Competitiveness Enhancement Project (CEP I)

The Competitiveness Enhancement Project (CEP or “the Project”) supports the Government of Moldova’s efforts to promote economic growth and job creation. In a context of low investment levels, limited productivity and poor export competitiveness, the Project aims at enhancing Moldova’s private sector activity and investment. The Project development objective is to “assist Moldova in enhancing competitiveness of enterprises through improvements in the business environment, enhancing access to finance, and making adequate standards, testing and quality improvement services available to enterprises.”

The project demonstrates satisfactory progress toward achieving its development objectives.

Timeline. The Project, which was approved by the World Bank Board of Directors on October 27, 2005, was preceded by some preparatory analytical work carried out between November 2004 and August 2005. The Project became effectiveness on February 10, 2006, with completion date set for June 30, 2013.

Components. Initially, the Project included four components, focusing on (i) the improvement of the regulatory environment for private sector operations; (ii) the modernization of the Metrology, Standards, Testing and Quality (MSTQ) system; (iii) the facilitation of access to finance, with special reference to small and medium enterprises (SME); and (iv) the strengthening of enterprises’ competitiveness through an increased use of MSTQ services, whose utilization was to be facilitated through a Matching Grant Facility (MGF). The scope of the Project was expanded in 2009, with the addition of a Line of Credit (LOC) component, aimed at countering the difficult economic and financial conditions brought about by the global crisis, and the broadening of the MGF, to include also business advisory services. As a result, the Project in its final configuration consists of five components, whose description and objectives are summarized below:

    (i)Business Environment Improvement. The component contributed to the overall government effort in the area of improving business environment and provides strategic input, including continuous support for developing regulatory reform strategy, building institutional capacity for deregulation, and introducing Regulatory Impact Assessment (RIA) in the legislative process of Moldova. It was built on the experience of the Law on Optimization of the Normative Framework for the Regulation of Business Activities implementation and ensured sustainability of its outcomes. Main responsible agency for this component was the Ministry of Economy.

    (ii)Modernization of MSTQ System. This component addresses product quality obstacles faced by enterprises competing in domestic and international markets related to poor MSTQ (Metrology, standardization, testing and quality) infrastructure and services. The objective of the MSTQ Component was to strengthen capacity of the MSTQ system to provide internationally acceptable (especially, EU-compatible) MSTQ services. The goal of this component was to contribute to: (i) revising and strengthening relevant MSTQ regulations and implementing institutional reorganization reform; (ii) building capacity in metrology and testing area by upgrading most urgently needed by the industry laboratories in NISM and strengthening their institutional capacity in order to perform basic measurements and calibrations, as well as testing for enterprises; (iii) upgrading standards system through translation and adoption of most frequently used standards, strengthening institutional capacity of NISM in this area, and revising relevant regulations in line with international best practices; (iv) strengthening accreditation and certification capacity of Accreditation Center. The main beneficiaries under this component were Service of Standardization and Metrology, National Institute of Standards and Metrology, Accreditation Center.

    (iii)Matching Grants Facility.This component helped in promoting the use of MSTQ services by enterprises, especially SMEs, through the use of the Matching Grants Facility (MGF). That aimed to strengthen the competitiveness of Moldovan companies, both to increase exports and secure their domestic market position by improving quality of their products and services. The Facility provided financial support on a matching basis to enterprises willing to use external technical assistance for upgrading quality of their products and services initially by obtaining international certifications, such as ISO, and once the scheme was well established, by undertaking feasibility studies and upgrading technological processes. By expanding the scope of the Project in 2009, this component was broaden by including also co-financing of the business advisory services (BAS).

    (iv)Access to finance. This component contributed to improving access to finance of private enterprises (mostly SMEs). Given that the main obstacles at the moment includes poor collateral on the part of the borrowers and inefficient credit information system, the project helped in creating regulatory framework for establishment of a credit information bureau and development of expertise for better tracking credit histories.

    (v)Line of Credit (LOC). This component provided funding to qualified banks for on-lending to eligible export enterprises in support of their working capital and investment financing needs. The addition of the LOC represented a proactive restructuring given that the original credit amount was insufficient to cover those activities, which became highly relevant in crisis condition. The Ministry of Finance borrowed from the Bank and on-lend funds to eligible PFIs under the Subsidiary Financing Agreement’s. The LOC administrated through an apex agreement. The apex was placed with the Credit Line Directorate (CLD), a specialized entity operating under the Ministry of Finance.

    (vi)Project Management. The project financed costs of project management, monitoring, financial management, audits and other activities related to overall project management, monitoring and coordination.