The major impact on the textile industry in the Republic of Moldova is due to changes in consumer preferences related to the pandemic worldwide. As a result of the reduced consumption of clothing, orders from abroad decreased by more than 70% for 2/3 of the companies in this sector, which will lead to an estimated decrease in exports by 1.8 billion lei in 2020.

The quarantine itself affected textile factories to a significant extent. The need to reorganize the work regime in shift has imposed additional costs. In addition, restricted access of employees from the risk group (people over 63 years old) in tandem with the need for some employees to stay at home with children because of the closure of schools and kindergartens has reduced the number of employees.  According to surveys, a quarter of companies in this sector stopped operations during the quarantine.[1] Although international movement restrictions initially disrupted supplies of raw material and final production, they normalized during April-May. In March, factories worked at full capacity on the basis of orders from the previous months, but the number of orders gradually decreased in the following months.

Variable costs predominate in the cost structure of textile production. The raw materials account for 50-60% of the value of final production, while 15-20% represent labor and energy consumption. Taking into account global trends, it is considered that only in 2022 the sales volume will match that of 2019, while in the current year, factories will recover only 60% of the usual capacity. Light industry is 90% export-oriented and EU countries also have a share of around 90%. The huge decrease in order volumes is directly linked to the closure of retail units in the EU during the lockdown, in particular shopping malls, increased interest in online consumption and low demand for mass market clothing. On the traditional export markets for the Republic of Moldova, the fast-fashion segment (the most unexpansive products) is at a loss. Production in this category remains close to the countries of origin of raw material (India, China, Bangladesh), while more expensive brands tend to strengthen their production capacities closer to the consumer (near-shor). In this regard, an opportunity for the domestic light industry is the interest shown by quality brands, such as those in the UK and Scandinavian countries, but which is conditioned by the implementation of quality standards. The trends that have formed over the last few years have been the increase in value added to exports. The emergence of local brands, fashion design elements and others conditioned the increase

in the value of exports even though the volume of exported goods remained stable.

It should be noted that light industry also plays a significant role in import substitution. The annual increase in the consumption of textile production by 15-16% is almost exclusively due to the domestic consumption of local brands, while textile imports remain at the same level.

Light industry needs targeted support from the state, both to harness the export potential and to replace imports. Ordinary loans are not a viable option, taking into account the priorities of the sector, namely: (i) investments in marketing and promotion of local brands; (ii) investments in production automation (relatively high level of manual labor reduces productivity per employee compared to factories in Romania or Ukraine); (iii) implementation of Integrated Quality Management Systems; (iv) digitalization of trade. Preferential loans with a grant element of at least 20% are required for these investments.

* This information is collected during the discussions conducted by the experts who elaborate the Impact Study of the COVID-19 pandemic on the sectors of the economy. The data can be taken from the website www.consecon.gov.md only with the obligatory mention of the source “Economic Council under the Prime Minister of the Republic of Moldova” and the specification that “The impact study of the COVID-19 pandemic on the economic sectors is carried out by The Economic Council jointly with the Ministry of Economy and Infrastructure, with the support of the European Bank for Reconstruction and Development and the United Kingdom Government Fund for Good Governance. ”

The Secretariat of the Economic Council to the Prime Minister is supported by the European Bank for Reconstruction and Development, funded by the UK Government’s Good Governance Fund, and the International Finance Corporation’s Investment Climate Reform Project funded by the Government of Sweden’s International Development Agency.

The Secretariat of the Economic Council to the Prime Minister is supported by the European Bank for Reconstruction and Development, funded by the UK Government’s Good Governance Fund.