generate more than a quarter of Moldova's exports revenues.

TRANSPORTATION

10. Moldovan flag carrier Air Moldova plans to extend its fleet by three aircraft in the next five years, the country’s Civil Aviation Administration (CAA) said in August quoted by SeeNews. Air Moldova plans to purchase through a leasing scheme two Airbus A320-211 by the end of this year. The company will also buy one Embraer 190 in 2009. Air Moldova operates two Airbus A320, two Embraer 120, one Yakovlev-40 and one Tu-134 aircraft. However, the company owns only an Embraer 120 and a Tu-134.

INTERNATIONAL HUMANITARIAN ASSISTANCE

11. Following an appeal by the Moldovan Government to the international donor community for emergency assistance to the drought-affected country, the European Union announced a 40 million euro ($54.2 million) grant to be disbursed over 2007 and 2008, according to media reports. Other countries responded as well: Azerbaijan will provide $1 million, Romania 200,000 euros, Lithuania 120,000 euros, Greece 100,000 euros, the U.S. $50,000 and China $50,000. Promises of assistance were also made by Ukraine, Russia, Slovakia, Latvia, Israel, the Czech Republic, Austria, Italy, Germany and France. The drought, the most severe since 1946, the year that marked a famine in postwar Moldova, is estimated to have damaged over 80% of cereal, fruits and vegetables crops. Vineyards have not been affected as badly. According to a recent joint assessment by the UN Food and Agriculture Organization (FAO) and UN World Food Program (WFP), the drought has impacted 84% of Moldova's arable land, leading to national economic losses of $410 million in failed crops. Losses to the livestock sector are estimated to be even larger. The FAO/WFP assessment further indicated that farmers lack the financial means to purchase seeds for the next planting season in the fall. Moldovan Government estimated total damages at around $1 billion, equal to Moldova's state budget for 2007.

BANKING, FINANCE AND INSURANCE

12. Austria’s Grawe Insurance Group, present on Moldovan insurance market since 1994, announced plans to acquire 80% in the local insurance company Carat, according to Infomarket. Grawe will subscribe to the additional share issue of 8 million Moldovan lei ($660,000) that will increase Carat’s charter capital to 10 million Moldovan lei ($820,000). This is the second insurance company that Grawe acquired after the 2006 merger with Donaris Grup, a leader in the domestic life insurance market.

13. Pro-Credit Moldova received in August a preliminary commercial banking license from Moldova’s central bank, the National Bank, according to BASA. Member of a larger network of financial institutions operating in the developing countries of Latin America, Africa and Eastern Europe and active in Moldova since 2000, Pro-Credit Moldova has been a successful finance company focused on lending to small businesses. The license will enable the company to become a functional commercial bank by engaging in saving operations, which was not previously allowed. Joining a growing Moldovan banking sector of 15 commercial banks, Pro-Credit Moldova intends to become a development-oriented universal bank. The founders of the bank will be Germany’s Pro-Credit Holding with 90% and Denmark’s DOEN Foundation with 10%.

14. U.S.’s Western NIS Enterprise Fund (WNISEF) announced in August intention to purchase 25% in Moldovan commercial bank Fincombank, according to Infomarket. WNISEF has invested around $120 million in 29 companies in Moldova and Ukraine. Fincombank is a Moldovan mid-size private commercial bank.

15. The European Bank for Reconstruction and Development (EBRD) announced on August 28 the extension of a 5 million euro credit line to commercial bank Banca Sociala for on-lending to small and medium-sized businesses, according to www.ebrd.com. The proceeds of the loan will be on-lent to private and independent companies with less than 250 employees, a maximum annual turnover of 7 million euros and a balance sheet of maximum 5 million euros. Sub-loans under the credit line will typically not exceed 500,000 euros. This is EBRD’s third loan to Banca Sociala, one of the largest Moldovan banks, which is also an active participant in the EBRD’s Trade Facilitation Program. Banca Sociala started its cooperation with the EBRD in 2005. Access to finance and especially medium and long term financing remains limited for Moldovan businesses. To date the EBRD has signed 29 projects in Moldova worth more than 75 million euros. Moldova is part of the bank’s Early Transition Countries Initiative which aims to stimulate the economy in lowest-income countries by focusing on smaller projects.

16. After a failed attempt in July, Russia's Petrocommerce Bank announced in August a second tender offer to sell its 100%-stake in Moldova's Unibank, according to ITAR-TASS. The price for shares amounts to MDL 241.9 million lei ($20.2 million). The tender offer expires September 24. Unibank ranks 11th among Moldova's 15 banks by assets.

17. The combined gross profit of Moldovan insurance companies rose by 75.4% to MDL 47.1 million ($3.9 million) in the first half of 2007, according to SeeNews. The total premium income of the 31 insurers was MDL 322.5 million for the first half, up from MDL 260.1 million a year earlier. Asito and Moldasig are the largest insurers in Moldova.

TELECOMMUNICATIONS

18. France Telecom has raised its stake in Orange Moldova to 94.3% after it purchased 33.3% from other shareholders for $103 million, according to Novecon. The French communications company is to invest some $80 million in Moldova in the coming five years. After raising its stake from 51% to 61% with a purchase of 10% of shares from state-run Moldtelecom in February 2006, France Telecom rebranded the first Moldovan GSM operator Voxtel into Orange Moldova. The rebranding was finalized in April 2007 and cost the company an estimated $2 million.

19. The number of mobile phone users through June grew by over a quarter on the year to 1.522 million, according to the National Telecommunication and Informatics Regulator (ANRTI). The mobile telephony penetration rate rose to 44.3% from 39.6% at the end of 2006. The combined revenue of the three active mobile operators was up 30.5% at MDL 1.079 billion ($89.8 million). The country’s two GSM operators had the largest number of subscribers, with Orange Moldova, the country’s first GSM operator, leading with 995,200. Moldcell, the second GSM operator, followed with 516,100. Unite, a CDMA 2000 mobile operator owned by the state fixed telephony monopoly Moldtelecom, has gained 10,900 subscribers since its commercial launch on March 1, 2007. A fourth mobile operator, Cypriot-Moldovan Eventis Mobile, obtained a GSM license and is expected to start operations by the end of the year. Interdnestrcom, another CDMA operator, operates in Moldova's breakaway region of Transnistria, without a license from the country’s central telecom regulator.

ENERGY

20. Electricity consumption in Moldova (without breakaway region of Transnistria) in January-June was up 2.7% at 1.53 billion kWh, according to Infotag. The country imported 72.3% of electricity from Ukraine during the period, exceeding 1.31 billion kWh.

TENDERS

21. Moldova’s Agency of Material Resources, State Procurement and Humanitarian Assistance will hold an international tender for food wheat on September 7, according to Infotag. The Agency plans to purchase 20,000 tons of wheat to replenish the country’s state reserves. The main criterion for selecting the winner will be the lowest price. Local farmers sold just 3,500 tons of wheat at $250-270 per ton at two earlier auctions organized by the Agency. Due to a severe drought, out of the projected 710,000 tons of wheat, Moldova harvested 410,000 tons, only half of which is food grade wheat. Annual domestic demand is estimated at 380,000 tons.

COMPANY FOCUS AND PROJECTS

22. The National Energy Regulatory Agency (ANRE) issued Bemol Trading in August a license for the import and wholesale of oil products, according to Infotag. Bemol Trading is part of the group of companies, which completed the construction of the Giurgiulesti oil terminal on the Danube. Under the agreement with the Moldovan Government, the company has to invest in the construction 50 filling stations.

REGIONAL CORNER: TRANSNISTRIA

23. Industrial output in Moldova's breakaway region of Transnistria in the first seven months of 2007 went up 66.8%, according to SeeNews. The region's industrial production through July totalled $437 million. The region’s power generating sector's output through July rose 74.7%. The output of the region's main industrial sector, ferrous metallurgy, was 83.5% higher than a year earlier.

24. Monthly inflation in Transnistria quickened to 4.4% in July from 2.56% in June, according to SeeNews. Cumulative inflation for the first seven months of this year was 15.8%. Transdniestria reported a monthly deflation of 1.2% for July last year. Food prices in the region rose in July by 4.9% on the month and non-food prices grew by 1.1%. Prices of public services rose by 6.05%. Transnistria, situated on the left bank of the Dniester river in eastern Moldova, ended last year with consumer price inflation of 8.9%, down from 10.8% in 2005. The target inflation for this year was 10%.

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

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