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Moldova Compact

The Millennium Challenge Corporation’s compact in Moldova invested $259 million to improve the country’s road infrastructure and support the transition to high-value agriculture. As a result of the compact, a 96 km section of a critical, highly deteriorated road connecting Moldova to Ukraine was rebuilt to international standards. In addition, 10 centralized irrigation systems that had fallen into disrepair, covering over 11,500 hectares, were upgraded, with management transferred to Water User Associations (WUAs) created under the compact to ensure stainability. While information collected in 2015 indicates a lower impact of the irrigation project than estimated, other infrastructure and legal reforms enacted during the compact are key to transforming Moldova’s agricultural sector into one focused on growth.

Background

Moldova, a former Soviet republic located between Ukraine and Romania, is the poorest country in Europe. Agriculture is the backbone of the economy and the country once served as an important exporter of high-value agriculture within the Soviet Union. However, like many former Soviet republics, irrigation was centrally managed by the state and suffered years of mismanagement and underinvestment. Following the collapse of the Soviet Union, Moldova lost its position as a key exporter of fresh produce, and its extensive irrigation systems and post-harvest cold chain[[A cold chain is the series of refrigerated production, transport, and storage activities and associated equipment that maintain a low temperature to ensure extended shelf life of products such as fresh produce.]] fell into disrepair. The government had been slow to make reforms needed in the agricultural sector to attract private investment or funding from donors with an interest in advancing Moldova’s fruit and vegetable exports. As a result, the sector suffered from low productivity, contributing to high rates of rural poverty. Still, Moldova has many of the necessary conditions to regain competitiveness in high-value agriculture and increase economic growth, including fertile soils, a relatively long growing season, and proximity to both European Union (EU) and former Soviet markets.

Like its irrigation infrastructure, Moldova’s roads deteriorated significantly, since the country gained independence in 1991, raising the cost of production and trade. To address this critical barrier to economic growth, the Government of Moldova prioritized the rebuilding of the national road network with assistance from external partners. The country’s National Development Strategy and Land Transport Infrastructure Strategy (2008-2017) represented a long-term vision to “provide the country with an efficient transport system that supports citizens’ need for mobility and which facilitates trade in domestic and international markets, with a strong view of the role Moldova can play as a bridge between EU and Commonwealth of Independent States countries.”

After successful completion of a threshold program designed to reduce government corruption in February 2010, MCC and the Government of Moldova signed a five-year, $262 million compact in September 2010 to address the constraints outlined above. The Government of Moldova and MCC estimated that the compact would benefit 414,000 people and help lay the groundwork for sustained economic growth by improving road infrastructure and supporting the country’s transition to high-value agriculture through irrigation and regulatory reforms.  Under the MCC country ownership model, MCC’s counterparts are responsible for implementing MCC-funded programs. Partner governments establish entities known as accountable entities known as MCAs to manage implementation for compact projects. In Moldova, MCA-Moldova was created soon after signing the compact to implement its programs.

  • Original Amount at Compact Signing:
    $262000000
  • Amount spent:
    $259371696.82
  • Signed:
    January 22, 2010
  • Entry Into Force:
    September 1, 2010
  • Closed:
    September 1, 2015

Project Results

Transition to High Value Agriculture Project

  • $101,800,000
    Original Compact Project Amount
  • $129,431,667
    Total Disbursed

Estimated Benefits

Estimated Benefits for the Transition to High Value Agriculture Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At the time of signing 112,000 $39,900,000
At the time of signing beneficiary_data_not_available net_benefits_not_available
At compact closure 112,000 $-41,900,000

Project Description

The objectives of the Transition to High Value Agriculture (THVA) Project were to enable Moldova to benefit from its natural comparative advantage in agriculture by: (i) increasing rural incomes by stimulating growth in high-value-added agriculture; and (ii) catalyzing future investment in high-value agriculture production through the establishment of a successful business model and conducive institutional and policy environment for irrigated agriculture.

The THVA Project consisted of four reinforcing and integrated activities that, when implemented together, targeted what were recognized by both donors and domestic stakeholders to be the fundamental constraints to development in the sector: a lack of reliable access to water, limited availability of financing, poor access to markets and technologies, and limited expertise.

The four THVA Project activities included:

  • The Centralized Irrigation System Rehabilitation Activity (CISRA) restored and upgraded selected centralized irrigation systems by replacing or reconstructing pumping stations and other irrigation infrastructure, including pipe networks and reservoirs, to improve access to irrigation on agricultural land.
  • The Irrigation System Reform Activity supported the goal of improving access to irrigation through technical assistance and reform. It consisted of two Sub-Activities:
    • the Irrigation Management Transfer Sub-Activity provided technical and training assistance to farmers to ensure the efficient management of the rehabilitated centralized irrigation systems by its users through Water Users Associations (WUAs);
    • the River Basin Management Sub-Activity helped enhance the overall management of water resources through policy reform, basin-level management and scenario planning, and improved water monitoring.
  • The Access to Agricultural Finance (AAF) Activity aimed to increase competitiveness and profitability for farmers and post-harvest investors by enabling investments through the provision of medium- and long-term financing to increase production, cost-effectively sort and package produce, extend the production and marketing seasons, and bring produce to market.
  • The Growing High Value Agriculture Sales (GHS) Activity, which was co-financed and managed by USAID, provided technical assistance, training, demonstration activities, and consulting and market intelligence services through investments designed to:
    • develop and expand market opportunities;
    • upgrade production techniques;
    • modernize the value chain system;
    • invest in higher quality phytosanitary equipment to meet pest and pathogen standards for export to international markets; and
    • support the transition to high-value agriculture and the use of irrigation in the centralized irrigation systems areas
At the end of the compact, 10 irrigation systems covering more than 11,500 hectares were rebuilt and upgraded and their management was transferred to WUAs created under the compact in those target areas.[[An 11th WUA was established and received training; however, its irrigation system was not rehabilitated.]] Additionally, the AAF Activity disbursed more than $11.7 million in loans to 62 borrowers and committed $800,000 in equipment leases during the compact.  The AAF Activity continued to commit additional leases even after compact closure amounting to a total of $4.6 million in leases benefiting 80 farmers and enterprises at the end of 2015. Finally, the GHS Activity trained more than 6,000 farmers and assisted more than 300 enterprises to increase produce sales in new global markets. During the compact, three additional WUAs were formed in areas outside of MCC’s intervention established under the new Water User Association law requirements created under the compact.[[The Dajida-Prim WUA in Gura Bicului village registered in December 2013 and signed a Management Transfer Agreement (MTA) in June 2014. The Apele Prutului WUA in Bogdanesti village and Apele Nordului WUA in Corestauti village both registered on April 3, 2013. Following the close of the compact, an additional WUA formed in Costesti village on February 18, 2016. As of February 2017, the WUAs in Bogdanesti, Corestauti, and Costesti were coordinating with authorities to sign Management Transfer Agreements]] Signing Management Transfer Agreements is the critical next step that will allow these WUAs to assume operation and management of the irrigation infrastructure, putting the use and regulation of irrigation water in the hands of the farmers themselves.

Road Rehabilitation Project

  • $132,800,000
    Original Compact Project Amount
  • $109,749,558.31
    Total Disbursed

Estimated Benefits

Estimated Benefits for the Road Rehabilitation Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At the time of signing 302,000 $55,600,000
At compact closure beneficiary_data_not_available net_benefits_not_available

Project Description

Moldova’s transportation infrastructure, consisting of significantly deteriorated roads, represented a constraint to economic growth because it raised the costs of internal and external production and trade. The Road Rehabilitation Project (RRP) worked to alleviate this constraint with investments aimed at:

  • increasing the real income of the population by reducing the cost of transport, goods, and services;
  • reducing productivity losses to the national economy that resulted from road conditions; and
  • decreasing the number of road accidents through improved traffic conditions.
The project rebuilt to international standards a 96 km segment of the M2—an arterial highway connecting Chisinau, the capital of Moldova, to Kiev, the capital of Ukraine. This route serves as a significant link between Moldova and Ukraine for passenger and commercial traffic, and Moldova identified it as a priority for rehabilitation during the development process. The compact specifically rebuilt the critical segment of the M2 that connects Sarateni (outside Chisinau) with Soroca, an agricultural hub at the Ukrainian border.

In addition to rebuilding this key commercial artery, the project introduced higher road safety standards in Moldova and invested $2.5 million in small social infrastructure such as schools and access roads in villages impacted by the construction. MCA-Moldova reinvested cost savings into the project and used them to, among other things, rehabilitate an additional 3 km of road, including paving roads to improve access to schools and a fire and rescue station. The project also piloted—for the first time in Moldova—the use of iRAP,[[The International Road Assessment Program, or iRAP, is an organization dedicated to preventing road deaths worldwide. More information is available on their website, www.irap.net]] an internationally recognized assessment program designed to enhance overall road safety. The project employed modern standards for road building, road safety, road maintenance, and community engagement.  Road improvements included safety features designed to slow traffic in communities, in order to reduce fatalities in areas like schools, markets, and health posts. Curves on the road were properly banked and other sections were straightened in order to reduce accidents. MCC’s design also provided side-roads for farm equipment to avoid collisions. MCA-Moldova incorporated many of these factors into the design after gathering input from local communities.

Higher standards for consultation and social protection were also introduced as part of the project, including the use of social monitoring committees in communities along the road. These community groups included local leaders and required female representation. The groups allowed local community members to have a strong voice in the design and implementation of the road, and provided a platform for improved community safety and communication with construction contractors. Group members received leadership and project management training, and delivered training to community residents and school children on traffic safety and HIV prevention[[Worker camps during construction are primary channels for transmission of HIV and other sexually transmitted diseases, and STD and HIV prevention programs are therefore a standard part of most of MCC’s construction projects.]] with the help of MCA-Moldova.  The groups are expected to play a role in ensuring the sustainability of local road investments.

Finally, the project introduced higher standards for resettlement.  Extensive resettlement was required to expand the road right-of-way, affecting 92 plots and 85 landowners who received cash or land as compensation. The resettlement program, conducted in compliance with MCC environmental and social guidelines, cost $850,000 to plan and implement, including all compensation.

A year ahead of the compact’s end, the project was completed with the rebuilding of 96 km of roads—exceeding the originally envisioned 93 km—with roughly $21 million in cost savings.