Moldova

Business Opportunities for UK CompaniesNigel Peters, Director of British Expertise

Report of a visit to Moldova, November 2012

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CONTENTS

Section Page Number

1. Introduction 3

2. Summary & Conclusions 4

3. Economic & Political Overview 5

4. Sector Opportunities 7

5. Donor Funding 17

6. Information & Assistance for UK Companies 21

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1. INTRODUCTION

Nigel Peters, Director of the trade association British Expertise, was invited to visit Moldova by HM Ambassador Keith Shannon to review the business opportunities for UK companies across all sectors. This will enable HM Ambassador to focus his and his small team’s commercial efforts, and likewise assist the Moldovan Ambassador to the UK in his efforts to promote trade between the two countries.

Nigel has a long background in trade with Former Soviet Union (FSU) countries, and has also undertaken similar scoping exercise in other FSU countries in the Caucasus and Central Asia, where British Expertise hosts abusiness to business group, the Central Asia and Trans Caucasus Business Information Group (CATBIG). It is felt that many CATBIG member companies will also be interested in Moldova, as well as those companies with interests in the wider region, including of course Romania, with which Moldova shares close historical and ethnic ties. Nigel’s visit to Moldova meant that he has now visited all 15 FSU countries.

The visit was made possible by financial support from the FCO’s Commercial Diplomacy Fund. I would also like to thank HM Ambassador and DHM Amy Sherwood for their initiative in putting the visit together and in particular to Amy for the detailed programme and accompanying me to all themeetings. As always, though, the views in this report are purely my own anddo not reflect Government policy.

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2. Summary & Conclusions

Moldova as a country is not well known in the UK. If people have heard of it they tend either to know it from business they are doing in Romania, Ukraine or Russia, or more generally as the subject of the comic traveloguebook by Tony Hawks, “Playing the Moldovans at Tennis”. Currently there is also some awareness as a country in the same FIFA Football World Cup qualifying group as England. Indeed, although I know the Former Soviet Union (FSU) well, it was the last of the 15 FSU republics that I had myselfvisited.

In some ways this lack of knowledge is understandable. It is a small country, for many years difficult to visit, in a part of the world (SE Europe) where Empires other than Britain’s clashed.

After gaining independence there was also a period of instability and uncertainty as to the future the country should pursue, unlike the clear path to Western democracy that countries such as Estonia, Latvia and

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Slovenia followed (and which are today quoted as models for Moldova to follow).

With good levels of development aid though, we are starting to see a wide range of opportunities, and UK consultants are already present, backed up by investors and suppliers in areas such as ICT and Textiles. The relatively small size of the country limits opportunities in some areas, but in others the preferential trading agreements with both the EU and CIS make Moldova an interesting place to consider an investment in.

The key sectors that offer good opportunities for UK companies are:

energy (especially energy efficiency and alternative energy) agribusiness (including irrigation and water resources) education & training capacity building and institution building in a wide range of public

administration areas including justice, taxation and customs ICT (as a base for low cost back office service centres) Infrastructure projects in transport and water which may well be

procured in the future by PPP, which is another opportunity Light industry (especially textiles)

The British Embassy in Chisinau (and the Moldovan Embassy in London for those looking at investment) are keen to help companies with an interest inthe market, so for UK companies in the priority sectors now is a good time to consider a visit.

3. ECONOMIC & POLITICAL OVERVIEW

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What we now know as the Republic of Moldova was forcefully incorporated into the Soviet Union in 1940, achieving independence with the break-up ofthe Soviet Union in August 1991. The population is estimated at 3.65 million, with the capital being Chisinau. The GDP per capita of €1413 makes Moldova the poorest country in Europe and in aid terms a low income country. As such it receives substantial development aid (€1.94 billion was pledged at a donors meeting in March 2010) from a wide range of donorsincluding the EC, World Bank, EBRD, USA (MCC and USAID), Germany and Sweden, with all except USAID offering business opportunities for UK companies. Indeed, Moldova receives more aid per capita from the EC than any other country except the Occupied Palestinian Territories!

The western part of Moldova has strong cultural and language ties with Romania, and as Bessarabia was ruled by Romania during the inter-war period. Romania has offered passports to those with direct family ties tothe time when they were under Romanian rule (estimated to be 60% of the population).

Remittances from Moldovans working in Russia and southern Europe (including those countries worst hit by the Euro zone crisis), have been hit by the world economic downturn, and as they account for upwards of 30%of the GDP this has caused the otherwise relatively strong growth of GDP to falter in the current year (GDP grew 6.4% in 2011 and should return to 4-5% by 2014).

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These historical links have translated into strong links with the CIS through Russia and the EU through Romania, and the fact that Moldova has trade agreements with both gives it a unique position. So despite its small size it has a strong market access, multilingual population, low cost offer for potential investors, and is starting to make headway in attracting more FDI. The downside is that there is a long history of corruption in the public sector which is only now beginning to be seriously addressed, and this coupled with an at times stifling bureaucracy can make Moldova a difficult place to do business in. However it is pleasing to note that on the latest Transparency International Corruption Perception Index, Moldova has gained 18 places to be ranked 94th.

Moldova has not had an easy political transition since independence, with Communists being in power for some of the time, but the current coalition Government, first elected in 2009, is pro-Western and committed to a reform programme to make the country more competitive and attractive to investors.

There is a protracted conflict with the region of Transnistria (referred to informally as the “left bank” of the river), which wants independence and receives financial support from Russia. As such most development programmes at present do not cover this region, but some are now extendingtheir reach. There is also a legally autonomous region, Gaugazia, which has been successful in attracting some foreign investment through being able to offer advantageous tax deals.

Russia is critical to Moldova for the continued supply of gas, so until alternative sources can be developed, which is an absolute priority for the Government, the country will always be open to Russian pressure and influence.

Contacts:

Sergiu Ciobanu, Vice-Minister, Ministry of Economy, E: Sergiu.ciobanu@mec,gov.md T: +373 22 250 670

Ronny Bechmann, Advisor to the Prime Minister on Economic Policy E: ronny.bechmann@giz.de T: +373 22 250 586

Denis Jelimalai, Executive Director, Moldovan Investment & Export Promotion Agency E: denis.jelimalai@miepo.md T: +373 22 27 36 54

Vladimir Didilica, Vice-President, Chamber of Commerce & Industry E: didilica@chamber.md T: +373 22 23 32 44

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4 SECTOR OPPORTUNITIES

The sectors are listed in my approximation of their potential for UK companies.

4.1 Energy

The resolving of key issues in the energy sector is very important for the future economic development (and political stability) of Moldova, and this offers a number of opportunities for UK companies. At the root of the challenge is that Moldova relies for 98% of power on imported gas from Russia, the cost of which is around 15% of GDP. The transmission and generation system, including the Soviet era district heating system, is both inefficient and costly. Priorities are therefore to make the existing system more efficient, and at the same time to develop new sources of energy, with the emphasis being on alternative systems such as biomass, waste-to-energy and solar. All these areas are receiving both donor and private sector funding.

Russia, via Gazprom, actually cut off gas supplies for a short periodin the winter of 2008 due to non-payment of bills, an action which forced the Government to urgently address restructuring needs. This involved work with the World Bank (and Sweden, which gives funds to the World Bank via a trust fund for work in this sector in Moldova). Projects have focussed on restructuring and merging Termocom, the district heating company in Chisinau, with the Combined Heat and Power Plants (CHP), and preparing a debt restructuring plan for Moldovagaz.

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At the same time work was undertaken to improve the heating efficiency in public buildings, and a new World Bank project worth $30 million is currently in the planning pipeline to assist the newlymerged company in improving the sustainability of their operation andfinancial viability. The UK is well placed to compete for both consultancy and equipment supply opportunities in this area, including support for helping the Ministry of Economy introduce green-building and energy efficiency codes and regulations for new buildings and for the refurbishment of existing buildings.

The United Nations Development Programme (UNDP) leads on a project that also receives support from the EC to develop biomass energy. The project is run by the Energy Efficiency Agency in the Ministry ofEconomy and has a budget of $14.5 million. The aim is to create a sustainable local market for energy production from agricultural (mainly cereal and sugar beet) waste focussed on public buildings such as schools in rural communities. The communities themselves have to raise up to 15% of the funds so that they have ownership in the sustainability of the project. Companies have just been pre-qualified for the design, build and procurement of the projects (fromMoldova, Greece and Lithuania). These companies will buy the biomassboilers and related equipment, and this can be an opportunity for UK boiler and related equipment (such as briquetting and the harvesting/collection of the biomass) companies. There is also reported interest from a UK investor in growing biomass on land that is currently out of agricultural production.

The Energy Efficiency Agency is also working on a project to set-up an industrial co-generation pilot plant, where UK consultants have applied to be pre-qualified. Work to be done in this area includes agreeing a feed-in tariff. There is also a study underway to look atsolar power for hot water. Related to all these areas is a substantive training programme for municipal leaders, agricultural entrepreneurs, boiler operators and schools.

The main private sector project, which is being mainly financed through a private equity fund, involves the Mentor Group, which is promoting a project called Ecoverde. This involves agreements with anumber (currently 10) of municipalities to take all their waste (which currently goes to landfill) and turn this into energy. This project may also offer opportunities for UK companies, from consultancy to equipment supply.

Contacts:

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Mihail Stratan, Director, Energy Efficiency Agency, E: mihail.stratan@aee.md T:

+373 22 31 03 32

Vadim Ceban, Head of General Security and Energy Efficiency Division,Ministry of Economy E: vadim.ceban@mec.gov.md T: +373 22 250 557

Alexandru Ursal, Project Manager, Moldova Energy & Biomass Project E: alexandru.ursal@undp.org T: +373 22 83 99 80

Stanislav Groppa, First Deputy Chairman, Mentor Group Holdings E: stanislav.groppa@mghenergy.com T: +373 68 55 58 58

4.2 Agribusiness, Food & Drink

Agriculture and the related food and drink industries is a key part of the Moldovan economy, averaging around 12% of GDP in recent years and accounting for up to 30% of employment.

The food processing industry was privatised in 1996 and land in 2000.Main products are fruit juices, canned and dried fruit, wine, processed meat and milk products. FSU countries are the main export markets. Moldovan wine exports were severely hit by a Russian importban in 2006, supposedly linked to safety concerns.

Land privatisation led to fragmentation of ownership, with many parcels as small as 2-3 ha, and even now only about 15% of the land is owned by larger companies. This has led to many efficiency issues. Currently cereals account for about 1.5 million ha, vineyards 150,000 ha and orchards for 120,000 ha.

Key issues that are being addressed with the support of a number of donors (principally World Bank, MCC, EC and IFAD) include increasing the competitiveness level of outputs, improving market linkage, enhancing access to land, finance and advisory services, and restoring degraded land to productive uses including forestry. A recently approved World Bank project with a budget of $25 million, will look at agricultural competitiveness issues, and have componentsdealing with the food safety agenda (including setting up a Food Safety Agency on the EU model, where twinning support from the UK viaScottish Agricultural Colleges and Lithuania is already in place, andintroducing HACCP ISO food safety standard certification for producers), increasing the level and capacity of farmers

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organisation, improving post harvest infrastructure, and promoting the adoption of sustainable land practices.

A key component in assistance from the MCC is the $102 million Transition to High Value Agriculture project, which runs from 2010-2015. The project aims to act as a catalyst for investments in high value production by establishing new models for irrigation systems and water resources management, and creating an improved and sustainable institutional and policy environment for irrigated agriculture. In practise this will mean the rehabilitation of 11 irrigation systems covering 15000 ha, the creation of new Water UsersAssociations for 6000 farmers, the creation of a Post-Harvest Infrastructure Credit Facility, and training in advanced agriculture technologies for 5000 farmers.

The UK consultant Mott MacDonald has already won work on a river basin management study, and DAI is likewise working as one of the main consultants on the project, currently analysing the value chain for fruit and vegetables and access to supermarkets. There are good opportunities for other UK companies to be involved in this project.

An EC project which involves technical assistance for budget support for economic stimulation in rural areas has the UK consultancy OPM inthe implementation consortium led by GFA.

I understand Moldovan wine exporters have tried to sell into the UK market, but with very limited success so far.

Contacts:

Viorel Gutu, Deputy Minister, Ministry of Agriculture & Food IndustryE:viorel.gutu@maia.gov.md T: +373 22 23 23 84

Tudor Robu, Director International Relations, Ministry of Agriculture& Food Industry E: tudor.robu@gmail.com T: +373 22 210 752

Matthew Brown, Resident Twinning Adviser, Food Safety, Ministry of Agriculture & Food Industry E: matthew.brown@sac.co.uk T: +373 22 212 095

4.3 Education & Training

The student population in Moldova has shrunk by a massive 48% since independence in 1991, and this has been an enormous challenge to the Government to make more efficient use of their educational resource

base. The World Bank are working with the Government on the primary

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education sector as there are serious concerns at the large level of students failing to acquire the most basic skills. This support is helping the Government to consolidate and extend reforms in curricula, student assessments, teacher training and textbook design. The World Bank are preparing a new $39 million Education reform project, which will help the Government implement their “Action Plan for

Structural Reform in the Education Sector” to include: equal access for all children to quality education; increased flexibility in labour relations in education; efficient use of financial allocations. This projects should offer good opportunities for UK consultants and possible those in education equipment and supplies.

There is also recognition that the Vocational Education & Training (VET) sector needs to be improved, as many companies are complaining that the system is not turning out the right students for the jobs available. The EC have a project worth €5 million to start this year which could offer some opportunities for UK companies and further education colleges (the trade association TVET UK is already active in many FSU countries).

The objectives of the project are to:

Implement structural reform and improve social dialogue in VET by establishing 5 or more sector committees in the most important economic sectors

Developing a framework for quality assurance and management in VET, and also improving the quality of the learning processes and learning outcomes in the 5 selected sectors

Strengthening the capacities of key stakeholders for a forthcomingbudgetary support programme also supported by the EC, including monitoring and evaluation

Raising awareness of VET professionals and the general public for the new reformed VET system

At the higher education level, there is also a need to focus more on sectors such as ICT where there is a clear demand for more graduates, and to ensure closer liaison with ICT companies. The private sector feels there are too many lawyers and economists graduating, and not enough engineers and mathematicians!

4.4 Public Administration, Law & Justice

This is a sector where there is considerable consultancy work underway to strengthen institutions and build capacity in the Moldovan public sector as the country prepares for the association

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agreement with the EU and related efforts to make the investment climate more attractive for international investors. This is also anarea where the UK has considerable strengths and has a good track record of working other FSU countries. The main donors involved are the EC, World Bank, Sweden and UNDP.

The EC project in public administration, with a budget of €30 million, is for:

Institution building for core institutions (particularly the StateChancellery) central to preparing the ground for the future Association Agreement with a focus on the Deep & Comprehensive Free Trade Area (DCFTA) and the visa liberalisation action plan (VLAP)

Furthering Moldova’s cooperation with the EU by helping Moldovan public sector bodies participate in EU programmes and agencies in a broad range of sectors

The project consists of a mix of direct assistance, on the job training and formal training on specific subjects

Reform of the Justice sector is seen as key to enhancing the investment climate. It is widely accepted there are major issues concerning transparency and corruption at present with the judiciary,and this is a key area of concern for companies engaging in due diligence in relation to their investments and the need to comply with the UK anti-bribery act, which covers the actions of UK companies in third countries (similar legislation applies in other EUand developed countries).

There is a €52 million project which will:

Strengthen the independence, accountability, impartiality, efficiency and transparency of the judiciary

Streamline the process of pre-trial investigation and prosecution Improve the institutional framework and ensure effective access to

justice Coordinate and define powers and responsibilities of key actors in

the sector and ensure cross-sectoral dialogue Promotion and implementation of the principle of zero tolerance to

corruption

In the area of public financial management and the administration of tax, the World Bank are preparing a $20 million project with the objective of strengthening institutions and systems for public financial management and tax administration.

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An existing project, which has recently been extended to June 2013, looks at the complementary area of Private Sector Competitiveness Enhancement, and includes regulatory reform, introduction of ISO quality standards, support for business planning and new product development. E-procurement is also being introduced with the supportof both the World Bank and UNDP, the aim being that all public procurement will be undertaken in this form by the end of 2013. Training in investment promotion is also underway through a London based consultant.

Further work will also be supported by the World Bank in the financial sector, including technical assistance for the Central Bankand the National Commission for Financial Markets.

All of these areas, so essential for the long term sustainable development of the Moldovan economy, are areas where the UK has strengths and is well placed to play a central role in technical assistance, institutional and capacity building programmes, and also to supplying related goods and equipment where relevant.

4.5 Information Technology & Communications (ICT)

Moldova has good levels of education in the ICT sector and salaries for IT specialists are the lowest in Central & Eastern Europe (c. £1000 per month including overheads, as against £1500 in Romania). Couple this with investment incentives, language skills and time zonecompatibility, and it is easy to see why UK companies looking for an ITC offshore base or service centre are attracted by Moldova. There is even a Swedish-speaking call centre in Chisinau! The IT sector now accounts for around 10% of GDP, employing 20-30,000 people.

We had a fascinating visit to the IT services company Endava, which is UK-Romanian owned. They have 1000 staff in total, of which 250 are based in Moldova, 400 in Romania, and the rest in UK. They manage back-office IT systems for very large blue chip organisations including Banks. They work closely with Universities to make sure they have a good supply of graduates, and also run in house training courses, but they would like to see greater public investment in the education sector.

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They feel there is room to grow the market so that it employs 50,000 people. Other international investors in the sector include Hewlett Packard and Oracle. The main competitor is India but Moldova offers better quality and easier communications.

Another UK ITC company with operations in Moldova is Computaris, and there is certainly scope for other UK ITC companies to seriously lookat investing in this sector in Moldova.

Contact:

Nicolae Godiac, Operations Director, Endava E: nicolae.godiac@endava.com T: +373 22 806 727 Ian Tidder, CEO, Computaris InternationalE: Ian.Tidder@Computaris.com

4.6 Transport Infrastructure

MCC and EBRD are financing work on the transport infrastructure sector, primarily road reconstruction, but also work at Giurgiulesti port and also trolley-buses for Balti.

The MCC project is just starting construction, reconstructing the 93 km between Sarateni and the Ukrainian border at Soroca. The Works contractors are from Turkey and Austria, and the consulting engineershave been from France and Italy. A final works supervision consultancy will shortly be let, offering the last chance for UK consultants on this project at this stage. Construction equipment suppliers will need to approach the works contractors, Strabag of Austria and a Turkish consortium led by Onur, directly.

EBRD are similarly financing reconstruction works on the Chisinau – Sculeni and Hincesti – Lapusna roads, and consulting engineering consultancy opportunities have recently been advertised.

Those interested in future road construction projects are recommendedto keep in contact with both MCC and EBRD.

The works at Giurgiulesti Port will involve a mixed gauge rail terminal and a roll-on roll-off ramp. There may be future works of

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interest to UK companies at this, Moldova’s only port, which is on the River Danube and also an international free port.

4.7 Water Supply & Sanitation

Investment needs in this sector are high, following decades of under- investment. Although urban communities have access to piped water and waste-water, these only work to very poor standards and are very energy inefficient. The situation is worse in rural communities, where only about 40% of people have access to basic sewerage systems, and these are in need of urgent rehabilitation. Leakage levels are high.

The World Bank has been supporting pilot projects in the sector, andEBRD is also interested. Donor funding will provide opportunities for consultants and suppliers of equipment.

4.8 Light Industry

Moldova sells itself as a low cost production country that uniquely has preferential trade agreements with both the EU and CIS (the enhanced EU association agreement is planned to be signed by the endof 2013 and the CIS treaty was signed in September giving tax free entry). At present exports are roughly 50:50 to both the EU and CIS. This is supplemented by 7 Free Economic Zone (FEZ) Industrial Parks with extra tax advantages, cheap rental prices and access to infrastructure. During the visit we travelled to the Caan FEZ Industrial Park some 20 km from Chisinau in the town of Straseni, which is being developed on the site of a 1980’s Soviet era refrigeration factory that was the 4th largest in the Soviet Union. It is now derelict, and we felt it was an immense challenge to attract international companies to this site, who would probably prefer a green field site or a modern purpose built facility.

So far Moldova has attracted German and American companies in automotive spare parts (Draxelmaier and LEAR Corporation respectively), a Turkish company producing soft furnishings for IKEA, a French company (Lafarge) in building materials, and companies in the fashion clothing sector taking advantage of the c. 65 textile factories in Moldova.

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The UK clothing brand J. Barbour and Sons were met during the visit. J. Barbour and Sons have been manufacturing in Moldova since February 2011. They are starting production of their Autumn 2013 ladies wax jacket range at the Artizana factory in Chisinau. The wax cotton is sent from the mill in Scotland to the Moldova factory for making up into the final product. They are moving further production from UK and Bulgaria where costs have risen.

The advantages of manufacturing in Moldova are costs, sustainability, young work force, skills, commitment and support. The disadvantages are longer lead times to UK suppliers. For growth, theneed for support and development is a necessity.

Fashion Clothing is a buoyant sector in the UK, and it is likely that other clothing companies could be interested in moving productionto Moldova (M&S are also producing Harris Tweed jackets locally I understand).

There is an Association of Suppliers to the British Clothing Industry (ASBCI) based in Halifax that most of the leading manufacturers belong to, and this could be a key contact for any incoming trade visits to UK organised by the Moldovan Embassy.

4.9 Public Private Partnerships (PPP)

This is in many ways a “cross-sector” opportunity, in particular relating to many infrastructure sectors.

Moldova has been interested in the PPP model for delivering projects for some time, but has been lacking a coherent national strategy. Ittherefore invited the United Nations Economic Commission for Europe (UNECE) to assess the current situation and make recommendations on the appropriate PPP strategy for Moldova. This is an area where the UK has a lot of expertise and is well placed to provide expertise as the programme develops.

UNECE’s recommendations include an extensive training and capacity building programme to ensure that all stakeholders involved in the PPP process, including public officials, the banking sector, businesscommunity and the general public are aware of the PPP concept and theneeds for its effective development. The current PPP Unit is located in the Public Property Agency, part of the Ministry of Economy.

As an indication of the type of projects that may be suitable for PPP, the following have been very tentatively suggested:

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Maintenance & Rehabilitation of Roads New roads such as a bypass for Chisinau Operation & Maintenance of Urban Transportation services Municipal Water Supply Solid Waste Management Balti Airport redevelopment Renewable Energy including municipal waste to energy Industrial parks including the planned Chisinau Information

Technology Park Healthcare Education Prisons National Football Stadium Residential Housing

Contact:

Ion Potlog, Head Public Private Partnership Unit, Ministry of EconomyT: +373 22 22 3172

4.10 Tourism

It is difficult to see much opportunity at present in this sector. Most visitors are diaspora visiting relatives or business people. Chisinau has a good, modern airport, but compared to surrounding countries, especially Romania and Ukraine, is an expensive city to fly to as there are no low-cost airlines. If this were to change then this sector could become more important. The lack of need for avisa from EU citizens is a plus point.

Moldovan wine is fairly well known regionally, and it is possible tosee an itinerary being developed whereby wine tours could be combined with visiting some of the historic Moldovan churches and monasteries. Chisinau is a fairly pleasant city with enough historical and natural sites to interest most people for a day or so.

Other than a Best Western hotel in a central but poor position in Chisinau, there are no Western managed hotels in the country. Therehas been talk of Radisson-Blu looking at the opportunity to manage one of the central Chisinau hotels, and this could be an opportunityfor a hotel management company.

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4.11 Healthcare

I had no specific meetings in this sector, but the World Bank is financing a project which includes development of the primary care system, and there are also plans to further rationalise and regionalise the public hospital network, which may attract donor funding. There is a private Turkish-owned medical centre (“Medpark”) in Chisinau which is reportedly well run and resourced. This is an area that may attract finance through the development of the Government’s Private-Public Partnership (PPP) law.

4.12 Regional Development

There is support from the EC for a project, managed on their behalf by the German aid organisation GIZ, to help regional authorities better prepare projects in order to attract both development aid andprivate sector investment. There is also a capacity building twinning project financed by the EC.

Regional statistics would be improved and a regional development plan covering the key areas of water and sanitation, solid waste management, regional roads, business infrastructure and support, andenergy efficiency in public buildings would be prepared. Regional Development Authorities (RDAs) will be established based on EU experience. EC have committed EUR 7 million for pilot projects and this is an area where the UK has some relevant experience.

During my visit I also met a representative of the Moldovan autonomous region of Gaugazia. This is a region of 160,000 people in the south of Moldova, with about 5% of both the population and land area. They have a thriving textile industry, already producingfor Gap and Nike, and are able to offer preferential taxation rates through their own regional laws. They also have a large wine industry which exports some of its production. They accept that some aspects of their infrastructure are poor, but they also have a Free Economic Zone and are keen that potential investors should consider their region.

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5. DONOR FUNDING

Moldova is the poorest country in Europe, with a GDP per capita of € 1413. In aid terms it is an early transition low income country, and as such it receives considerable sums of donor assistance. These funded programmes are a good source of business for UK companies in consultancy and the supply of goods and equipment (it is unlikely works contractors will be competitive). Investors will also find help in areas such as assistance for feasibility studies, equity co-financing and training of the local workforce.

The new government elected in 2009 introduced significant economic reforms which received broad support from the donor community, with a donor’s conference in March 2010 pledging €1.94 billion.

The largest donors are the European Commission (EuropeAid and the European Investment Bank), USA (through the Millennium Challenge Corporation and USAID), World Bank Group, European Bank for Reconstruction & Development (EBRD), United Nations Development Programme (and other specialised UN agencies such as the World Health Organisation), Germany (through GIZ) and Sweden.

The UK no longer gives bilateral aid to Moldova (DFID graduated in 2011), but is a significant contributor to the programmes funded by the European

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Commission, World Bank, United Nations and EBRD. UK companies can tender for programmes funded by all the donors with the exception of USAID (unlessthey have a company registered in the USA).

5.1 European Bank for Reconstruction & Development (EBRD)

Since commencing operations in Moldova in 2001, EBRD has financed 85projects cumulatively worth €1.1 billion. In 2011 EBRD financed eight projects worth €69 million. All infrastructure projects benefitted from technical assistance, co-financing with EIB and EuropeAid.

EBRD’s priority is the modernising of the transport and municipal infrastructure sectors, promotion of energy efficiency, seeking improvements in corporate governance and transparency, together withinvesting in the private sector. For transport and municipal services the focus will be on procurement practises and municipalities outside the capital of Chisinau. In the financial sector the focus will be on debt and equity financing for new energyefficiency frameworks, and improvements in the transparency of shareholding structures.

Projects recently approved include: a €3 million loan to the city of Balti for a new trolley-bus

fleet a €12 million loan to Danube Logistics SRL for Giurgiulesti

Port for building a mixed-gauge rail terminal and roll-on roll-off ramp

Road upgrade programme (R1 Chisinau to Sculeni and R33 Hincesti to Lapusna)

5.2 European Commission

Moldova is a beneficiary of the EC’s European Neighbourhood and Partnership Instrument (ENPI). The National Indicative Plan for 2011-2013 has the following priorities:

Good governance Rule of law and fundamental freedoms Social and human development Trade and sustainable development

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The 2012 Annual Action Plan is worth €94 million and is supporting the following programmes

Framework programme worth €30 million to put in place institution-building to support core Moldovan Government institutions in developing the association agreement proposed between the EU and Moldova

Technical and Vocational Education and Training, a €5 million project

Pilot Regional Development Programmes, €7 million Justice sector reforms, €52 million

The European Investment Bank (EIB) is mainly co-financing projects where EBRD and ENPI are taking the lead (including for procurement) in the energy and municipal infrastructure sectors.

Contact:

Kaido Sirel, Head of Operations, Delegation of the EU E: kaido.sirel@eeas.europa.eu T: +373 22 505 210

5.3 World Bank Group

The World Bank operates in Moldova under a Country Partnership Strategy for the period FY 2009-13, with indicative lending of $45-50 million p.a. It focuses on three strategic priorities:

Improving economic competitiveness to support sustainable economic growth

Building human capital and promoting social inclusion Improving public sector governance

The Private Sector Competitiveness Enhancement project is giving matching grants to SMEs for work in areas such as ISO Quality Certification, Business Planning and New Product Development. Regulatory reform is also an important component. The National Bank has also received considerable amounts of technical assistance in areas such as banking payment system modernisation, electronic payment services, capital markets law, liquidity stress testing for banks etc.

A Health Services and Social Assistance project has been running since 2007 and additional financing was approved in December 2011 of$10.2 million. This is focusing on primary health care quality and availability across the country.

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Projects currently being considered for approval are as follows:

District Heating Efficiency Improvement ($30 million) Education Reform - quality of and access to general education

together with efficiency reforms and a focus on technical and vocational education ($39 million)

Strengthening Public Financial Management and Tax Administration ($20 million)

The World Bank is also active in co-financing projects with EBRD in the infrastructure and energy sectors, including water supply and waste-water.The International Finance Corporation (IFC – the World Bank’s privatesector arm) has also invested in several sectors, including wine, textiles and food processing.

Contact:

Ghenadii Cotelnic, Consultant, Financial and Private Sector Development E: gcotelnic@worldbank.org T: +373 22 200 706

5.4 Millennium Challenge Corporation (MCC)

MCC is a bilateral USA aid programme aimed at helping countries achieve the millennium development goals. It is run separately fromthe other US Government aid programme, USAID, and critically for UK companies, is completely untied in its procurement of goods and services. A number of UK companies have been successful in supplying consultancy services, good and equipment on projects funded by MCC.

Moldova signed a 5 year compact with MCC in 2010 worth $262 million.After extensive public consultation the compact focuses on agriculture and road rehabilitation.

The Transition to High Value Agriculture programme will stimulate the production and improved marketing of high-value agricultural products, including fruit and vegetables. Reliable water supplies will be achieved by rehabilitating 11 large irrigation schemes, improving access to agricultural credit schemes, and also financing projects in post-harvest processing, storage and marketing. DAI (USowned but with a large UK office which is managing the project) is the main consultant, and Mott MacDonald from the UK are the

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consultant for the river basin management studies component. The first works contract will shortly be let so the irrigation rehabilitation can get under way, and there will be a tender for a consultant to supervise these construction works which should interest UK consultants. This programme is working closely with USAID who are providing some of the funding.

The Road Rehabilitation project includes repairs to a 93km road in NE Moldova from Sarteni to Soroca. Works contracts have just been let, one section being won by a Turkish contracting consortium (Onurand Summa), the other by Strabag of Austria. The consulting engineers are French and Italian. The fiscal agents are Cardno and the procurement agents are Booz Hamilton, both working out of their US offices.

Contact:

Valentina Badrajan, Executive Director, Millennium Challenge AccountMoldova, E: valentina.badrajan@mca.gov.md T: +373 22 852 299

5.5 United Nations

The United Nations Development Programme (UNDP) has a 4 year BiomassEnergy programme running until 2014, co-funded with the EU with a budget of €14.5 million. This is helping public buildings in rural areas such as schools, clinics etc to install biomass heating systems. Design-build companies have just been pre-qualified. Whilst there are no UK companies on this list, there could be an opportunity for UK boiler manufacturers to supply via the contractors.

There is also an industrial co-generation pilot project where 3 UK consultants have been short-listed. This will enable the agricultural sector to process its own waste. A key area is agreeing the feed-in tariff with the Government. Other types of alternative energy such as solar and wind is also being studied.

5.6 Sweden

Sweden has a bilateral development aid programme for Moldova, a surprise to me, as traditionally I have seen Swedish aid focussing

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on poorer countries in Africa. However this is a pleasant surprise as Swedish aid has a long history of being untied, and many UK companies have experience of working for the Swedish aid agency. Theallocation for the 2011-2014 period is SEK 110 million (ca. £10 m). The programme includes:

Energy Efficiency Energy Legislation compatible with EU regulations and norms Improved Municipal Infrastructure Alignment of trade regulations with the EU Support to SMEs to increase competitiveness

6 INFORMATION & ASSISTANCE FOR UK COMPANIES

6.1 British Embassy

The British Embassy in Chisinau is a small post with limited resources and no dedicated commercial staff. However HM Ambassador Keith Shannon and his deputy, Amy Sherwood, are happy to meet visiting UK companies and to give general advice on the market where possible.

Contact: Amy Sherwood, Deputy Head of Mission

E: Amy.Sherwood@fco.gov.uk

T: +373 22 25 18 23

6.2 Moldovan Embassy

The Moldovan Embassy in London is similarly a small post, but again the Ambassador, Iulian Fruntasu, and his deputy Mihaela Manoli, are happy tomeet with UK companies, especially those with investment and/or importing interests.

Contact: Mihaela Manoli, Counsellor

E: counsellor.london@mfa.md

T: 0208 995 6818

6.3 British Expertise/CATBIG

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The author of this report, Nigel Peters, is a director of the trade association British Expertise, which as well as promoting consultancy and professional services internationally, also hosts CATBIG - a business to business information group dealing with the 8 FSU Republics in the Caucasus and Central Asia. Companies with an interest in Moldovawill also be welcome at CATBIG meetings. To join the CATBIG database (no charge) please email contact details to Sue Davie, email: sd@britishexpertise.org. For further details of British Expertise membership please also contact Sue or visit: www.britishexpertise.org.

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