Moldova - Market OverviewMoldova - Market Overview
Moldova is a small, landlocked nation of 3 million considered the poorest country in Europe with a per capita GDP of USD 1,848 (2015). Agriculture and food industry dominate the economy, with remittances playing a major role – at times a quarter of the annual GDP – in fueling consumption. As the economy has been opening up since the country’s independence, foreign trade has been growing considerably.
After a 0.5% recession in 2015, the economy grew 4.5% in 2016 on the back of a recovery in agriculture and strong consumption. After a politically turbulent 2015, the government installed in January 2016 was able to contain the fallout from a massive banking fraud resulting in the bankruptcy of large banks with reforms done at the the National Bank of Moldova. Further steps by the new cabinet to reform the judiciary, public administration, bank supervision, and regulatory transparency helped restore donor support and secure a three-year IMF program worth about USD 180 million. Anticipated 2017 growth rates hover between 3% and 4.5%.
Moldova has been the target of a number of Russian trade restrictions since 2006 and as a result significantly decreased its reliance on historically traditional markets in the Commonwealth of Independent States (CIS), shifting toward European countries and expanding the geography of its trade.
A member of the WTO since 2001, Moldova has signed free trade agreements with countries of the former Soviet Union. In December 2006, Moldova joined the Central European Free Trade Agreement (CEFTA). In June 2014, Moldova and the EU signed an Association Agreement (AA). Part of the AA is the creation of a Deep and Comprehensive Free Trade Area (DCFTA) over a period of ten years. The DCFTA removes most import duties and supports regulatory harmonization between Moldova and the EU. Also, Moldova has a Free Trade Area (FTA) Agreement signed with Turkey.
Moldova benefits from its proximity to two large markets: the European Union, which absorbs over 60% of the country’s exports, and the Russia-dominated CIS, accounting for almost a quarter of Moldovan exports. In a breakdown of top ten export markets by country in 2016, Romania was first (25.1%), followed by Russia (11.4%), Italy (9.7%), Germany (6.2%), the UK (5.6%), Belarus (5.1%), Bulgaria (3.7%), Poland (3.6%), Turkey (3.0%) and Ukraine (2.4%). The primary exports were food and beverage, agricultural produce, apparel, and transport equipment. As Russia has been recently showing signs of partially lifting restrictions, exports toward the East may grow.
Moldova’s main imports are energy resources, natural gas, petroleum products, machinery, vehicles, and chemicals. Most consumer goods are also imported from abroad, as are most inputs.
The government does not control the separatist region of Transnistria, a sliver of land on the Eastern border with Ukraine. Although the region maintains a separate monetary unit, its own army and customs, businesses on both sides engage in economic cooperation. Negotiations have been held under the so-called “5+2” format (Moldova, Transnistria, OSCE, Russia and Ukraine + U.S. and EU) to find a settlement. While there were no resumption of hostilities since 1992, relations between the two sides remain contentious.