WILL MOLDOVA MANAGE TO BOOST FOREIGN INVESTMENT THIS YEAR?

In the years since gaining independence, Moldova has actively sought to attract foreign direct investment to its largely agrarian economy. In 2000, net foreign direct investment reached US$126.8 million, nearly four times higher than in 1999. Nonetheless, that amount is still very low compared with other transition economies. At the end of 2000, cumulative direct foreign investment in Moldova reached only US$398.6 million, approximately what Estonia typically attracts each year.

Moldovan foreign investment could pick up this year if its privatization program accelerates. Successful privatization deals from past years have included France’s Lafarge, which bought a 52-percent stake in Moldova’s largest cement factory, Ciment, and the U.S. firm Europharm, which purchased about 85 percent of the pharmaceuticals producer Farmaco. The largest foreign investment to date in Moldova took place in February 2000 and involved the acquisition of three of the country’s five regional power distribution companies by Union Fenosa of Spain. The Spanish investor purchased 100 percent stakes in those companies for US$25 million, while committing to investments of US$60 million over five years.

As part of its agreement with the IMF, the Moldovan government has, after repeated delays, committed to selling the fixed line operator MoldTelecom this year. Until very recently, MoldTelecom was the monopoly provider of local, long distance and international telephone calls. The firm remains one of the country’s most valuable companies. With the deregulation of the communications market in Moldova, MoldTelecom has been hostile to small private competitors, often denying them permission to use its extensive infrastructure. The privatization of MoldTelecom is designed to help break the monopoly and improve the efficiency of telecommunications services. A tender for the selection of a privatization advisor was launched in February of this year, and a government commission announced in June that the Austrian bank Raiffeisen was chosen. The government has promised to make 51 percent of MoldTelecom’s shares available for sale.

The government has made a commitment to find potential buyers for MoldTelecom by late fall. According to local and foreign experts, at least two potential buyers are needed in order to negotiate a suitable price, which is estimated at between US$120 and $200 million. According to Carlos Elbirt, resident representative of the World Bank Country Office in Moldova, the privatization process may well be completed this fall and the deal closed by the end of this year. Some potential investors may be turned off, however, by the communist government’s uncertain commitment to reform. Moreover, the sale will be further complicated by the current downturn of the global telecommunications sector and Western telecom firms’ overindebtedness as a result of investments in third generation licenses. Thus, prospects for the successful sale of MoldTelecom and the boosting of foreign investment this year appear uncertain (Mrivatization.md; U.S. Embassy in Chisinau’s 2001 Investment Climate Statement on Moldova, July 23; Infotag, January 23, February 9, June 27).

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