Competitiveness-Driven Growth: CIBER Process Breaks Barriers for Moldovan Entrepreneurs

Moldova used to be the garden of the Soviet Union. It shipped wine, cereals, fruit, and vegetables to the other Soviet Republics. The collapse of the Soviet Union also meant the near-collapse of its agricultural sector, in particular the high-value horticultural segment. The country is now engaged in an intensive effort to reclaim its position as a strong competitor in agricultural exports, both in the traditional markets to the east but also to the European Union. However, Moldovan entrepreneurs and policy makers face hurdles in their quest.

When Moldova declared its independence in 1991, it found itself embroiled in a military dispute with Transnistria, the sliver of land that had formed part of the Moldavian SSR, which had declared its own independence earlier. These political upheavals exacerbated the economic disruptions. Driven by ideological fervor rather than efficiency, Soviet-era kolkhoz operations were broken into small plots of land. Legal and bureaucratic obstacles hampered land consolidation essential for creating viable farms.

Faced with an uncertain future and few job opportunities, Moldovans looked abroad. By some estimates, 1 million people out of a population of 4 million left the country. In many rural areas, only folks too old or too young to work remain. Kids raising kids, with the occasional assist from the grandparents. In this context, policy makers should focus on accelerating job creation in a sector where Moldova has a proven comparative advantage for economic and social reasons. High-value agriculture (HVA)—horticulture—is labor-intensive, at least on a seasonal basis. The agricultural tradition of Moldova constitutes a latent comparative advantage.

Yet producers and exporters striving for competitive excellence in Moldova’s HVA value chains not only have to cope with poor infrastructure, and dynamic competitors abroad, but also with a public sector seemingly intent on maintaining barriers to transformation. One example is labor: current legislation insists on treating all workers, including the seasonal workforce in agriculture, as regular employees, resulting in excessive paperwork and additional non-wage charges. Result? Producers and workers operate in a grey zone. There are no formal employment con-tracts, and workers get paid under the table. Not only does this arrangement deprive the government of much-needed tax revenue, it also means uncertainty for producers who cannot count on finding workers at key periods, and it leaves workers unprotected.

Photo of a man pruning a fruit tree.

Another example is access to cutting-edge technology, both with respect to modern plant varieties and production technology, such as modern greenhouses (the ones from Soviet times are no longer functional) or a well-developed cold chain. For plant varieties, the Moldovan authorities insist on preserving state oversight. Only registered varieties can be commercially grown, and it may take several years for the official tests to determine whether they can or should be grown in Moldova. By the time the varieties become commercially available, consumer preferences in export markets are likely to have shifted.

That posture might have made sense in the larger Soviet Union but is counterproductive for a small country. For inputs, the Moldovan Customs Code levies significant duties on greenhouses or modern insulation material for cold-storage facilities. All of which deters investment, leaving the job-creating opportunities of HVA value chains untapped. As a result, Moldovan exporters are trapped in the low end of principal export markets.

Snapping Out Of The Post-Soviet Funk

The U.S. Agency for International Development (USAID) has supported the development of a competitive HVA sector in Moldova for a number of years. The current DAI-led project, Agricultural Competitiveness and Enterprise Development (ACED), funded jointly by USAID and the Millennium Challenge Corporation, views improvements in the business environment as key to boosting competitiveness and growth. It has refined the CIBER (Competitiveness Impacts of Business Environment Reforms) process to address policy barriers to competitive performance, investment, and job creation.

Symptomatic of a new approach to analyzing development problems and devising policy responses, the CIBER process seeks to overcome weaknesses in the current policy dialogue. Stakeholders—mostly the producers and exporters in the targeted value chains, but also workers and their families—and analysts work together to identify binding policy constraints on competitiveness and demonstrate the cost to the economy in terms of missed growth and employment opportunities. It stresses the principle of “diagnostics before prescription.” ACED has supported this assessment for HVAs such as apples, table grapes, and greenhouse tomatoes, analyzing the costs and preparing solutions. Local subcontractors are now carrying out the regulatory impact assessments demanded by law of the proposed changes in key policies and regulations.

CIBER forms part of an overall competitiveness strategy championed by the ACED project for HVA value chains. The value chain framework turns out to be a useful way for structuring the analysis and interventions regarding constraints on obstacles to job-rich growth. CIBER works directly with the stakeholders, often small and medium-sized horticulture operations, to identify and assess business environment constraints. The interplay of stakeholder interests and rigorous economic analysis is essential to estimate the economic costs of the top, or binding, constraints. A clear understanding of the real costs to the economy is critical to lift the policy dialogue above the usual pleas for special treatment or protection that perpetuate inefficiencies.

Informing The Debate

To advance the proper policy response, the estimates of economic costs serve as the core of the argument in a carefully structured advocacy campaign guided by the stakeholders themselves. The campaign includes an appraisal of policy response options and their implications for the firms, actual and potential, in the HVA value chains. The political-economy dimension of the process seeks to identify allies and opponents (such as bureaucrats who are benefiting from the current arrangements) of the required policy reforms, and to craft an effective campaign to boost competitiveness and growth. In Moldova, CIBER has moved into the next phase, mobilizing support for real policy change. With support from the Ministry of Agriculture and Food Industry, ACED is sponsoring draft government decisions to change the policies that undermine competitiveness in the apple, grape, and tomato value chains.

What are the implications for the owner of a small apple farm of such policy responses? Changing the plant variety registration scheme to achieve compatibility with the systems in the EU would allow for a more flexible response to market opportunities, both in traditional and new markets. He, or often she, could shift to higher-value varieties, breaking out of the low-end market trap and improving return on investment. More flexible workforce arrangements would allow producers to create real labor markets, expanding opportunities for employment in agriculture.