Moldova and South Africa Trade Opportunities in 2021 and Beyond

The pandemic has forced firms worldwide to rethink business Countries in Eastern Europe are an alternative market that Introduction strategies, investment plans and operations. World trade fell quickly improved their trade performance in the past sharply in the first half of the year and the WTO predicts a 13% decade. Their idiosyncrasies and capacity to quickly adapt contraction in 2020. in time of crisis can represent an advantage, especially during the pandemic. In the past three years, South Africa's exports to Europe have Looking into been growing, 20% of its trade relying on four European For instance, the IMF predicts a less severe recession due countries. While trade and supply chains are globally to Covid in the EaP than in EU countries. However, alternative markets interconnected, the structure of the economy and the successfully doing business overseas requires a thorough government response to various shocks vary significantly from understanding of the factors impacting the local economy. country to country. Therefore, diversifying trading partners is To illustrate this, we took an in-depth look at . Moldova key to building stronger, smarter supply chains and ensuring a Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 lasting recovery. 11 | Moldova Moldova by the numbers

Population: (including ) 3 million Area: (including Transnistria) 33,700 sq km Major languages: Romanian, Russian Major religion; Orthodox Christianity Currency: Leu

Ciuflea Monastery in Moldova Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 01 | Moldova Surorile Osoianu Background The Republic of Moldova is a small country situated As early as the Stone Age, the territory shared the in South Eastern Europe, that shares borders with same cultural complex with and Ukraine Romania and Ukraine. under the Trypillian-Cucuteni civilization. Later on, Moldovan’s ancestors, the Gets and Dacians were History and Culture The country declared independence from the Soviet influenced by Hellenistic, Roman, Turkish and Union in 1991 and became a parliamentary Slavonic cultures for centuries. of Moldova democratic republic in 1994. While the state language of Moldova is Romanian The history and culture of Moldova are marked by its since its independence, during the Soviet period, position at the crossroads of the Latin, Muslim and most became bilingual in Romanian and 02 | Moldova Slavonic civilizations. Russian.

In 2019, The World Bank ranked Moldova 48th out of 190 countries in Ease of doing business ranking, an indicator that classifies most business-friendly regulations.

With a skilled and multilingual workforce and the lowest labour costs in the region, the most dynamic

sectors of the Moldovan economy are automotive, agriculture and wine, manufacturing, textiles and apparel. In 2017, Moldova launched an IT park to foster more growth in its rapidly developing information and communications technology sector.

Along with the positive changes, the situation in Moldovan society remains difficult. Political instability, high levels of corruption and delay in structural reforms undermines the transition to a sustainable development. The problems of unemployment and poverty are most critical in rural communities, where more than half of the Wine Cellar in Moldova population lives and works.

Overview Moldova is a country that is developing rapidly and is The former soviet country has a consumption-driven actively integrating into the world economy. At the economy, representing 85% of the GDP. The service same time, it is preserving the traditional sectors of sector account for 54% of overall output, reflecting the economy, while seeking foreign private Moldovan economic the heavily-consumer driven structure of the investment in technology and know how. Moldova is economy. With an average gross salary of about €370 among the top 20 global wine exporters, holding in 2019, one of the lowest in Eastern Europe, outline more vines per capita than any other country and Moldova is one of the top 20 countries in the world among the world leaders for speed, penetration and most dependent on remittances (16% of the GDP in availability of the Internet. Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 2019). 03 | Moldova

Moldova Wine

“The World Bank ranked Moldova 48th out of 190 countries in Ease of doing business ranking, an indicator that classifies most business-friendly regulations.”

“The country relies heavily on remittances, which represent 16% of its GDP in 2019 and

come mainly from EU, Russia and Israel.” Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 Moldova EU Day 04 | Moldova Fountain Hotel, Cape Town

The Moldovan export and import of goods reached Imports from South Africa consist mainly in The Moldovan retailers market is divided between a historical maximums in 2019. fertilizers (1.2 MUSD), edible fruits, nuts, peel of relatively small number of players, mostly present in citrus fruits, melons (1.1 MUSD), vehicles (0.5 MUSD) the Consumer electronics (8 retailers), Food industry Its main trading partners are Romania, Russian and chemical products (0.3 MUSD). On the other (7 retailers), Fashion & Clothing (6 retailers), Federation and Germany. hand, Egypt imports comprise mainly chemical Homeware (5 retailers) and other sectors (17 products (4 MUSD), pharmaceutical products (3 retailers). Moldova is a member of the World Trade MUSD) and fruits & nuts (1 MUSD).

Organization (WTO), has 14 regional trade In the Food industry, “Linella SRL” is the biggest agreements (RTAs) that cover 45 countries and is a At the same time, South Africa is importing from retail network with 100 units in over 40 regions of signatory to the Central European Free Trade Area Moldova goods amounting to 2.3 MUSD such as the country. Smaller retailers are also focusing on (CEFTA). furniture & prefabricated buildings (1 MUSD), imports: “N°1” has only 15 units, mainly in the capital, vegetables, fruits & nuts (0.5 MUSD). but it is one of the main importers in Moldova. As of 2016, Republic of Moldova has signed with the European Union the Deep and Comprehensive Free Since 2009, Moldova has an access to the sea via the Among the international retailers, the following are Trade Area agreement (DCFTA) that allows free port of Giurgiulesti, which is at the confluence of the present on the Moldovan market: Metro Cash & movement of goods, services, capital and people. and the . This is a commercial port with Carry, Kaufland and Fourchette. a passenger terminal. It entails among other things the cancelation of While Moldova’s economy grew 0.9 percent customs duties on imports for most goods and their Goods transportation can also be done via two of the year-on-year in the first quarter of 2020, the gradual reduction for products which are exempt country's rivers. The three principal ports are government forecasts show that the GDP will from the free trade procedure. More information Bender, Rybnitsa and Varnitsa and the port is contract by 3% this year. about the trade agreements to which Moldova is part accessible to both fluvial and maritime vessels. of, can be found here. The large reliance on consumer sectors (retail trade, Distribution and sales channels have developed restaurants and recreation) and remittances as a In 2019, the total imports from South Africa significantly over recent years, though they are still source of revenue represents a serious vulnerability amounted to 3 MUSD. In comparison, Moldovan not as sophisticated as in the rest of Europe. to the consequences of the coronavirus pandemic. imports from Egypt, with which the country has However, the country shows some important signed a trade agreement, amount to 8 MUSD during Sales are mostly concentrated in two major cities of strengths compared to other emergent markets. the same period. the country: the capital city of Chisinau and Balti, the second largest city of the country.

Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020

05 | Moldova GDP (2018): $11.4 bn GDP (2018) by sectors: Top imports of Moldova: refined petroleum ($626M), services = 54 % insulated wire ($224M), cars ($213M), packaged industry = 23 % medicaments ($199M), broadcasting equipment ($118M), fruits, nuts and spices ($89M), Imports mostly from: agriculture = 10% Romania, Russian Federation, China and Ukraine. Labour force by occupation: services = 57% Top exports of Moldova: insulated wire ($581M), sunflower agriculture = 21% seeds ($201M), hot-rolled iron bars ($176M), wine ($135M), industry/construction = 22% and seats ($133M). Exports mostly to: Romania, Italy, Germany, Russia and Poland. Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020

03 | Moldova Imports to Moldova

Since 2009, Moldova has an access to the sea via the port of Giurgiulesti, which is at the confluence of the Danube and the Prut rivers. This is a commercial port with a passenger terminal.

In 2019, the total imports from South Africa amounted to 3 MUSD. At the same time, South Africa is importing from Moldova goods amounting to 2.3 MUSD.

Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020

06 | Moldova Giurgiulesti International Free Port The retailing industry In the Food industry, “Linella SRL” is the biggest retail network with 100 units in over 40 regions of the country.

Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020

06 | Moldova Soroca Fortress Moldova Short term overview Moldova is a trade-dependent country, with small chains. In the first semester of 2020, Moldova’s domestic markets and a high degree of exposure to economy showed signs of contraction, mainly due to macroeconomic trends within its main trading a drop in demand from the external partners which partners: the European Union and Russia. resulted in a decrease in exports as well as a drop in The Impact of the industrial production. The impact of the pandemic on international trade is Pandemic on Trade severe, given partial or complete border closures, restrictions on the movement of goods, labour and capital, a drop in global demand and disrupted value

07 | Moldova Fountain Hotel, Cape Town

In the next months, the domestic consumption is and businesses appears more supportive than in Google Mobility reports (for Belarus, Georgia, expected to fall due to a decrease in remittances and neighbouring countries like Ukraine, Russia, Georgia Moldova) and Yandex Mobility Index (excluding personal incomes. and Belarus but rather limited compared to other Ukraine) show how people’s movement has declined European countries. In order to help entrepreneurs in all of the EaP countries. In Georgia and Moldova, With approximately one quarter of its labour force to overcome cash-flow problems, the country the number of visits and time spent at grocery stores working abroad, the pandemic paints a wide stroke. adopted a reduction in VAT from 20 to 15% for the and pharmacies have declined by over 60% Moldova labour migrants are either stuck home or food and accommodation sector as of 1 May, compared to normal, and visits to workplaces have abroad, with fewer opportunities to produce the subsidies of the income tax, social security and halved. remittances. The World Bank projects a 20 percent health contributions and other relieving measures. decline in remittances to low- and middle-income However, in terms of vulnerabilities to the countries. While it is difficult to estimate the magnitude of the Coronavirus, according to a scorecard produced by effect of the crisis on economies, it is clear that this UN in April, 2020, Moldova ranks relatively well: 22 An other source of income are small and medium crisis will cause a sharp contraction in output, out of 33 emerging and developing economies enterprises (SMEs). SMEs in Moldova provide 70.6 % household spending and international trade. included in the study. of employment and 70.7% of value added, higher than the EU averages (66.5 % and 56.3% respectively). According to IMF forecasts, all economies in the This is due to the fact that the country doesn’t rely Eastern region will contract in 2020. Ukraine is on tourism, its key export categories are agricultural They are also concentrated in the wholesale and expected to experience the steepest decline (7% of products and ICT services, which are less vulnerable retail sectors where the containment measures have GDP) followed by Belarus (5%), while Moldova’s to the impact of containment measures. hit hard (they account for 24% of total employment). economy is expected to contract by less than 3%. SMEs are likely to be affected on the demand side as Its high internet penetration and fast connection will well as on the supply side. According to OECD, in Moldova, the immediate profit among others cyber-commerce and remote impact of the containment measures will be mostly work in the future. Furthermore, Moldova registers A sudden drop of demand is likely to complicate the noticed in the retail and wholesale industry (-16% of more skilled workers than emerging markets on financial situation of multiple businesses, which will the GDP), accommodation and restaurants (-17% of average, which suggests that the share of jobs that translate into a reduction of income and the GDP) and real estate services (-24% of the GDP). can be performed at home is higher among consumption. Moldovan workers. This is explained by the fact that most retailers and In terms of policy response to the Coronavirus, the restaurants are closed and increases in their online More about the consequences of the pandemic on Moldovan Government’s support to households and and take-away sales may not compensate for the Republic of Moldova can be found here.

resultant massive drop in demand. Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020

05 | Moldova “In terms of vulnerabilities to the Coronavirus, according to a scorecard produced by UN in April, 2020, Moldova ranks relatively well: 22 out of 33 emerging and developing economies included in the study.”

“Moldova registers more skilled workers than emerging markets on average,which suggests that the share of jobs that can be performed at home is higher”

Moldova Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 10 | Moldova Chisinau Both the IMF and EBRD predict a V-shaped recovery While Moldova’s weak spots such as quality of Long term overview for the region, with all Eastern Partnership countries institutions and high internal and external expected to recover strongly in 2021. imbalances make it vulnerable to the consequences

to the coronavirus, on the long term, the country The EBRD forecasts over 5% GDP growth in 2021 for The outlook for shows some important strengths compared to other Armenia, Georgia, Moldova, and Ukraine and around emerging and developing economies. 3% growth for Azerbaijan and Belarus.

the future Its low reliance on tourism, a rapidly growing In Moldova, the relaunch of the economy will information and communications technology sector however depend on how fast the reopening will as well as its skilled and multilingual workforce are happen in EU countries, its main source of factors that will contribute to a faster recovery. 12 | Moldova : Long term overview remittances, export market and financial inflows. ”Both the IMF and EBRD predict a V-shaped recovery for the region, with all Eastern

Partnership countries expected to recover strongly in 2021.”

”On the long term, a trade

Orhei Vechi, Moldova agreement between Moldova Furthermore, Moldova’s steady economic growth over For instance, given the growing supply of dried fruits and South Africa may create the past years, its access to the sea, the growing from South Africa and increased demand in Moldova economic integration with the EU and alignment with over the last five years, the trade of edible fruits and new opportunities for growing EU law and standards provide a solid basis for boosting nuts, citrus peels and melons between the two bilateral trade with other countries. countries show strong potential, despite competition trade amid the two countries.” from Turkey and Georgia. Given the protectionist policies and growing trade barriers worldwide, Europe’s emerging markets On the long term, the negotiation of a free-trade represent an interesting opportunity for South African regime can become an important venue for exporters to explore its potential and gain momentum. cultivation of trade opportunities between Moldova Moldova and South Africa. Trade Opportunities in 2021 and Beyond. Author: Hex Africa 2020 and South Africa. 13 | Moldova As a proudly South African company, Hex Africa promotes South African wine tourism, wine, fruit and related products in Eastern and South Eastern Europe.

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