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Economy

Three years since the signing of the Association Agreement Moldova-EU: One step back, two steps forward

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Three years ago, in Brussels, the Republic of Moldova signed the Association Agreement with the European Union – an agreement that set a new legal framework for the advancement of the relations between Moldova and the Union. Enthusiastic, Moldova became at that time the “success story” of the Eastern Partnership.

The situation radically changed in 2015, when the frauds in the banking sectors and the succession of the governments made the EU to suspend the direct budget assistance to Moldova. After the Filip Government was put into work in January 2016, some actions in addressing lacks in reform implementation are undertaken. But where were the real benefits of the Association Agreement (AA) and where Moldova is lagging behind?

Experts see the Association Agreement as a complex document with provisions in economic and political sectors, being the main instrument through which the European Union tries to get the Eastern Partnership states closer to its standards.

Dionis Cenușă, program director at Chișinău-based “Expert-Grup” think-tank, thinks that some sectors were reformed for the first time since independence with the help of the AA. “The industry is a good example- I mean the norms, the technical requirements, food safety and the consumer protection”, explains Cenușă.

The Association Agreement signed by Moldova was a preferential one because it involves a Deep and Comprehensive Free Trade Area (DCFTA). Moldova has now access to a market of 12,9 trillion euros with more than 500 million consumers. In the meantime, it is obliged to harmonize its legislation and standards with the European ones, as well as eliminating the import and export taxes with the EU. Thus, Moldova could and can export some quotas of food products without having them taxed when entering the Union. If the quotas are overused, some preferential taxes or renegotiated quotas apply.

According to the Moldovan Economy Ministry, between 2014 and 2016, the Republic of Moldova used or overused the quotas for corn, wheat, sugar and alcohol, but failed in making use of the quotas for grapes, apples and plums.

Since 2014, the European Union became the main trading partner of Moldova. More than 63% of Moldovan exports are now directed to the EU and half of them come from the EU. And there’s a positive trend in this. In January-April 2017, Moldova exported goods worth 430 million euros to the EU, 16% more than in the same period of 2016. “The diversification of exports and the consolidation of the European path in the external trade of Moldova is the main success”, says Cenușă. “The European market is stable, predictable respectively, comparing to the Russian one, which is dependent on the decisions from Kremlin”, continues the expert.

Mariana Rufa, executive director of the European Business Association, believes that the state could have stimulated more the exports. “Exporting means producing and producing implies investment. You cannot count only on the annulment of the custom taxes, which is a result of the process. To benefit from these, the economic agent should have something to export and the products should be of European quality. All of these imply investment”, explains Rufa.

To be more competitive, the economic agents must invest in equipment, producing machinery and in “know-how”- technologies and technological processes. According to EBA director, the initial investment is an impediment for some potential entrepreneurs. “The access to financing is limited, the interest rates are high. From the point of view of the banking environment, Moldova is not a credible country. It cannot connect to those international programs that exist in the worldwide banking sector that would allow a bank from Moldova to get a low interest rate loan. To fully benefit from the accord, the state should invest more in the legal framework of the banking sector and in subsidies, that would allow the economic agent to offer a competitive price.

The same opinion is shared by Alexandru Slusari, former head of the Farmers Association UniAgroProtect, organization that reunites approx. 1600 agricultural producers. “Instead of being busy with the frauds and devaluation of the banking sector, the state could have increased the subsidies for the local farmers, the situation would be better”, declares Slusari. Nevertheless, he confirms that several economic agents were capable of exporting to the European market. Slusari gave the example of the juice and jam producer Orhei-Vit that increased its sales by at least 20% after the signing of the Association Agreement.

The change of the electoral system puts real reforms in shadow

According to the Government of Moldova, approximately 73% of the AA Implementation Action Plan for 2014-2016 were fulfilled. At the same time, an alternative report of the Institute for European Policy and Reforms found that the implementation rate of the Plan is actually lower- 63%.

Most of the actions undertaken in 2014-2016 were of legislative nature. At the same time, a series of important reforms were implemented with delay or in a deficient manner. For example, the reform of the procedure of appointing the judges has not been finalized and the integrity package is delayed.

Denis Cenușă thinks that the political topics dominate the agenda. “The change of the electoral system eclipses over a series of important reforms that have to take place, but are not undertaken because of the interest of the government to promote a specific project”, adds Cenușă. All of these despite the fact that the Association Agreement does not include the change of the electoral system and the Venice Commission considers the modification is unnecessary.

In her turn, Mariana Rufa says that the low skilled personnel of the Ministries also make an impediment for the reform implementation. “We hope that the reform of the Government will not be only a fusion of the institutions, but it will underline the competences of the human resources and the attractive salaries”, thinks the EBA director.

A third of a billion for Moldova

During 2014-2016, the European Union launched development projects worth 310 million euros. The main domains of European investment were the public administration, agriculture and the development of rural areas. “If one goes into details, one can see palpable projects. For example, the EU supported important project for energy efficiency”, stresses Cenușă.

With the help of the European funds, 225 public institutions (kindergartens, schools, city councils) benefit from biomass heating system and 15000 people have access to drinking water. According to EU estimations, the European projects created more than 20000 jobs in Moldova.

It is important to mention that the Gagauzia Autonomy and Transnistria have also been involved in the European policy-making and indirectly, in the Association Agreement. Starting from 2016, all producers, including the Transnistrian ones, benefit from preferential trade with the EU. “To make the regulations seem acceptable, the Transnistrian administration called them “technical aspects for opening the European market for Transnistrian producers”. It is useful for the region’s propaganda and acceptable for Russia”, explains Cenușă. While the AA provides only trade provisions for Transnistria, in the case of Gagauzia, the European Union opened up special loans so that producers from there are encouraged to increase their producing capacities and export to the European market.

The successes and the failures mentioned above are just some of the changes in Moldova in the last three years. The potential of the Association Agreement is also hard to challenge. Nevertheless, President Igor Dodon repeatedly said that the Association Agreement did not bring benefits to the Republic of Moldova, but mean losing the Russian market.

“President Dodon is lying when he makes such statements, because losing the Russian market and having the restrictions imposed by Russia were not determined by the European Union, but were adopted from political and geopolitical considerations of the Russian Federations”, argues Expert-Grup representative.

Accordingly, the implementation of the Association Agreement can lead to slow but fundamental transformations in all the state sectors, translatable in palpable results for the citizens.

“But all of this depends on the quality of governance, which nobody from Brussels can replace and which is a result of internal processes”concludes Cenușă.

Article by Victoria Colesnic, originally published in Romanian.

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Politics

Promo-LEX estimates: 19,02 million lei as failed expenses to be reported to the Central Electoral Commission by the political parties in 2019

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A report on political party financing in 2019, carried out by the Promo-LEX Association and published lately, revealed undeclared expenses amounting to about 19,02 million lei. Also, it announced one of the lowest level of financial reporting to the Central Electoral Commission (CEC).

As of May 7, 2020, only 19 political parties (43%) managed to submit their financial statement to the CEC in time, one faction submitted it with a delay and 26 political parties failed to submit any declaration at all. Therefore, Promo-LEX found the lowest rate of political parties’ annual reporting regarding their financial situation since 2014, according to the association’s notice.

“The Promo-LEX Association took into account the specificity of the state of emergency instituted in the Republic of Moldova.” However, the CEC did not have a proactive and transparent attitude in settling the issue and it didn’t remind the political parties of their reporting obligation under the given exceptional circumstances.

On the one hand, Promo-LEX mentioned the lack of transparency due to the absence of obligation to publish information on political party donors, and the vulnerabilities caused by hiding these data. On the other hand, the association highlighted the insufficient control and supervision of political parties’ sources of financing that was exercised by the CEC.

That happened despite the improvements in the legal framework on party financing made last year, such as reduction of the minimum amount of authorised donations from natural and legal persons, allowing donations from  nationals residing abroad, etc. “Despite these substantial legislative improvements, there are unsettled legislative loopholes that arise our concern,” is mentioned in the report.

In 2019, 16 political parties from Moldova reported a total amount of 70 million lei as revenues and 94 million lei as expenses. Other 4 parties that submitted their financial statements did not indicate any revenues or expenses.

Moldovan political parties declared that the subsidies from the state budget represented the main source of their income in 2019 (39%), along with membership fees (32%), donations from individuals (18%), and donations from legal entities (11%).

It was also found that 17 political parties organised at least 2936 promotional activities and events in 2019, including activities organised by charitable foundations. Such foundations as “EDELWEISS”, associated with Vladimir Plahotniuc and the Democratic Party of Moldova, “Din Suflet” Charity Foundation, associated with the Party of Socialists and President Igor Dodon, and“For Orhei” Association, connected with the “Sor” Party, were reported as organising promotional activities. However, none of the political parties associated with the charitable entities mentioned above reported promotion expenses as being linked to charity activities.

In such a way, Promo-LEX estimated that 17 political parties failed to report a total amount of 19,02 million lei (20% more than actually reported), the most questionable category of expenses being that of public events, followed by the expenses for maintenance of headquarters and staff.

Source: Promo-LEX

The monitoring reports carried out by Promo-LEX between 2016 and 2019 showed large discrepancies between the financial statements reported to the CEC and the estimates of the association. The highest share of undeclared expenses was reached in 2017, when political parties from Moldova hid 42,75 million lei, that being 48% more that it was actually reported.

Photo: contaconect.ro

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Economy

3 UN agencies will receive 1 million dollars for supporting the most vulnerable COVID-19 patients from Moldova

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Three United Nations (UN) agencies from Moldova – UNICEF, UN Women and the International Organisation for Migration (IOM) will receive one million dollars from the UN COVID-19 Response and Recovery Multi-Partner Trust Fund to support the country in its fight against COVID-19 pandemic, according to a press release of the UN in Moldova.

The agencies are involved in a programme lasting for 6 months and aiming to ensure effective and accessible health services for COVID-19 patients in Moldova, with a focus on vulnerable and disadvantaged persons. 

Mainly, the funds will be used for purchase of personal protective equipment for health and non-health institutions, such as hospitals, police, border police, penitentiaries, social assistance centres and others “in order to ensure efficient and safe provision of public services during the COVID-19 crisis.”

Additionally, such supplies as sanitisers, protective supplies, food packages (for at least two months), soap, etc. will be transmitted to the most vulnerable groups of women from Moldova, including women affected by violence, women living in shelters, HIV and AIDS positive women, disabled women, and Romani women.

According to the Ministry of Health, Labour and Social Protection data, out of the total of 7147 confirmed cases of COVID-19 in Moldova, 59% are represented by women. Most infected women are between 40 and 69 years old. 67 infected women are pregnant.

Photo: UN Moldova

“The global epidemic of COVID-19 poses a clear risk to the health and well-being of the Republic of Moldova. Within this project, the control and management of the infection at the border control points of the country will be strengthened by updating and disseminating of international standards-compliant operating procedures for detection, notification, isolation, management and referral of travellers potentially infected with coronavirus, delivering necessary training for the border police officers, providing necessary supplies to screen the incoming citizens to prevent the spread of the disease,” is mentioned in the press release.

The United Nations in Moldova has been supporting the Government of Moldova and the Ministry of Health, Labour and Social Protection in three main areas: health system preparedness, technical support and capacity building, and risk information and communication on COVID-19 under the guidance of WHO Moldova.

The United Nations (UN) COVID-19 Response and Recovery Multi-Partner Trust Fund is a UN inter-agency finance mechanism launched by the UN Secretary-General to support low- and middle- income programme countries in overcoming the health and development crisis caused by the COVID-19 pandemic. The Fund’s assistance targets those most vulnerable to economic hardship and social disruption.

The fund is currently supported by the Governments of Norway, Denmark, the Netherlands, and Switzerland.

Photo: Iran Press

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Economy

Coronavirus drains the wine industry

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Until the coronavirus pandemic, the Moldovan wine industry was flourishing. In 2019, Moldova exported 15,67 million decalitres of wine, while the total exports’ value reached 3,086 billion lei. Most of the Moldovan wine arrived in China, Romania, and the Russian Federation.

In a country where winegrowing accounts for 7% of total exports and 3% of the country’s GDP, the coronavirus pandemic has hit small producers hard, disrupting the plans of the big players of the industry as well.

About five wineries were forced to temporarily cease their activity, as their employees were massively infected with COVID-19.

On April 25, villages of Etulia and Cismichioi, from Vulcanesti district, were put into quarantine. That happened after four locals who were employed at Etulia Winery, which is part of Bostavan Wineries Group, tested positive for COVID-19. Next, it was decided to test all employees and their relatives for coronavirus – a total of 174 persons, out of which 77 were infected.

Source: Wine of Moldova

“Wine products are not essential”

83% of the wine produced in the Republic of Moldova last year was exported. Data for March showed that export volume decreased by 9% and export value by 11%, as compared to the same period in 2019.

According to the evaluations made by the National Office for Vine and Wine (NOVV), this year exports of wine products may decrease by 30% or even 50%, as compared to 2019.

Head of the Policy and Regulation Service in the Field of Wine Products Sector within the Ministry of Agriculture, Liliana Dascaliuc, said that exports were reduced by 20% in the first three months of 2020, although the data are preliminary. “Winegrowing will be affected in the same way as the entire agriculture, even the whole economy. Wine and wine products are not essential,” commented the expert.

Zero income

Vlada Vutcarau is the co-founder of the ATU urban winery, a family business that produces up to 40 000 bottles a year. The coronavirus pandemic and the state of emergency have reduced sales by 90%, while the tourism activity has zero income. “We are talking about huge losses. We continue to produce, but the revenues come from sales, not from production,” explained Vlada.

Facebook| ATU Winery

However, there is a positive aspect – according to the young woman – the business has moved online and “we focused on the local producer. When buying local, we invest in our people and the money stays in the country.”

88% of Moldovan companies are negatively affected by the declining demand for products and services, said a study of the US Chamber of Commerce.

So, the authorities have implemented some measures to support economic agents, including wineries. These measures include reducing the VAT rate from 20% to 15% for the hotels, restaurants and catering sector.

The co-founder of ATU winery, Vlada Vutcarau, claimed that the supporting state measures do not help them that much.

“We do not receive visitors. Therefore, we do not generate VAT. This reduction does not provide any benefit at the moment, because we do not record any income anyway. We do not have the revenue, from which to save those 5% and distribute them to salaries.”

She also believes that the measures announced by the authorities represent political games and the state avoids taking responsibility. “Maybe it can’t afford it.”

Trouble never comes alone, as the co-founder of the winery believes. This year’s drought worries her just as much. “Time will tell us what we will be able to harvest this autumn. There could be an even bigger crisis,” she said.

Source: Facebook| ATU Winery

Corn instead of grapes

On April 10, the Commission for Emergency Situations adopted Provision No. 16. One of the included regulations concerned the subsidy mechanism for economic agents: the enterprises that have totally or partially stopped their activity would be granted a subsidy in the amount of the paid income tax, along with other social contributions.

The director of the Milestii Mici winery, Viorel Garaz, wondered if the state has financial resources to subsidise entrepreneurs. “As long as the economic agents do not work at all or carry their activity to a very small extent, their contributions to the state budget are very small. If the subsidies are not paid immediately, the companies will shut down their activity and will no longer need them,” explained the specialist.

The Milestii Mici winery produced almost 1,2 million bottles of wine in 2019, out of which almost 60% were exported. Following the pandemic hit, the company recorded a 60% decrease in sales on the local market. Exports fell by 40% and, since March 8, the winery has not been visited by any tourists.

“Our plans for one year or two have been turned upside down: to extend the restaurant, to acquire electric vehicles, to plant vines, to open a network of stores. The saved money went to rent, salaries and utilities’ payment.”

COVID-19 diminished the budget for planting vines. Milestii Mici winery decided to sow 36 ha of corn instead of the Feteasca variety of grape.

Also, the winery had to terminate the contracts with several retired employees. The overall number of workers was reduced from 206 to 142. “We cannot pay the indemnity for technical unemployment to pensioners. They at least have a pension, but young people who stay at home with their children … We decided to pay them at least something,” said Viorel Garaz.

The underground galleries of Milestii Mici are located at a depth of 85 m and have a total length of 200 km. They store almost 2 million bottles, which is why it has reached the Guinness Book of Records as the world’s largest wine collection by number of bottles.

Challenges over time

The state of emergency in the Republic of Moldova is not the first hit to winemakers. In 2006, Russia banned the import of wines because it would not have complied with sanitary regulations. At that time, almost 80% of the total wine production was exported to Russia. Estimates showed that the embargo losses exceeded $ 100 million.

Next, in 2013, three months before signing the Association Agreement with the European Union, Russia put again an embargo on Moldovan wines.

Source: Facebook| Andrei Cibotaru

“It is a crisis that affects us all and we have to contribute by consuming more local wine. Behind a bottle of wine is an entire industry: there are vine growers, people who work in production, winemakers, people in the laboratory. Besides, there is the glass industry, the cardboard packaging industry, there are people who deal with label design and so on. Buying a bottle of wine, in fact, maintains an entire chain of several sectors,” commented the author of the finewine.md blog and wine expert, Andrei Cibotari.

This text is a translation. The original article here.

Photo: Wine of Moldova

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