Assessment of Moldova’s Business Environment – Gaps and Opportunities for USAID BRITE in Year 4

Traditional trade patterns are changing, with export of manufactured goods to the European Union eclipsing exports of agricultural products to Commonwealth of Independent States countries. Moldova's trade deficit is swelling, and its domestic economy is unable to generate jobs in sufficient numbers for its population, who are forced to work abroad, often illegally. Their remittances are essential in stabilizing the economy. Microenterprises predominate, and foreign investment lags, with foreign investors unhappy with regulatory quality and intrusiveness. Unless Moldova increases its own regulatory efficiency, which suppresses domestic productivity, the competition with more efficient producers in the European Union could cause even greater economic problems. Moldova's development context is characterized by a fragile economy, changing trade patterns, and a large trade deficit. The country's domestic economy is unable to generate sufficient jobs, leading to a reliance on remittances from abroad. Moldova's business environment is a key area of focus for the Business Regulatory, Investment, and Trade Environment (BRITE) Program. The program has resources remaining sufficient to fund an aggressive reform agenda. BRITE's technical approach and adaptation to a very difficult environment are professionally impressive. The program's Strategic Communications component has the potential to be a catalyst for change, turning Moldova's long, dark night into day. Moldova has made impressive progress in improving its Doing Business indicator ranking in recent years, rising from 103rd to 63rd between 2007 and 2015. However, other indicators of good governance have stagnated, and corruption remains pervasive. The country's administration of cross-border trade ranks poorly on the "Trading Across Borders" indicator, 152nd, and has been stagnant in recent years. Improvements in customs administration supported by BRITE seem to have been offset by the increasing presence of other agencies at the border, particularly the dysfunctional National Food Safety Agency, which suppresses both export output and domestic production. The staggering costs of the delay Moldovan regulators impose on trade include an estimated loss to annual GDP of more than 20 percent. BRITE has provided the Moldovan Customs Service with the tools to dramatically reduce customs clearance times, if it is allowed to embrace them. Without an integrated and obligatory risk-management system for all border agencies, however, excessive delays and the adverse economic impacts are likely to continue. BRITE should pursue this issue.