Oases of Hope for the National Economy
Free Economic Zone (FEZ) Ungheni-Business concluded the year of its 10th foundation anniversary with remarkable results. During this year, FEZ Ungheni-Business managed to attract a record amount of investments ($13.2 million), leaving behind all Moldovan Free Economic Zones; to show a highest pace and a biggest amount of net sales (MDL 1 billion 105.4 million, or 19.2% more than in 2011) and to keep up the leadership among three the most sustainable and promising FEZ of Moldova. That was why the Ministry of Economy selected Ungheni last week as the host place to hold its field sitting to review performances of all the seven FEZ of Moldova for 2012.
As Chief Administrator of Ungheni-Business FEZ Natalia Iepuras told, there are 37 residents there (industrial enterprises mostly), which have created over 21,000 jobs. The largest of them are Lear Corporation, the American producer of car seats, and Moldabela, a factory producing woollen carpets. These two companies are enlisted among major exporters of Moldova, occupying the 6th and the 12th lines in the ranking of 2012. Filatura-Ungheni (producer of woollen thread, used for manufacture of carpets in FEZ of Ungheni), Euroatlant, (furniture producer), and Lones-Mol (manufacturer of the Fly Flot surgical boots) were also key investors in the FEZ. Last year, two large projects more were started up: EuroYarns has launched production of synthetic thread (investment of $6.7 million approximately) and Pricomtax has launched manufacture of meat products (investment of about $5 million).
Marin Ciobanu, the administrator of one more model Free Economic Zone – in Balti – also reported onlast-year performances . Last year, this Zone was attracted in $7.1 million (since its establishment in 2010, Balti FEZ has been invested in $22.4 million in total). The largest investors in Balti FEZ are Draexlmaier (the German producer of car spares, which topped the list of major exporters from Moldova last year), and Gebauer&Griller (the new resident from Austria, producing cable equipment).
Last year, Free Economic Zones of Ungheni and Balti jointly attracted 80% of all investments made in Moldovan FEZ. During the meeting, Acting Economy Minister Valeriu Lazar pointed out this disproportion, which, as he supposed, was caused by inefficient work of administrations of other Free Economic Zones of Moldova. He complimented administrators of Vulcanesti FEZ for the Zone to have gotten off the ground (last year, Vulcanesti FEZ attracted nearly $2 million and reached agreements with some new investors). However, the Acting Minister whished Free Economic Zones in Otaci and Taraclia would catch up with the above-mentioned three FEZ. The Administrator of Taraclia FEZ was given one more ultimate warning due to the crunch in the Zone(although we are very well aware that there is nothing more fruitless than one more ultimate warning). According to the Acting Minister, southern regions of Moldova may be very interesting for investors from Bulgaria, Turkey and other countries and the adminsintration should work better to attract them.
The uptick trend
Last year, Free Economic Zones of Moldova achieved highest ever benchmarks. As the Economy Ministry informs, FEZ of Moldova attracted $24.9 million investments (1.6 times up as compared with 2011); the net sales volume grew almost 18% against the past year and made up MDL 2.36 billion. A number of jobs increased from 5,800 to 6,500. Residents of FEZ transferred MDL 153.5 million to the budget as taxes and duties.
Unlike the stagnated industrial sector, where the decline made up 3.1% in 2012, the situation in Free Economic Zones inspires optimism and the experience of FEZ is necessary to be adopted throughout Moldova, Acting Economy Minister Valeriu Lazar noted. However, he insisted the possibilities of Free Economic Zones have not been used in full. “Free Economic Zones of Moldova are forming less than 10% of industrial output and exports from Moldova (8.7% and 6.6% respectively, to be more exact). I am afraid we will have to explain what for we have created these oases with privileged conditions if they do not prove their efficiency”, said the head of the Ministry.
First of all, Valeriu Lazar supposes, quantitative goals have to be achieved. For example, he strongly recommends administrators to get rid of dead souls. “I may seem cynical, but it’s the time to think what to do with companies that have come to FEZ but are not working. They are not meeting their commitments. Either by persuasion or by sanctions, we must finally address this issue. For example, there are 9 residents in Taraclia FEZ de jure, but in fact, these companies stopped working long ago. The net sales volume of over MDL 250 million, recorded in Taraclia FEZ in 2012, was mostly formed by the only functioning resident - exporter YugInterTrans.
Lazar pointed out that half of the area of all the 7 Free Economic Zones, or close to 200 hectares, has been left unattended: “All spaces have to be used; every square metre in FEZ must be made use of”.
As for qualitative changes in FEZ, they must be started with establishing partner ties and not only with foreign and diplomatic missions, but, and this is sometimes more important, with central and local authorities for them to promptly identify and address to various problems at Free Economic Zones. “The last-year experience showed that the Ministry of Economy was the best strategy executor and goal achiever, but in reality, all does not always look well. I would like to get the information at firsthand from residents of how efficient everything is in practice” said Lazar.
Old problems with new faces
As for problems facing FEZ residents, they does not seem to have changed a lot. The VAT recovery and the shortage of qualified personnel are still at the cutting edge. While the process of VAT recovery is challenging for companies in many countries (“in any country thousand excuses may be found for keeping money of the businessman on accounts of the state”, says Valeriu Lazar), the problem of the shortage of personnelis somewhat very specific for Moldova.
According to the Acting Economy Minister, 12,000 able-bodied people left Moldova last year. “We have failed to give them decent wages. Able-bodied people are leaving, the incapacitated are aging. In 10 years we can be driven into collapse” thinks Valeriu Lazar. To help somehow to solve this problem the government approved the Support Program for Vocational Education and Training Sector and the European Commission assigned money to have it implemented. “If , thanks to our program, we manage to make even 4,000 people a year change their mind and stay in the country, this will be the greatest moral reward for us”, said Valeriu Lazar.
For this goal to be achieved workers of Free Economic Zones have to be paid competitive wages. It is not until workers at FEZ are paid $500 to $600 that skilled specialists will prefer the work at Free Economic Zones to the work abroad. As a matter of fact, only in Balti FEZ can companies boast of paying high wages. Upon average, their employees were given MDL 5.5 thousand a month each. In Ungheni FEZ a wage averaged MDL 3,800; in Vulcanesti FEZ it was MDL 3,300. Workers at Otaci FEZ received the lowest wage, MDL 1,200.
Recently, administrators of Balti FEZ have developed a very promising project for opening the Centre for Intensive Technical Training (CITA). According to chief administrator of Balti FEZ Marin Ciobanu, the feasibility study for the project is going to be finalized soon. The project is expected to be launched in 2014. CITA is to be located in Subzone 4 of Balti FEZ and to train specialists following triple education principles, which stipulate cooperation of companies on the one hand and vocational schools on the other one on a base of a specially created training centre. The Centre will train future employees for FEZ, namely metalworkers, fitters, electricians, welders, engineering process managers, logisticians, and others. According to Marin Ciobanu, the project will be implemented in partnership with Technical University of Ilmenau, Germany, and the cooperation memorandum will be signed this summer. The administration and residents of Balti FEZ are planning to invest about MDL 1 million a year in the training of specialists in this Centre.
When talking with the Minister, FEZ residents complained of some difficulties. A representative of Terra-Impex, a resident of Vulcanesti FEZ, raised the issue of disposing industrial waste from FEZ without declaring it. At present, the relevant regulations are being drawn up, but this process requires amending plenty of resolutions and will take some time.
This was not for the first time when representatives of the Economy Ministry made a note of the problem of determining customs tariffs on goods exported from FEZ to the territory of Moldova. The bylaws regulating this area turned out to be contradictory to the law amended. The last-year mess concerning closures of deals among residents of one and the same FEZ transpired to have not been cleared up. This time residents complained that exporting goods within a zone is possible if a recipient proves that the goods exported will be used as a feedstock for export-oriented product. And this is after introducing the amendments... "We have made note of it and will check what is going on there”, assured the Minister.
A representative of DK-Intertrade (Vulcanesti FEZ) requested to permit alcohol producers of FEZ to supply a certain amount of alcoholic beverages to the internal market of Moldova as other, non-FEZ producers do. (At present, by law, FEZ alcohol producers must export all alcohol beverages they made). Allotting such a quota will entail new payments of VAT and excises and creation of new jobs. The Economy Minister promised to include this proposal into the set of legislative initiatives for FEZ, but reminded that 5 attempts to push forward this idea through the Parliament had failed. “Generally speaking, the current restrictions are reasonable. And if your request is answered, there are chances it will provoke professional discord with other alcohol producers, non-residents of FEZ”, thinks Valeriu Lazar.
Plans and Expectations.
On the background of the past-year national economic stagnation, Free Economic Zones of Moldova seem to have become just “oases of hope” for the national economy. And, judging by projects to be launched in 2013, there are chances that FEZ will manage to achieve goals set before them, namely to attract investment, to boost industrial production, to create jobs and to develop regions of Moldova.
Balti FEZ will possibly see the arrival of the most considerable investor. A German company, or, to be more precise, an industrial group from Bavaria, is planning to invest in this FEZ about $50 million and create close to 4,000 new jobs. In line with prearrangements, this is not until May when a name of the company and its business line are announced. If the talks are of success, the company will deploy its facilities in Straseni, in a recently created Subzone 4 of Balti FEZ. Forecasting expectations and divining intentions of the investor to come, administrators of the FEZ are making plans to develop the infrastructure of the subzone. For example, a design is being developed to lay a road and construct a railway bridge in 2014 in order to directly connect subzone 4 to the R1 primary road. This road will be a linking segment between the R1 and M14 highways, bypassing the central zone of Straseni. By rough estimates, the construction will come to MDL 20 million to MDL 22 million and sources to finance it are still being discussed with local and central authorities. The Balti FEZ administration has planned to fund the construction with MDL 800,000.
Gebauer&Griller, the largest investor of the same FEZ, is going to launch the production, invested in $26 million, by this summer. One more resident, Ecoverde, is supposed to invest $37 million in the waste processing. At Ungheni FEZ, the manufacture of processing and grading debris machinery is to be launched by Cams, whose investments in the facility amount to EUR 1 million. Besides, Ungheni FEZ administrators count very much on the project of construction of a two-storey warehouse at a total floor space of 8 thousand sq m. By that, the administrators are planning to attract new investors, providing them with ready storage space. The investments of EUR 12 million are estimated to pay off in 5 years.
At Vulcanesti, the southernmost FEZ of Moldova, where Romanian producer Terra Impex launched the production of polymeric and glass fibre building netting last year, administrators are now looking forward to the Chinese investor – A Tape – coming. The company is going to invest $1 million in manufacture of industrial tape. Moreover, Industrial Invest is expected to extend the manufacture of furnace oil at Vulcanesti FEZ, its investment being $1 million. Administrators of Taraclia FEZ are negotiating the launch of solar energy generation with Fresh Tehno Lux (investment of $6 million) and are not unhopeful to revive the Zone.