Economic policy advice to the Moldovan Government

Project description

Title: Economic policy advice to the Moldovan Government
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Republic of Moldova
Lead executing agency: State Chancellery of the Republic of Moldova
Overall term: 2018 to 2022

+++ In the context of the corona pandemic, this project was extended to include measures that help to counteract the spread of the virus and mitigate its effects. +++

Context

Economic growth in Moldova requires a higher dynamic–both quantitatively and qualitatively–to generate sustainable and inclusive development. Moldova’s employment rate was only 42 per cent in 2018, while EU average is around 70 per cent. Insufficient employment opportunities and a pertinent need for reform induce significant parts of the population to migrate. A significant number of new jobs is needed to meet the long-term demand of the unemployed and underemployed Moldovans as well as returning migrants. Moreover, the existing jobs are unequally distributed between urban and rural areas and between men and women. On top of Moldovans not having sufficient opportunities to earn a steady income, ethnic minorities and persons with disabilities are at a high risk of poverty, and have issues accessing the labour market.

Against this backdrop, Moldova has initiated reforms with the objective to become a more attractive investment location. Private investments, both foreign and local, are instruments to generate jobs and improve living conditions. Despite the competitive labour costs and the fact that Moldova is part of international free trade agreements, employment remains an important precondition for generating investments. The further improvement of the general business and investment climate as well as the support structure for individual investors is as important as the dissemination of the positive economic developments to all regions of Moldova and all parts of society, including the most vulnerable ones.

Objective

The project has enhanced the opportunities to participate in inclusive growth.

Approach

The project comprises advisory services in the following four, mutually reinforcing, areas: 

• Output 1: Enabling framework – policy advice for sustainable economic development supports reforms in line with social market economy principles to strengthen competition, enhance social security and facilitate trade. The involvement of private sector expertise and civil society actors in developing reforms as well as the consideration of gender aspects play a central role in this regard. 
• Output 2: Investment promotion – strengthening demand-oriented services for investors supports public service providers in the field of investment promotion to facilitate job creating investments. The services comprise the provision of investment relevant information and support as well as individual after-care for existing investors. 
• Output 3: Linkages – supporting local SMEs in becoming suppliers to foreign investors capacitates regional economic support structures to provide advisory services for local enterprises to integrate them into value chains of international investors. 
• Output 4: Disadvantaged groups – supporting integration into the labour market by capacitating support structures to provide employment services for high poverty risk persons (ethnic minorities, persons with disabilities, current and former prisoners).

The project aims at country-wide impacts, while the promotion of individual investment locations as well as regional support structures focuses especially on economically disadvantaged regions.

The project is cofinanced by the Swiss Agency for Development and Cooperation (SDC).

Within the framework of the existing project, the Moldovan partners are supported in dealing with the economic challenges of the Corona pandemic, in preserving jobs and securing the location for international investors. For example, the Moldovan Ministry of Economy will be advised in assessing the economic impact of the pandemic and developing strategies for a medium-term economic recovery. In addition, companies will be supported in temporarily converting their production to the manufacture of medical protective equipment which has already resulted in the production of over 1,300,000 protective suits and masks. In this way, about 1,000 jobs are being secured and the demand for protective equipment in the country is being met. In some cases, companies have already been able to hire new employees to cover an increasing export demand. In order to enable local MSMEs to benefit from online trade, which has been accelerated by the pandemic, advisory capacities are also being built up in support structures that can assist MSMEs in this change. 

Results

As a result of the project´s activities in the current and previous phases, the creation of over 9,200 jobs was facilitated, of which more than 1,000 in Gagauzia. One example is the support to the Japanese automotive supplier Fujikura, which opened its first plant for wire harnesses in Moldova in 2017 with more than 1,700 employees. Based on the positive experience, the company opened a second plant in 2018 in Gagauzia, employing additional 1,000 people with above average salaries in a growing and promising manufacturing sector. With the support of the project, the Investment Agency reached out to the company in 2013. When the company started considering Moldova, the joint team supported Fujikura with information, scouting of relevant locations, site visits, organising official meetings and conducting a labour market research.

Over 40 changes to legislation in line with social market economy principles have been promoted in the same period. One example is a government decision that establishes a programme to provide financial incentives for companies, which create more than 100 new jobs. For each job, the company receives about 2,000 Euros, which increases Moldova’s regional competitiveness and serves as a strong incentive for labour-intensive investments, particularly in manufacturing. The medium-term increase of tax revenues strongly outweighs the short-term public expenses, in this case.

In addition, the project supported 19 public-private coordination processes with focus on employment. In this regard, special attention is given to the transparent inclusion of private sector expertise in the development of reforms as well as the establishment of long-term dialogue formats for exchange between public and private stakeholders. The area of “Social Entrepreneurship” is one example of the project team initiating and facilitating the dialogue between the government and civil society. As a result, relevant legislation has been successfully adopted.