Why not to start a company in Moldova (and what we can do about it)

What’s that you say? You have a great Moldovan business idea? Well, before you proceed with that, consider the following:

1. Where will you get capital? Nobody will fund you except maybe a bank giving you a business loan – and if you default on that, they’ll take your house in a snap.
2. You’re not worried because you don’t think you’ll default? Well, ok. But do you like the sound of the 20% interest you’ll be paying on your bank loans?
3. Still unphased? Well, clear your schedule – you better have a lot of free time to deal with all the necessary procedures and licenses. Check out these facts on doing business in Moldova vs. the US:

• Procedures necessary for starting a business: 10 (vs. 5 in the US)
• Days necessary for these procedures: 30 (vs. 5)
• Cost of these procedures: 17% of ave. per-capita income (vs. 0.7%)
• Minimum capital necessary: 22% of ave. per-capita income (vs. 0.0%)
• Days required to do all necessary procedures to open a warehouse: 122 (vs. 69)
• Cost of licenses, etc., for opening a warehouse: 215% of ave. per-capita income (vs. 16%)

4. Hmmm, so you’re sure you can get past those hurdles? Open your business, then. Just cross your fingers and hope that the government doesn't give your better-connected competitor a huge advantage – or even shut you down for some minute reason.

Really, it’s so discouraging. Yesterday I had several conversations about this – first just with Cristina at home, then again with a group of her friends at a bar last night. We thought of some potential Moldovan market opportunities (I couldn’t tell you the exact demand elasticity for pants here, but when a decent-quality pair costs more than half the average monthly salary, there’s gotta be space for a low-price clothing brand), but nobody had any sense that they’d ever personally be able to bring these ideas to fruition. They could maybe do some entrepreneurial dealings in imports/exports from Romania/Ukraine, but that's about it. And these are smart (and relatively well-off) kids with university degrees in business and finance.

So what to do about it? The bureaucracy and corruption issues are hard to tackle from the outside, but the access to capital problem might be a bit easier to start attacking. The UNDP has a program called “Global Compact” that brings together businesses in the private sector in a dialogue on Corporate Social Responsibility issues, and the Moldovan Global Compact Network is considering starting a venture fund to support Moldovan youth (age 20-30) in starting businesses. It envisions using GC member company investment to create a profitable, self-sustainable fund providing financial and managerial support to local entrepreneurs, and eventually attracting international VC funds to the region after achieving reasonable proof of concept.

Sounds great – simply inject some capital and know-how and you stimulate the local economy, create jobs, and give talented Moldovans the opportunity for success here at home. Like the UNDP Growing Sustainable Business brochure points out, “the opposite of poverty is prosperity,” and this plan really has the potential to enable prosperity for some dedicated people. But will it get off the ground? Or will it get crushed under bureaucracy and member company skepticism? Let’s hope for the best, and I’ll keep you posted….