Economic integration into EU: Opportunities and necessary conditions for attracting international brands

Since 2014, bilateral relations between Moldova and the European Union are based on the Association Agreement, which includes a Deep and Comprehensive Free Trade Area Agreement. On June 23, 2022, the European Council granted Moldova the status of a candidate country, thus opening a new strategic chapter in the economic development of the state. However, Moldova is still not the most favorable environment for attracting foreign investors. The absence of international brands limits consumers’ options, stymying the country’s economic development. Attracting foreign investors to Moldova and the country’s economic integration into the EU were discussed at an event organized by the Institute for European Policies and Reforms with the support of the Hanns Seidel Foundation.

Ion Iordachi, deputy director of the Investment Agency, noted that there are several sectors in which the state wants to attract investments, including textiles and supplies. In addition to this, the state tries to understand what are the problems faced by investors, and not only investors, businesses in general.

Marcela Lozovanu, executive director of the Light Industry Employers’ Association, spoke about the risks for local brands in the context of attracting foreign ones. “Then it will be an amalgam of brands, but we can’t stop the market and we can’t stop competition, because in fact competition is always healthy. We cannot limit the consumer to choose A or B. We have to make a diversity, but the sector would suffer a lot, because still, in order to produce locally in Moldova, there are many barriers, but it is not impossible. The industry is developing, both through investment and digitalization, innovation. There is not enough labor, but we are trying to optimize the processes”, said Marcela Lozovanu.

Stas Madan, economic expert at Expert-Grup, confirms the concerns about the occupation of the niche on the local market by international brands. In Moldova, already for many years, imported textile products dominate the local market. A few years ago, this share was over 70%, although in recent years local brands have managed to gain ground, more operators have appeared in this market. “But if some international brands come, they will most likely substitute other imported products, which are currently of lower quality. Then the consumer will decide on some products that are better, based on the best value for money combination”, said the expert.

In his opinion, it would be ideal for Moldova that the attraction of international brands includes production facilities. “I think we have all the prerequisites for that, because most of our textile industry is still a bit competitive”. “Although we had around $400 million worth of exports from this industry as a whole last year, more than 80% continue to be re-exports. And this is the clearest sign of the fact that still a very large part of the turnover in this industry is formed according to a somewhat more rudimentary operating regime, in which only production takes place here - tailoring, sewing - and the added value is formed in other countries. Obviously, from this perspective, it would be an opportunity for us if we managed to attract these brands, because it would also give greater stability and added value to our industry”, said Stas Madan.

Mircea Paun, general director of PortMall, said that the attitude of international brands towards the retail market in Moldova has not changed. The concerns are the same – purchasing power, population exodus, lack of quality spaces – which is a big disadvantage. International brands look for criteria that are hard to get on the Moldovan market. “When they enter a market, they are interested in opening at least 4-5 locations. Alright, they have Chisinau, and then what else? On the other hand, if we analyze the Turkish brands, which are on our market, they are quite impressed by the results they have here”, said Mircea Paun.

According to him, another aspect concerns taxes and fees. “If a product enters the market in Moldova, it will be 20% more expensive than in Iasi, which is not OK for me as a brand. We must also pay attention to these economic aspects. I suppose certain facilities or adjustments to the legislation should be created so that we can attract and make the Moldovan market interesting for them”, Mircea Paun added.

Mariana Rufa, executive director of the European Business Association in Moldova, believes that it is necessary to analyze the developments on the labor market, the cost of labor in relation to the global demand that actually decreased in the industry of textiles, including for the industrial purposes. And it is no secret that Moldova faces an unprecedented labor shortage, which affects not only in the textile sector, but also in others. “Unfortunately, we are still negotiating with the authorities to reach a solution to be able to import labor in a safe manner for the country, but also in a manner that will solve the problem for businesses in various sectors”, said Mariana Rufa.

The event is organized as part of the project “Eu Debates Café: Advancing knowledge and expertise regarding EU institutions and policies in Moldova”, implemented by IPRE in cooperation with the Hanns Seidel Foundation in Moldova and with the financial support of the German Ministry of Foreign Affairs.

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