History, Politics, Economy and Startups in Moldova.

Moldova is the poorest country in Europe and the one, which political and ethnic identities have been threatened many times in History.

In 1343 nobleman Dragos of Bedeu established a defense post against advancing Tatars by the order of the Hungarian King. He named it Moldavia after his hound Molda (according to other sources, it was the name of the river upon which this post was built). Dragos rejected King’s authority in 1359 and this name was transfered to his new Principality.

Stephen the Greats period in Moldavian history (1457–1504) is distinguished by fierce resistance to Hungarian and Polish invasions and marked by battles of Baia, Vaslui, Valea Alba and Cosmin Forest. Despite Stephen’s heroic efforts, Moldova had remained independent only for a very brief historical period. Following other Eastern European countries, Moldova succumbed to Ottomans in 1538.

As a result of 1768–1774 war of Catherine the Greatagainst Pashas Russia declared its protectors over Moldavia. As a result, Turkey’s power became nominal. In 1775 Habsburg Empire annexed Moldova Principality but after 1806–1812 war, when, again, Russian army defeated Turkish yanichars, Alexander I declared Moldavia part of his Czar-dome under the name Bessarabia. Moldova stayed in this capacity until 1918 when it was invaded by Romanian armed forces.

Moldova had been point of high political tensions between Kremlin and Bucharest for two decades prior to WWII. Communists led USSR had never recognized Romanian jurisdiction over this territory. As a result, in August 23, 1939, when Joachim von Ribbentrop and Vyacheslav Molotov signed their infamous Pact, one of its articles described Bessarabia as part of Soviet Union. Following Red Army’s invasion, Moscow declared its sovereignty over Moldovan Soviet Socialist Republic in August, 1940.

In 1941, during World War Two, Wehrmacht, led by Romanian infantry divisions, had occupied Moldova. In April 1944 Moscow Stalinist regime re-took it again. In 1950–1952, during Leonid Brezhnev’s terms as 1st Secretary of regional Communist Party, Soviet “apparatchiks” harshly suppressed Moldavian national opposition. In so-called “Operation North” more than 3,000 people were deported. Moscow appointed kadry, carefully selected from non-Romanian ethnic groups, held all important posts in the local government.

In May 1991, after dissolution of the Soviet Union, Moldova was declared the Independent Republic. Years of hardships soon followed and people became disillusioned with the new system. In January 1997liberal government was ousted by re-invented Moldovan Communist Party, which then stayed in power for more than a decade (until 2009).

In July 1992 Transnistria region (Ukraine bordering territory) rebelled against central authority. This uprising was supported by pro-Russian militants. That had helped Communists to hold their grip on power on a promise ‘to set it straight’ with ‘friendly’ Moscow.

With 2008 economic crisis, Moldova population’s income, supported by remittances from Russia, plummeted. Situation worsened in 2012, when oil prices plunged and immigrants turned back home in mass. Soon Communists lost their popularity and Liberal Democrats were re-elected.

Moldova is the parliamentary republic where unicameral, 101-members Parlamentul elects the President. Pro-government Partidul Democrat din Moldova (left, pro-European) and Partidul Liberal(right, pro-Romanian) hold the minority of seats (20 and 13 respectfully). Partidul Socialistilor din Republica Moldova, PSRM (left, pro-Russia) with two more parties (Liberals and Communists) together have 43 seats.

With Parliament in a fierce opposition to government and the largest corruption scandal (when more than $1 billion were lost from the sate budget) still reverberating through political system, current situation in Moldova is instable.

Agriculture is the traditional mainstream of the Moldova economy. Closeness to the Black Sea defines Moldova worm and humid climate suitable for vineyards. Moldova was the major producer of vines in USSR. Today Russia is still one of the major trading partner for Moldova. More than 40% of population in Moldova live in villages or in small farms outside of big cities. An agriculture production and international remittances are not sufficient to rise the level of living in the Republic. Moldova stays the least developed country in Europe for decades. Many of its citizens leave the country in a search for jobs elsewhere.

Excessive foreign investments regulations, high taxes, high administrative barriers as well as close government oversight of Internet activities present a challenge for growing startup ecosystem in Moldova. On top of that, in this economy, dominated by subsistent agriculture industries, almost 10% of population are living under poverty line and an average wage stays below $300.

At the same time, Internet penetration rate in Moldova is up to almost 60% and with low running business costs as well as a little competition local startups founders may find numerous opportunities in e-commerce, FinTech and entertainment sectors. Educational standards (specially in engineering disciplines) are traditionally high in this country but extensive brain drainage is gradually exhausting the local tech talents pool.

Business Notes for Startups Founders:

  • political climate: not friendly;
  • economic climate: not friendly;
  • regions to focus: locally;
  • industries to focus: e-commerce, e-jobs, marketplaces, FinTech;
  • major limitations: excessive regulations, high taxes, low wages, governments control, absence of seed and VC financing, brain drainage, low-tech, agriculture orientated economy;
  • stimulus: low costs, little competition;
  • opportunities: to bootstrap on local niche markets.