IPRE policy brief: Why the international brands do not come to Moldova?
Since 2014, bilateral relations between the European Union and the Republic of Moldova have been based on the EU-Moldova Association Agreement. This agreement includes a Deep and Comprehensive Free Trade Area and represents the path for political and economic integration with the European Union. An important stage in this development took place on June 23, 2022, when the European Council granted Moldova the status of EU candidate country, opening a new strategic chapter in the country’s development.
While the country’s economic integration process into the EU is progressing, there are still a number of challenges to be addressed. In this context, Elena Bolocan, project coordinator at the Institute for European Policies and Reforms (IPRE), developed a policy brief, which analyzes a topic of interest for citizens and which represents an economic challenge – the limited access of consumers to international clothing brands in the Republic of Moldova.
According to the analysis, with a total population estimated at 2.6 million inhabitants and a GDP estimated at 13.6 billion dollars, Moldova has a less attractive market for international brands to assert themselves, compared to most European countries. Although joining the European Union can be economically favorable, factors such as population size and purchasing power play a critical role in a country’s attractiveness to these brands.
At the same time, the garment industry in the Republic of Moldova is constantly expanding and evolving, over 540 companies are currently operational. The TAFL industry (textiles, clothing, leather, leather goods and footwear) contributes significantly to the national economy, cumulating 7.7% of the total value of industrial production manufactured in the country.
One of Moldova’s key advantages is its solid infrastructure in the garment industry, which can facilitate the implementation of the near-shoring concept. Due to its geographical position, goods can arrive in one day in Eastern Europe and in two days in Western Europe, which supports the demand for sustainable fashion and allows adaptation to production trends close to the markets. Brands such as H&M could gain significant advantages by locating production facilities in Moldova. This would lead to a reduction in costs and delivery times to EU markets. Also, bringing production closer to markets would provide an opportunity to quickly adjust stocks according to current fashion trends and market requirements.
If we take into account the clothing industry, the one to which H&M belongs, then, according to Statista, the clothing market in the Republic of Moldova in 2023 will reach a revenue of $996 million and is estimated to grow by 1.06% (2023-2027), resulting in a market volume of $ 1.039 billion in 2027.
“Comparing the data from the Republic of Moldova with those from Romania, we notice significant differences in clothing purchases. In Romania, each inhabitant will buy approximately 24 garments in 2023, generating a clothing market with an estimated revenue of $10.72 billion by the end of 2023. In contrast, in the Republic of Moldova, the data presented are much lower and it is expected that it will take longer to achieve the return on investment (RoI) required to open an H&M or ZARA store, given the smaller market and the low purchasing power of the population. However, a favorable aspect in attracting these international brands is the significant demand on the local market. Popular ad sites in Moldova highlight ZARA and H&M as the most sought-after brands, demonstrating the increased consumer interest in the products of these famous brands. For example, on bayshop.com, the most searched stores by Moldovan consumers are listed on the first page, including ZARA,” says Elena Bolocan.
The policy brief also presents an analysis of purchasing power. Thus, according to the recent report published by the Ministry of Economic Development and Digitalization for 2022, it shows a decrease in GDP by 5.9%, which now represents $ 13.6 billion. Severe drought, inflationary pressures in the context of steadily rising energy prices and the complicated situation in the region are the underlying factors that have significantly influenced economic activity. The monthly disposable income of the population in 2022 averaged MDL 4,253 per person, up from 2021 by 21.2% in nominal terms, but decreasing in real terms by 5.9%. This is not surprising, given that Moldova recorded one of the highest inflation rates in the region, reaching 34.6% in October 2022. These data indicate insufficient purchasing power considering the average price (€38) of branded products such as ZARA.
According to the author of the paper, currently the market and infrastructure of the Republic of Moldova is not fully adapted to the expansion of international brands on the local market, but there are opportunities to increase their number in the country.
In order to make full use of these opportunities, the aforementioned barriers and challenges need to be addressed through public policies aimed at increasing foreign investment. It is important for the Republic of Moldova to be institutionally prepared for these opportunities.
Based on this analysis, IPRE comes with the following recommendations:
- Speed up the process of developing and approving the economic umbrella strategy. An economic strategy, which also includes the field of attracting investments, will provide a clear framework for action and will demonstrate the commitment of the Government and the Ministry of Economy and Digitalization in this area. It is necessary for the Ministry of Economy and Digitalization to accelerate the adoption of a strategy in this regard. This will avoid delay in adopting the necessary measures to attract investments, contributing to increasing investor confidence in the Republic of Moldova.
- Developing a program correlated with the umbrella strategy and strengthening the Investment Agency. In order to support the effectiveness of the Strategy, it is necessary for the Government to develop programs that operationalize the priority directions set in the hierarchical superior document. This programme should describe strategic objectives in detail, turn them into tangible actions and serve as a practical tool for attracting investment to the Republic of Moldova.
- Promoting the concept of “near-shoring”. In the context of post-COVID trends, in which large corporations seek to reduce dependence on Asian suppliers and bring production closer to markets (near-shoring), Moldova can seize the opportunity to become an attractive destination for investments in local production.
For more details, please consult the IPRE Policy Brief, available here.
This policy brief was developed within the IPRE project “Thematic Analysis of Public Policies”, carried out with the support of the Konrad Adenauer Foundation (KAS) in the Republic of Moldova. The opinions reflected in this publication belong to the author and do not necessarily reflect the opinion of KAS.
