Michal Mejstrik Valeriu Prohni Ńchi Dita Tesarkova Alex Oprunenco Julie Chytilova Petru Maleru Michal Bauer Victor Bor ş Jan Slavicek Analysis of the Moldovan-Czech Economic Relations: Hindrances and Opportunities for Increasing Bilateral Trade and Investment A study developed under the joint Moldovan-Czech project “Enforcing Economic Development Policies through Building Czech-Moldovan Partnership” implemented by the EEIP a.s. (Czech Republic) and EXPERT-GRUP think-tank (Republic of Moldova). Chi şin ău-Prague 2007 1 The Czech partner 7Národní 981/ 17, Praha 1 –Staré M ěsto, 110 08, Czech Republic tel.: +420 224 232 754, +420 224 224 242, fax: +420 224 238 738, e-mail: [email protected] , The Moldovan partner Alecu Russo str., 1, office 318, Chi şin ău, MD-2068, Republic of Moldova tel.: +373 22 43 82 80, +373 22 43 82 45, fax: ++373 22 43 82 80, e-mail: [email protected] , web: www.expert-grup.org 2 Contents 1. Czech experience of transition: relevant lessons for the Republic of Moldova..................................11 1.1. Experience of macroeconomic stabilization..............................................................................11 1.2. Experience from privatization...................................................................................................13 1.3. Advancing the foreign trade......................................................................................................14 1.4. Attracting FDI: key features of an enabling investment climate...............................................16 1.5. Unleashing small- and medium-sized businesses .....................................................................20 2. Republic of Moldova learning from Czech experience of European integration ...............................24 2.1. Czech Republic meeting basic EU integration criteria..............................................................24 2.2. Negotiations with the EU and impacts of the entry to the EU ..................................................26 2.3. Czech view on further European construction and Czech support to Moldova’s European integration...............................................................................................................................................28 3. Moldova in transition: mixed progress, tall order ahead ....................................................................30 3.1. Early transition: state-building and economic reforms. ............................................................30 3.2. Late transition: growth, poverty and migration.........................................................................31 3.3. Lagging transition of Moldovan trade.......................................................................................33 3.4. FDI inflows to Moldova in the transition period.......................................................................34 4. Republic of Moldova - Czech Republic: an economic comparison ...................................................36 4.1. Complementary economic specializations ................................................................................36 4.2. What the gravity trade theory suggests .....................................................................................37 4.3. The Czech Republic: an emerging European economic hub.....................................................38 4.4. The Republic of Moldova: how to become a bridge between Europe and Asia? .....................42 4.4.1 Infrastructure.........................................................................................................................42 4.4.2 Trade Openness: formal trade regimes and informal barriers...............................................42 4.4.3 Visa regime and language: a new business hub? ..................................................................43 4.5. Insights into the Moldovan and Czech business cultures..........................................................43 4.5.1 The Republic of Moldova .....................................................................................................44 4.5.2 The Czech Republic..............................................................................................................45 5. Advancing bilateral trade between the Republic of Moldova and the Czech Republic......................47 5.1. Trade and economic cooperation framework............................................................................47 5.2. Dynamics of the bilateral trade .................................................................................................48 5.3. Experience of Moldovan companies .........................................................................................50 5.4. Bilateral trade from the Czech point of view and experience of Czech companies..................52 5.5. Identifying potential niches for further trade development.......................................................53 6. Attracting Czech direct investment to the Republic of Moldova .......................................................56 6.1. Czech investment in Moldova - current status, Czech willingness to invest in Moldova.........56 6.2. How can Moldova attract Czech investors?..............................................................................57 6.3. Identifying potential investment projects..................................................................................61 3 7. Moldova as a priority country for the Czech official direct assistance...............................................63 7.1. How and how much the Czech government assists the Moldova’s government ......................63 8. Conclusions: Policy and business recommendations..........................................................................67 Annex 1: Useful macroeconomic and trade statistics.................................................................................70 Moldovan indicators ...........................................................................................................................70 Czech indicators..................................................................................................................................70 Annex 2: Useful contacts in Republic of Moldova and Czech Republic ...............................................80 The Republic of Moldova...................................................................................................................80 The Czech Republic............................................................................................................................82 Annex 3: Brief description of potential Moldovan-Czech investment projects .....................................85 “Quadropress”: an invention for manufacturing building materials...................................................85 Czech pubs chain in Republic of Moldova.........................................................................................85 Bio-diesel and bio-ethanol plant.........................................................................................................86 Ground water filtration stations..........................................................................................................86 Essential oils production and medicinal plants cultivation.................................................................87 Low-alcohol carbonated beverages ....................................................................................................87 4 About the project This study was developed within the project “Enforcing Economic Development Policies through Building Czech-Moldovan Partnership”. The project is jointly implemented by the EXPERT-GRUP think-tank (Republic of Moldova) and the EEIP consultancy company (Czech Republic). The project was supported financially by the Moldova Soros-Foundation and the Open Society Fund–Prague within the East-East Program. The main goal of the project was to contribute to the advancement of partnership relations, especially in the area of economic development, between the Czech Republic and the Republic of Moldova as part of Moldova´s European integration endeavor. This goal was achieved through a joint study of the policies of economic development employed by the Czech Republic authorities and exchange of experience between Czech and Moldovan business and civil society sectors. The project finalized with this comprehensive study and dissemination of the information on the results of the project. Working within a joint research program the Moldovan and Czech partners aimed at assessing and analyzing the current state of economic relations between the Czech Republic and the Republic of Moldova. As result, a number of niches and opportunities for economic cooperation have been identified. The key points of analysis were trade, investment and business contacts. 5 Executive summary Since the breakup of the socialist bloc and Soviet Union, both the Republic of Moldova and the Czech Republic have stridden to build modern democratic states and competitive market economies, as well as to become legitimate parts of the European Union. Certainly, the Czech Republic has much more progress to report with this respect. Its political and economic transition culminated on May 1, 2004, when the Czech Republic along with other nine countries became member of the European Union. Moldova’s transition has been much more uncertain and erratic up to the moment. Here is the first purpose of the study to highlight the most