Heavy industry in the Republic of Moldova is mostly represented by international companies. They supply components to car manufacturers, and their turnover directly depends on the volume of orders from abroad. Thus, one effect of the pandemic, which affects the world economy, is the decrease in investment consumption, therefore the demand for automotive components is also declining. Representatives of the heavy industry of the Republic of Moldova estimate a reduction in turnover of up to 70-80% compared to the level planned for 2020. However, it is worth mentioning about certain structural trends that can favor the Republic of Moldova depending on the situation:

Thus, the closure of some production units abroad (Mexico) led to an increase in the volume of orders (from China) to the plants in the Republic of Moldova. The relatively cheaper cost of labor in the Republic of Moldova, the tax regime, transportation costs, make us more competitive compared to the main regional competitors.

At the same time, there is a shortage of skilled labor. In particular, higher education studies in the category of computer-aided mechanics and technical management of production are required. The prospects of a strategic partnership with the most highly rated European University in this field (RWTH in Aachen) make these master’s degree programs valuable, but the curricula for those programs needs to be accredited as soon as possible.

When it comes to labor force, it is also worth mentioning that during the quarantine (April), 90% of the employees in heavy industry were furloughed, benefiting from partial wage subsidies offered by the state. Since may, 80% of employees have returned to work. At the same time, the closure of schools and kindergartens complicates the options of many employees who are forced to stay at home caring for children. Of the 11,400 workers from Balti FEZ, about 10,000 have returned to work, which indicates that companies work at 75-80% of capacity.

Another forward looking direction, which could become instrumental in the substitution of imports, refers to the implementation of the development program of local suppliers. In particular, this initiative is currently being implemented by Balti FEZ. According to the initiative, 100 local producers could apply to an evaluation program implemented by experts from Germany and the Czech Republic, as a result of which 50-60 will receive specific recommendations to qualify as suppliers (plastic components, rubber, etc.) for large companies in heavy industry. In relation to the latter, it would be beneficial for the state to implement an investment subsidy mechanism (according to the PARE 1+1 model) that maximizes local potential. It would be optimal for state-owned enterprises, which import raw materials from abroad (Termoelectrica, Glass Factory) to similarly encourage local producers.

Another problem facing the sector are the amendments to the Customs Code (articles 315 and 317) requiring the licensing for exports of production waste. As waste comes from imported raw material, these amendments will basically require waste to be sold on the local market at low prices, which will affect competitiveness.

* 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.