Moldovan manufacturing in the driving seat

During the Soviet era, Moldova was a centre of industrial production, which made up 60% of the country’s economy in the early 1990s. Although Moldova’s economy has since diversified, this heritage underpins its modern, thriving manufacturing scene. 

Manufacturing has been the main target for greenfield foreign investment since 2003, both in project numbers and capital expenditure. This is particularly true of automotive and electrical component production, where German and Japanese companies have been the most active investors, according to greenfield investment monitor fDi Markets. Greenfield FDI into Moldovan manufacturing has created an estimated 11,174 jobs since January 2014, through 16 projects valued at an estimated total of $767m, according to fDi Markets.

To the wire

Although Moldova is internationally known for its wine, the country’s top export in recent years has been insulated wire. The production of electrical cable and wire harnesses rose by 52.6% in 2018, according to Invest Moldova, the country's investment promotion agency. Indeed, industrial production in Moldova is a key pillar of the economy, growing from 14.4% of national GDP in 2011, to 15.2% in 2018, according to data from Moldova's Ministry of Economy and Infrastructure. 

The automotive components industry has a particularly strong track record, especially for tier-two and tier-three suppliers. Exports within the sector have risen consistently for many years, growing by 240% since 2013 to reach $437m in 2018, for example, and the industry accounts for roughly 20% of Moldova’s total exports. Meanwhile, employee numbers have  tripled since 2013, hitting 19,000 in 2018, according to Invest Moldova. 

The number of foreign investors in Moldova's manufacturing sector has also increased and now boasts major companies such as Dräxlmaier Group, Gebauer & Griller, Fujikura Automotive and Sumitomo Electric Bordnetze. In 2018, German wire and cable manufacturer Coroplast announced it was expanding capacity at its Free Economic Zone Bălți facility. The company has invested about €17.3m in the expansion, and boosted the plant’s workforce from 410 to about 1000.

Zone strengths

Coroplast is typical of investors in Moldova's automotive components sector, which mainly operate out of the country's industrial parks or seven free economic zones (FEZ) that are spread across 38 locations nationally. FEZ Bălți is by far the largest, with 18 subzones employing roughly 10,500 people. Almost two-thirds of them work for Germany’s Dräxlmaier Group, which supplies premium automobile manufacturers. 

Investment in and exports from FEZ Bălți have grown strongly over the past decade, with the zone's tenants numbering 66, according to chief administrator Marin Ciobanu.

Moldova’s second largest FEZ is Unghenis, which employs about 3000 people, most working at Michigan-based Lear Corporation, a global supplier of automotive seating systems and electrical systems that has expanded in Moldova in the decade since it began operations there. The company’s Moldova branch proved so successful that Lear transferred production of BMW leather seats to it, according to Sergiu Gaibu, an analyst at think tank Expert-Grup.

A CEE advantage

Moldova’s free zones are also conveniently located logistically for easy business with the EU and the countries of the Commonwealth of Independent States, as well as Turkey and the Balkan states – all thanks to numerous free-trade agreements. Most trade within the automotives sector goes to and from the EU, especially Romania. 

Mr Ciobanu says: “We’re seeing a lot of movement of global manufacturers from, or based in, Romania, coming to Moldova, because we have the same language and culture, and investors are encountering very low unemployment rates in Romania. Fritzmeier is moving for this reason. Dräxlmaier temporarily transfers people from its Bălți plants to its Romania plants, due to [Romania's] shortage of labour.”

So Moldova is benefiting from spillover investment from Romania, which is one of eastern Europe's leading destinations for foreign investment, especially in automotives. However, Moldova can offer cheaper labour and operational costs than Romania (and, indeed, the whole of the EU). The national average monthly wage in Moldova is €357, according to Invest Moldova, though in FEZ Bălți this rises to €500. 

Moldova’s free zones also boast some attractive fiscal advantages that come with a 10-year state guarantee, such as corporate income tax of between 6% and 9%, depending on where companies export to. Investors face 0% corporate income tax for three or five years if they invest more than $1m or $5m, respectively, and are exempt from customs duties and VAT on the export of goods and the import of raw materials and equipment.

Buying land for ground-up investment is also cheap and widely available in Moldova’s FEZs. However, there is still a lack of ready-to-go industrial buildings for rent. “We’re looking for developers to build and sell industrial space. There’s a big demand for that,” says Mr Ciobanu.

Adding value

Moldovan automotives are on course for increased added-value activity, especially as the country is reconfiguring its educational system.  

“One should always focus on value addition for Moldova. But [remember] how other countries developed their industry. Always start with the basics, which means labour-intensive, low-salary costs. From this, companies will develop [added value],” says Sebastian Metz, executive director at AHK Romania, the German-Romanian chamber of industry and commerce. 

For example, after several years in Moldova, Germany’s Coroplast upgraded from wire harnessing to add plastic injection moulding to its production line, while Dräxlmaier now has an R&D centre designing car interiors. Moreover, Arobs Software (a spinoff firm from Romania) provides microprocessor programming for the German car industry, as well as writing the program for some of Renault’s gearboxes, according to Mr Gaibu. 

“I see good opportunities in Moldova in terms of development activities; less so [in] research activity, as this is a later step. Moldova is progressing in the right direction. An increase in qualified skilled workforce is key, so I'm very happy that the country is making improvements to its professional education. Improved logistical infrastructure is also very important,” he adds. 

Filling the qualification gap

Moldova is aware of its shortage of qualified labour and is working to reverse this. For example, in 2018 the College of Engineering opened its doors at FEZ Bălți, using the German dual-education system to prepare mid-level specialists for resident companies in industrial equipment and mechatronic engineering. It is home to Moldova’s only industrial-grade robot and the Haas Technical Education Centre.

FEZ Balti is also a partner of the University of Bălți’s innovation and technology transfer centre, which offers free zone residents innovation support via access to specialist laboratories, equipment, services and finances. A similar centre is set to be created in Chisinau, within the premises of the technology park of the Academy of Science of Moldova, while initiatives such as the Technical University’s FabLab are already successfully developing practical education through technical prototyping in innovative areas such as autonomous and electric vehicles.