Republics with the heavy burden of a communist path follow one of two paths: transition into Western-style free market economies, or enclaves where post-communist leaders continued on a similar route to which they had become accustomed to during Soviet times, while often putting up a democratic façade.
Countries such as Moldova, Georgia and Montenegro are now each treading the road to integration, as they look to strengthen ties with the EU. But, especially in the case of Moldova, that journey hasn’t always been clear cut.
MOLDOVA MAKES UP FOR LOST TIME
After declaring its independence in 1991, Moldova followed the second path, creating an illusion of democracy that went some way to masking the fact that little had changed from the Soviet era. But since prime minister Vlad Filat rose to power in 2009 under the Alliance for European Integration coalition, Moldova has been rapidly changing its ways.
“The name of our coalition makes it clear: integration with the EU is our priority. Activities that we undertook in the past two years are intended to start the process of integration with the EU,” says Mr Filat.
Such approach has already brought positive results. Moldova co-operates with the EU through its membership of the Eastern Partnership, the entity aimed at strengthening political and economic ties with Brussels.
The EU’s commissioner for enlargement and neighbourhood policy, Stefan Fule, has praised the direction and pace of change in Moldova. These changes include signalling the intention to establish a deepened and comprehensive free trade zone with the EU, and gaining visa-free access for Moldovan citizens to countries in the Schengen free travel area.
To introduce EU standards and shake up institutions that were still stuck in the practices of the 1990s, the Moldovan government is planning vast reforms. “From education to agriculture, change is needed in all branches. The most challenging of all, however, is our judiciary system. It is the vital element that provides stability, security and [a] good atmosphere for foreign investment,” says Mr Filat. He adds that necessary reforms to avoid monopolies and provide a clear tax regime are also a matter of utmost importance for his government.
Signs of progress
As these changes progress, so does the economic growth of Moldova. Its real GDP has grown from the -6% in 2009 to 6.9% in 2010. In the second quarter of 2011, year-on-year GDP growth was up 7.5%, exports grew an impressive 75% and the investment rate was up 31%.
Mr Filat quotes these numbers with pride, but looks forward to pushing the country’s development even further. “Our investment-friendly approach is not only a matter of declaration, it is [a] matter of actions,” he says, adding that companies such as telecommunications operator Moldtelecom and state-owned power generation and distribution entities could soon be open to foreign investment through tender and public-private partnerships.
Significantly, the Moldovan authorities are keen to stress that the best solution for the fast implementation of change is following the EU’s advice and the examples of other new member states. Their success stories can show the way forward for Moldovans looking for better economic well-being.
GEORGIA'S NEED TO EXCEL
Georgia has no large territory or population and, in contrast with neighbouring Azerbaijan, it lacks vast oil reserves. However, if there is one thing Georgia has in abundance it is the will to change its fate. Its brief war in 2008 with Russia proved that this may be a daunting task, especially when the safety of investments is concerned.
“Of course, the Russian occupation [of South Ossetia and Abkhazia] is a huge factor against the [prospect of investing] in Georgia and we realise this. Therefore we need to be absolutely perfect in other areas, so we can maintain a positive balance between the pros and cons of investing in our country,” says Giorgi Baramidze, Georgia’s vice-prime minister and minister for Euro-Atlantic integration.
Opening the country to investment was a priority for Georgia, even before the war with Russia, when president Mikheil Saakashvili and his pro-Western cabinet came to power after the peaceful Rose Revolution in 2004. Ever since this time, Georgia has been improving its approach in fields such as customs, tax administration and transparency.
Georgia’s international rankings demonstrate that the country has what it takes to attract investors, says Mr Baramidze, proudly. Georgia is ranked 12th in the World Bank’s Doing Business 2011 survey (up from 112th in 2005) and ranks 29th in the Heritage Foundation’s Index of Economic Freedom 2011 (up from 128th in 2005).
“Now we anticipate that all the rating agencies will have positive assessments of Georgia. When other countries’ ratings are declining, our ratings are going up, despite the crisis. This also demonstrates resilience of our economy,” says Mr Baramidze.
While, much in the same way as Moldova, Georgia sees membership of the EU as its ultimate goal, the country is still looking for ways to keep its competitive edge, even when inclusion into European structures is nowhere on the horizon.
“Recently we have enacted a law that focuses on the principle that taxes cannot be increased without agreement obtained through a referendum. We also decided that the public deficit cannot be higher than 3% and this rule will be effective two years from now. We took [these] steps to ensure investors that a stable situation will be maintained for years, even after our government is no longer in charge,” says Mr Baramidze.
MONTENEGRO'S EFFICIENCY SEARCH
When a country gains independence, establishing economic stability can prove tricky. This applies even more so when it coincides with a global recession. Montenegro became fully independent after a referendum in 2006 voted to separate it from Serbia, but along with the country’s transitional issues, the state of the global financial markets was an extra burden. Luckily for Montenegro, prime minister Igor Lukic´ (who, at the age of 35 is the world’s youngest head of government) and minister of finance Milorad Katnic both hold PhD degrees in economics.
“One of the main priorities of our government is to be business oriented. We need to help investors to understand that our country is a good place to locate capital. [That is] why we are trying to make the costs of [doing] business lower, limit the number of procedures and [in general] to be less bureaucratic,” says Mr Katnic.
So why should investors look to this tiny Balkan country as a potential site for investment? Mr Katnic points to a long list of free-trade agreements, adoption of the euro, favourable tax rates with VAT at 17% (7% for the tourist sector), personal income tax and corporate tax at 9%, and free repatriation of profits. He also says that given Montenegro’s natural resources, the tourism and energy sectors have the biggest potential for profit.
“It is not only about the money. We know that foreign investors also bring technology, knowledge and new work places,” says Mr Katnic.
Coping with collapse
The past couple of years have not been easy for Montenegro and its banking sector in particular has shown vulnerability. Mr Katnic remains upbeat, however.
“Although globally these are hard times, things are changing. More credible companies are interested [in investing in Montenegro], especially in greenfield FDI. While in the past, there has been a bigger focus [on the side of investors] in privatisation, now we see more and more greenfield projects,” he says.
However, the sense that the country is moving in the right direction is not shared by all Montenegrins. Although economic reform is coming to an end, there is still plenty that needs to be done to create a truly market-oriented society, says Mr Katnic. Nevertheless, even though there is no unanimity in issues such as privatisation, the government is ready to push forward.
“We are not running for short-term, populist results that will be visible soon. We want to make decisions that in the long term create new possibilities for our citizens,” he says.
One such long-term project is EU membership. In Montenegro, as in Georgia and Moldova, pro-Western governments do not get discouraged by the eurozone crisis. Given the scale of the problems that these small countries have faced since regaining independence, the current problems within the EU will not blunt their desire to become part of it.