UN statistics state that this is the poorest country in Europe. Squeezed

in between Romania and Ukraine, with a population of fewer than 5

million people, this ancient Roman colony still lives mainly on agricul-

ture. The country’s principal source of income is a good quality wine ex-

ported chiefly to Russia. Emigration, especially by women, is creating

social problems that will be hard to solve

Moldova:the new European border

by Giampietro Garioni

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Y ou arrive by air at Chisinau in Moldova,then take a taxi from the airport to thecity centre. Immediately, you have the

impression of stepping backward into theSoviet city of 20 years ago. Immense uglybuildings line the sides of a wide road leadingto the old town. Two form the so-called “CityGates” that signal entry to Chisinau (thename of the capital is pronounced Kishin?u inMoldovan and Kishinyov in Russian). There’snot much traffic on the roads, but the surface,even in the main streets, is steep and full ofholes. In the town centre there are a fewmore interesting and pleasant-lookingbuildings, apart from the impressive Ministryof Agriculture, which is out-and-out Soviet instyle. But you’ve barely had time to leave thelong central Stefan cel Mare Boulevard(named after the great Romanian conquerorand defender against the Turks) before, rightbehind the Government Building, the streetsstart to resemble rollercosters and make youlong for one of those SUVs so frequently

cursed in Italian cities. Once you have left thecapital, in any direction, following your owndestinations of work or tourism, you find abeautiful, melancholy countryside, scenesreminiscent of Italy in the first years afterthe War: miles and miles without so much asa village, surrounded by fields, strings ofvines and hundreds of horse-chestnut trees,which are disappearing from the Italiancountryside because they are of littlecommercial value. It’s an orderly kind ofagriculture, not intensive, with fewmechanical aids: in fact, you often see therusty carcasses of what, 40 or 50 years ago,must have been harvesters or some otherkind of farm machinery. Near the tinyhamlets of just a few houses, you come acrossgeese, hens, ducks, mules and the oddscrawny pig or two wandering the fields insearch of food. It’s the countryside of longago; even the climate hasn’t changed: verycold in winter and very hot in summer. Lastyear the extremes arrived very close together.

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From January and February when daytimetemperatures frequently reached minus 30centigrade, to July and August when theysoared to 40 degrees.These first impressions summarise theessence of the country that even the UNconsiders the poorest in Europe, withindustry that is years behind and aninfrastructure that is run-down or simplynon-existent, but a land that is beautiful,worthy of preservation and cultivation. Yetit’s a country which, with the entry ofRomania into the EU on 1 January 2007, hasbecome one of the European gateways to theEast and is therefore now observed throughother eyes and with other interests in mind.

The old MoldaviaThe Republic of Moldavia, or Moldova

(Republic of Moldova) is a democratic Statewhich, once a region of Romania, wasannexed to the Soviet Union at the end ofWorld War II and finally proclaimed

independent on 27 August 1991.The Moldovans prefer their country to becalled Moldova, as it is in their own language,because the name Moldavia reminds themtoo much of the name used in the Soviet era,when it was known as the Moldavian SovietSocialist Republic.If we go back far enough we will discover alink to the history of Rome. In fact, Dacia, thearea enclosed by the Carpathian mountainsand the Black Sea, the River Danube and theRiver Dnester, became a province of theRoman Empire at the beginning of thesecond century AD, following the EmperorTrajan’s victorious campaigns (which are stillrecorded on the Trajan Column in Rome).In a country approximately one-tenth thesize of Italy, there is a population of a littleover 4.4 million people, the great majority ofthem Moldovan Romanians (78%) whopractice the Orthodox religion (98%).However, the population figure demandscloser examination: it includes almost a

MOLDOVA: THE NEW EUROPEAN BORDER

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million migrants and the population ofTransnistria.Transnistria is itself the biggest unsolvedproblem in the country’s recent history.

The Transnistria questionDespite Moldova’s independence, Russian

troops remained on the territory East of theRiver Dniester and these, boosted by the factthat the majority of the local population isSlav, have proclaimed the IndependentRepublic of Transnistria (Transdniester),which stretches out like a long tongue of landbetween Moldova and Ukraine. The President– the father and head of this country, notrecognised by any European State, is IgorSmirnov who, before the declaration of inde-

pendence, was officially a businessman inTiraspol (the capital of Transnistria), even ifrumour has it that he was the local KGBchief. Some people must be well off in thiscity: there’s no lack of custom-built cars andplenty of showy luxury goods alongside theprimitive poverty of the locals, but it’s hardto understand where the money comes from.Some say (like a well-known article publishedin La Reppublica in October 2005) that itcomes from shady dealing, especially armsand drugs trafficking.There’s no need to add that Transnistria,which has adopted its own flag and currency,represents one of the worst cases of territorialtension in the region.The Council of the European Union refers tothe area as being in a state of “frozen conflict”and has several times in the past announcedrestrictive measures in respect of theleadership of the Transnistrian region of theMoldovan Republic. Most recently, theEuropean Parliament issued a Resolution, on

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_Below, Igor Smirnov, President of Transnistria, an inde-

pendent republic recognized by no European country, in

a campaign poster. On the facing page, a view of the

Moldovan city of Chisinau

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26 October last, in which it refused to acceptthe 17 September 2006 “referendum” on fullindependence for the Transnistrian regionand its possible unification with the RussianFederation, and its outcome, because – and Iquote – “it was organised in a completelyunilateral manner by the repressive regime ofTransnistria, thus blocking the possibilitiesfor a negotiated political solution to theconflict in Moldova”, and failed “to meetbasic requirements for free and fair elections”.At the same time, the Resolution invited theGovernment of the Russian Federation towithhold its support from this move, to giveits fullest support to the multilateral effortsto find a solution to the conflicts in itsneighbourhood and, furthermore, to fulfil thecommitments made in the Council of Europeconcerning the withdrawal of Russian troopsand arms from the territory of Moldova. So,too, for the EU, the solution to theTransnistrian question is an essential factor inpromoting political stability and economicprosperity in the Moldovan Republic and theregion as a whole.

EconomyDespite its efforts to climb out of the long

crisis that followed independence, Moldovaremains in a highly critical economic situa-tion.The biggest problem for the Moldovaneconomy stems from its total lack of energyresources, being in this respect entirelydependent on imports (mostly from Russia).Moldova’s good agricultural production isassisted by a favourable climate andproductive soil but must reckon with out-of-date methods: it is insufficient to cancel outthe country’s persistent balance of paymentsdeficits.These two factors (energy imports,agricultural exports) are entwined in thecurrent bout of arm-wrestling with theRussian Federation, which imposed a block onthe import of farming products (wine, fruitand vegetables) from Moldova and Georgia atthe beginning of 2006. The reason given wasthe excessive content of insecticides andfertilisers; the real motive lies in acombination of commercial and politicalpressures: the first, to increase the price ofthe gas exported to the two countries and thesecond, to somehow maintain Moscow’sstrong influence over those who were once its

neighbours in the former Republic.The programme of reforms begun as longago 1991 has not been enough. Relaxation ofmonetary controls, a convertible currency,freezes on prices and interest rates and creditsto State industries have not managed torestore the country’s economic situationcompletely: only three years ago, 80% of thepopulation was still living below the povertyline and annual per capita income was notmuch over 600 US dollars. Just when thecountry was finally beginning to emergefrom its difficulties, in 1998 Russia (its majortrading partner) went into financial crisis –another blow to recovery. Since 2000 thesituation has started to improve and Moldovahas reached an average economic growth of 6or 7% despite a setback in 2006, but there isstill a long way to go on the road to fulleconomic recovery.Most of the GDP comes from services(estimated at 55.6% at the end of 2005),followed by industry (23.9%) and agriculture(20.5%). Nevertheless, it is agriculture thataccounts for the major return on exports(fruit, wine, vegetables, tobacco), thoughthese are products with low added value. Theagricultural sector is still the largest employerin Moldova. In the first six months of 2005,43% of the country’s 1.4 million workerswere in agriculture. According to data fromthe National Bureau of Statistics, 12% of theworkforce is employed in industry, 11.8% intrade and 12.5% in the health and educationsectors. Almost three-quarters of those withjobs work in the private sector.Unemployment is around 8%.The country’s major problem is the chronicbalance of payments deficit. The high rate ofeconomic growth has the effect of increasingrather than reducing the negative balancebetween imports and exports which, since2005, has exceeded one billion dollars andwhich is forecast at 1.5 billion for 2006.Growth, driven primarily by internaldemand, by construction and by money senthome by emigrants, is also stirring upworries about prices: in recent years, inflationhas stabilised at two-digit figures.

MOLDOVA: THE NEW EUROPEAN BORDER

_Many Moldovan working women have emigrated abroad

employed as carers or domestic help. Their children’s edu-

cation is often left in the hands of aunts and grandmothers,

in a country where fathers are frequently absent

On the positive side, the Government’sbudget deficit figures do not give cause foranxiety, thanks to a shrewd fiscal policy and,in particular, because outstanding foreigndebt has fallen sharply in recent years. Until2002, in fact, it was higher than the grossdomestic product, but now even furtherreductions can be envisaged (there has evenbeen early repayment of some loans,including some from the IMF, from Russiaand from Romania). Even though they areincreasing, monetary reserves are stillinsufficient, scarcely managing to cover 2.4months’ worth of imports.In the near future, much will depend oneconomic situations beyond the control of theMoldovan authorities: the trend in energyprices, Russian pressure on trade between thetwo countries, the results of the farming yearand prices achieved by the major products.Still, the local government can make animpact, by increasing the rate of economicreforms and improving the business climate

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Even if the pre-membership

phase to the EU is still

very far away, relations with

Moldova have improved.

This is demonstrated by the

signature of a “Partnership

and Cooperation

Agreement” and the

decision by the Council

of the European Union

to appoint its own special

representative to Chisinau

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in order to attract a larger flow of foreigninvestment, but above all, by intensifyingrelations with the European Union. This isthe paradox facing the first of the formerSoviet Republic nations to have elected aCommunist President: Vladimir Voroninwho, together with the Prime Minister VasileTarlev (both have been in power since 2001)is committed to a policy that is more practicalthan Communist, a policy aimed at limitingfinancial damage to the country andcontinuing its progress toward the EU asrapidly as possible. Even if still far from apre-membership phase, relations between theEU and Moldova have improved, to theextent of the signature, on 28 November1994, of a “Partnership and CooperationAgreement” and the decision by the Councilof the European Union to appoint its ownspecial representative to Chisinau.

Wine: Moldova’s red goldIn the absence of any energy resources,

Moldova’s (red) gold is its wine, which in2005 accounted for almost a third of thecountry’s exports, with much of it going toRussia. As mentioned, last year Russia putmany obstructions in the way of this trade,thus causing more than a few difficulties inthe most significant sector of the Moldovaneconomy.Grown over an area of over 107,000 hectares,Moldovan grapes produce a wine that hasimproved noticeably in the last few years, sothat now one can enjoy well-produced, mid tohigh quality Cabernets and Pinots. Vineshave been grown for thousands of years inthis country and their cultivation is favouredby its particular climatic conditions and theform and structure of land that isexceptionally level and fertile, with just a fewhills and no mountains. Bottles and barrelsare stored at a constant temperature innatural cellars extending for milesunderground. Yet this sector requiresinvestment, both in cultivation itself and inproduction, storage and bottling, and it is oneof the areas of greatest interest to our[Italian] businesses, which are involved inevery link in the chain of wine production.

WorkforceAt a meeting in the Moldovan Ministry of

Economy and Reforms last summer inChisinau, the then Minister expressed his

regret that emigration was not only a strongpoint in the country’s economy (which,without the money sent home by emigrants,would not be able to stand on its own twofeet) but also a cause of concern forMoldovan society. In fact, many workingwomen have emigrated: in the Venice regionalone there are reckoned to be 70,000Moldovans, most of them women, employedas ordinary workers, carers and domestichelp. The result is that their children’seducation is often left in the hands of auntsand grandmothers, in a country where fatherscan be said to be “a bit disinterested”, to usean understatement.However, Moldova still has a good workforce,without any great technical qualifications butwith a good level of education nonetheless:almost everyone knows at least twolanguages (Moldovan-Romanian andRussian), many also know English and somealso Italian.To get a real idea of current labour costs inMoldova, one can say that the averageworkman’s wage is around 70 – 100 euros a

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month; a skilled workman can earn from 100– 200 euros a month, while a specialistengineer will receive around 200 – 300 eurosa month. Then around another 30% must beadded to these figures for social securitycontributions.The country’s future lies in its capacity toattract foreign investment, relying on this tobring back at least a proportion of theemigrants and counting on them to input theskills they have acquired abroad. But theprocess is certainly one that will be slow tostart.

Exports and Italian investmentsOver half of our exports to Moldova, and

almost 85% of our imports, consist of textileproducts, clothing and footwear (the import-export trade in this sector amounted to 137

million euros in the first 9 months of 2006),but the sale of Italian industrial equipmentand machinery is also growing steadily.The most significant investment in thecountry has been made by the Italian bank,Venetobanca, which in April 2006 bought aprivate Moldovan bank, Eximbank, becomingthe leading Western credit institution with animmediate presence in Moldova as a result.Once firmly embedded in the business worldof the Northeast, the Montebelluna Bank,long present in Romania with the BancaItalo-Romena, became aware of the growinginterest Italian companies were showing inthis little country, where in fact there is apossibility, in the coming years, ofreproducing on a small scale the sort of“systemic internationalisation” that has taken13,000 Italian businesses to Romania.Certainly, Moldova is also poorer thanRomania was in the early 1990s, if such athing is possible. It’s not easy to employsecure means of payment for exports to thiscountry, but by the use of open documentarycredits based on the credit limits granted by

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_Moldova boasts a wine culture that dates back thou-

sands of years. Wine is the economy’s strong point, repre-

senting one-third of Moldova’s exports, while the country

is forced to depend upon Russia for its energy needs

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the European Bank for Reconstruction andDevelopment, and the opening of some newSACE branches [the Italian Business ExportsInsurance Society], something should bepossible. In fact, our business exportsinsurance society has recently altered its ownattitude of total refusal to communicate withthe country: Moldova remains in the seventhrisk category (the worst, in the classificationdrawn up by the OECD ) and operationsentailing sovereign risks are not permitted,but at least a start has been made in regard tobanking and corporate risk. Considering thepresence of a bank with Italian capital, and itbeing understood that the usual precautionswill be taken to assess individual cases, thenext few months may also see cover forexports (e.g. of machinery) to be paid for inthe medium term (say, 2 – 3 years, and insome cases within a period as long as 5years). Of necessity, such operations must befairly restricted as to value, generally notmore than 2 or 3 million Euros (which inMoldova is already a large sum).A growth in investments can also beforeseen, first and foremost in the sectorsthat rely largely on the elements that arecheaper in Moldova: the workforce and theland. In other words, the textiles, clothing andfood industries, especially the wineproduction chain, and other types of naturalproducts and processing (e.g. preserves andmedicinal herbs, with which some initialexperimentation is already underway).Another sector of interest will be

wholesaling, of electrical and electro-mechanical supplies, for example. Only laterwill Italian investment look to industrialinstallations at a “mid-tech” level, forinstance in the area of agriculturalmachinery, which, as mentioned earlier, thecountry needs very badly. However, onesector which raises a question is that of publicinfrastructures (roads, means ofcommunication, energy, environmentalcleansing, etc.) which are equallyindispensable in Moldova, but which atpresent are only possible with the aid ofinternational funding, such as that granted bythe EBRD.In short, it’s a matter of repeating, in acountry now at the front line of EU territory,the process of development and local setupthat our businesses have already beenthrough in neighbouring Romania, andwhich they have proved they can do well, butit must be done in the full knowledge thatthe time for re-locating industries simply inorder to seek lower labour costs has passed,and that the future of our foreign investmentrests with market specialisation and withindustries becoming embedded in othercountries.

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