Moldova

Chisinau, Moldova

Moldova is a landlocked country - with only an imprecisely defined 500 to 900 meter frontage on the Danube – situated between Romania and Ukraine. Moldova is a "gateway" between the former Soviet Union countries and the West: trade-wise, language-wise, and culturally. Its transport and telecommunication sectors can (and should) be considered a "Hub" for the region: once Romania joins the European Union (EU), Moldova will become increasingly important as a border between the EU and non-EU Eastern Europe. The Pan-European Corridor IX (Moscow-Kiev-Bucharest) crosses Moldova from East to West, traversing the capital city Chisinau. Moldova is a net importer of transport services. The country’s economy relies heavily on trade, which has accounted for over 95% of GDP in the most recent years.

The resolution on the Transnistrian region, which declared independence in 1994 but has not been recognized by any country, left Moldova de facto divided into two parts. Although Transnistria covers only 12% of Moldova’s territory, the region is of high economic importance for the country and straddles the major land routes to Russia and other strategically important export markets.
The first pillar of both the Government’s Economic Growth and Poverty Reduction Strategy  and the Bank’s Country Assistance Strategy is sustainable economic growth. This will require a sound and solid transport infrastructure, and efficient, reliable transportation services. Moldova's well developed transport sector (albeit with institutional and physical deterioration problems) consists of 10,531 km of roads (excluding municipal, agricultural and forestry roads), 1,318 km of railroad (about 100 km electrified), and four airports, one of which is up to international standards.

The importance of transport stems from several factors, including: (i) Moldova is a small country of about 4.3 million inhabitants, with very low labor costs, for which international trade is essential to economic growth as shown by the very large share of trade in GDP; (ii) Moldova’s economy is largely based on agriculture and agro-industry. It is therefore highly dependent on a well functioning transport industry and a solid transport infrastructure, to enable farmers’ access to markets; (iii) much of Moldova's trade is with Russia and Ukraine (but gradually expanding to Southeast and Western Europe) and its exports are mostly agricultural products which are sensitive to the cost of transport; this is an imprtant issue, given the country’s landlocked position that requires mostly road or rail transport which are more expensive than maritime or river transport; (iv) numerous small settlements are remotely located, and people are more dependent on transport to access either their jobs or social and administrative services (hospitals, schools, city administration offices, etc.), which makes transport demand high; and (v) except for road transport services and some civil aviation, the sector is dominated by state-owned enterprises; restructuring and creation of a competitive environment in railways and urban transport and improvements in transport investments and infrastructure management are necessary to increase efficiency and free up the scarce state budget resources.

Moldova’s extensive transport infrastructure is seriously deteriorated. Road and rail transport are the two most important modes of transport. In the freight area, the modal split over the last six years has largely remained of about 72% and 28% for road and rail, respectively. Both road and rail freight traffic decreased as a result of the economic decline in Moldova during the last decade. Passenger traffic shows a similar decline, thought less acute, with road transport playing a leading role (80%), and constantly increasing to the detriment of railway transportation.

The road and road transport sub-sector. Since 1995, 100% of the road freight transport industry has been privatized and 80% of the road passenger transport is in private hands. Freight transport is organized under the International Association of Road Hauliers of Moldova (AITA), established in 1992, which currently unites some 160 members with a total fleet of more than 4300 vehicles. However, road transport operators still face severe constraints – apart from the sharp decrease of transported goods – due to: (i) the limited number of permits made available for transiting neighboring countries; (ii) the impossibility to obtain permits for triangular routes (origin and destination in foreign countries); (iii) the complex and costly procedures for access to the road transport market, with licenses that have to be renewed annually; (iv) unwarranted licensing requirements for national transport, trailers and semi trailers; and (v) the inadequate road infrastructure. Trade and transport still suffer from corrupt practices of Customs and other border agencies and lack of modern and transparent border procedures. These are being addressed as part of the Bank financed Trade and Transport Facilitation Project in Southeast Europe, currently under implementation.

The country’s road network is seriously deteriorated and long overdue for rehabilitation. About 78% of the national roads and 88% of the local roads have reached the end of their economic life and are technically outdated. If repairs are not carried out soon, even the main highways will get worse, causing far greater difficulties for traffic, and requiring reconstruction that will cost several times more than timely resurfacing. Road financing is a serious problem. The contribution of road users does not cover the cost of rehabilitating and maintaining the road network. Excise taxes paid on vehicle import, vehicle registration and fuel consumption is a fraction (less than 10%) of what is actually needed. The Road State Administration continues to be a department in the Ministry of Transport and Communications and is currently responsible for the administration, maintenance, and design of the public road network.  The lack of cost recovery in Moldova’s road sector is a serious issue, which the Government plans address in the near future through internationally-assisted projects. 

The Moldova Railways (CFM) were re-built after the World War II using wide gauge tracks, and became an integral part of the former Soviet Union’s railway system. The break-up of the Soviet Union deeply affected the whole system. Unlike Russia, Moldova has not been able to afford to keep loss-making services running by cross-subsidizing from freight. After nearly sliding into absolute bankruptcy, CFM proposed and partially implemented a restructuring plan in 1999, which aimed at reorienting the state enterprise to the conditions of a market economy and improving its operations by going from a “production” strategy to a “market” strategy. The restructuring process - supported by the EU under TACIS - has been only partially achieved because: (i) the goals of the restructuring plan have not been widely accepted by the staff of CFM; (ii) the issue of the specific status of Transnistria and its independent policies is still unclear, while railways are operated integrally; and (iii) the cross-subsidy provided by freight transport to passenger transport is still imposed by the government, however without compensation. It is likely that hard choices lie ahead, including downsizing and concentrating efforts only on the core businesses with potential.

Civil Aviation. Air transport is crucial for trade development in Moldova. The country has made good progress restructuring civil aviation. The airports are now legally separate from the national airline.  The country joined the most important international organizations (e.g. European Civil Aviation Conference). The Chisinau airport terminal was renovated with a cost-effective, low-cost, no frills approach financed by EBRD and which is being repaid by a $10/head airport user charge.  Due to its central location between Eastern and Western Europe, Chisinau airport could be an excellent hub for international freight forwarders such as FedEx, UPS, and DHL.

Urban transport is of particular importance in the capital city of Chisinau, which accounts for almost 1/3 of the country’s population – including the suburbs - and 2/3 of the Government’s tax revenue. Public transportation continues to be a drain on the municipal budget. Reforms in the sector have been long over-due, including (i) restructuring/downsizing and the financial adjustment of the public transport company, (ii) phasing out of all fare privileges, and (iii) establishing ways to involve the private sector in the provision of urban public transport services.

World Bank activities. The Bank’s involvement in Moldova’s transport sector has been limited until recently but is likely to increase over the next years. Implementation of the Trade and Transport Facilitation in Southeast Europe (TTFSE) Credit is well advanced. The project contributes to modernizing customs and improving performance of border agencies, while removing non-tariff barriers to trade and international road transport.  Significant progress in simplifying the Customs procedures is expected following the recent introduction of Asycuda clearance system (assisted by UNCTAD) and the computerization of the entire organization, as well as through enforcement of the newly approved EU-aligned regulations on Customs Brokers’ regime, risk management, and transit.

In addition, the Bank has carried-out a Transport Sector Review update with an emphasis on the road sector.  A Trade Diagnostic Study including a Transport Chapter was carried-out by the World Bank in 2004. The Bank’s transport staff has been active in the dialogue with the country for the preparation of the recent (2004) Economic Growth and Poverty Reduction Strategy Paper (EGPRSP), and the Bank’s Country Assistance Strategy (CAS), which define the assistance priorities for the next 3-5 years.  At the request of the Moldovan Government the preparation of a Road Transport operation will start in the second half of 2006.

Updated March 15, 2005