The main task that Moldovan companies are facing today is survival. At least, there is a feeling that under the current conditions the issue of business development has receded to the second or even the third plan. Valeriu LAZĂR, former Deputy Prime Minister, former Minister of Economy of Moldova and head of Business Intelligent Services (BIS) consulting company, believes that with professional approach most companies have a chance not only to survive but also to seize new opportunities. About this - in the interview below with InfoMarket Agency.

 

InfoMarket: How would you characterize the current situation in the Moldovan business?

 

Valeriu LAZĂR: As very difficult, but not hopeless. It is caught in a scissor. On the one hand, there is a sharp rise in the price of everything at the input, primarily in the price of energy resources, which raises the cost of goods and services. On the other - a sharp decline in purchasing power. This problem exists in all markets, because there is not a single service or commodity that does not have an energy component. We are not alone in this sense and, in terms of global competitiveness, we are in the same boat with the EU countries, our main foreign market, where everyone - both governments and businesses - are actively working to keep the vitality of their economies and people, mainly by increasing efficiency in everything. In Moldova, the situation is more complicated: we had more people with low and very low incomes even before the energy crisis, and the room for maneuver for the government and business is much smaller. And if in economically developed countries, the crisis leads to a decrease in relatively high incomes, in our country, it drives households and businesses into the red.

 

The state compensates households. But these funds solve partially only the acute social problem, and to be more precise - the problem of lack of liquidity in energy companies, because these monetary resources are allocated to them directly and, along the chain, almost completely go to the accounts of foreign suppliers. People's costs for everything are going up significantly, and purchasing power is going down, which obviously has a negative impact on the economy.

 

Besides it is necessary not to forget that the source of the most part of the means allocated by the government are not the grants, but the borrowed resources which are attracted by the state including in the internal financial market under the average rate of about 20% per annum, and which should be repaid with interest, generally at the expense of the Moldovan business. If it survives... 

 

InfoMarket: And what do you recommend doing: to the business, to the government? Is the government it doing the right thing?

 

Valeriu LAZĂR: It's not my style to judge the government and give "valuable advice" in public. But it is important to deliver a message to the authorities: if we do not maintain, at least (although we must expand) the tax base, and in order to do this it is essential to support and encourage the entrepreneurial activity and the investment process in every possible way, then in a year or two huge financial and social problems will arise in the country. 

 

Moreover, since we are living in the conditions of the most severe crisis, we need to act quickly and preferably ahead of the curve, to work out and make decisions. We urgently need applied programs of business support, which are many times larger in scale than the current ones, and many times less bureaucratic, aimed primarily at the implementation of specific professional management solutions to improve efficiency, competitiveness of enterprises and ensure their sustainable development.

 

The minimum task for entrepreneurs in this extremely difficult period is to survive, and even achieving this goal requires a lot of effort. But this is clearly not enough for sustainable development, because no one can guarantee us that similar crises will not happen again in the future. Judging by how the entire system of international relations, on which international trade directly depends, “is being shaken”, most likely we will live in conditions of uncertainty and related crises for a long time to come. And this requires a completely different level of managerial knowledge and skills, different business models and approaches.

 

Let's be objective and admit that the "Achilles' heel" for many Moldovan entrepreneurs is the low efficiency of their business, which is a consequence, among other things, of the low level of efficiency in the use of available resources: human, financial, production, energy, etc. It is obvious that in this formula of business performance the key role is played by the level of managerial knowledge and experience, an area where we are far from being "champions". 

 

Therefore, the objective reality requires the government and business to act in tandem to develop and implement in an accelerated mode extraordinary and bold solutions to achieve more ambitious and far-sighted tasks than just survival. And only serious state support programs can provide entrepreneurs who are aware of the need and are ready to go through a qualitative “metamorphosis” of their businesses with additional (to their own) resources to achieve the goals of increasing efficiency and sustainable development.

 

InfoMarket: But aren’t entrepreneurs moving today into a tough economy mode, cutting costs and personnel, is not it unlikely that they will find money even for an energy audit? And what role can the state play in this, in a market economy? 

 

Valeriu LAZĂR: Right now, the market economy in its pure form doesn't work anywhere, certainly not in European countries with which we compete directly, not only for goods and services, but also for human capital. All governments, in one form or another, have launched programs to support local businesses in order to increase their resilience to crises, including through increased efficiency in the use of resources, primarily – energy resources. These measures fit into the general philosophy of state aid and are designed to offset, as far as possible, the shortcomings or failures of Adam Smith’s "invisible hand of the market" (market failures), even in "peacetime". And in this period, when the multiple rise in prices for energy resources and, along the chain, for all other goods and services, is a direct consequence of geopolitical decisions that have little in common with the purely market situation, these measures to support business and the population are absolutely legitimate and even morally binding. 

 

On the other hand, it would be absolutely wrong to go to extremes and simply "hand out money from a helicopter," following the unsuccessful example of other countries, i.e. to provide state support to everyone just because someone decided to go into business. Under the influence of state measures to support entrepreneurship should fall into priority order those enterprises that introduce advanced technologies in terms of efficient use of resources, are aimed at the production of goods and services with high added value, whose owners and managers understand the importance and actively invest in continuous improvement of efficiency and sustainable development of their businesses.

 

The recent experience of our company indicates that Moldovan businessmen have begun to realize the need for a more professional approach to planning and management in terms of the efficiency and sustainable development of their enterprises, adapting business models in a changing reality. Practice shows that the best solution in this case is to attract external professional management consultants to work with the management team. 

 

The first step in this direction is a professional diagnostics (analysis) of internal and external environment of the enterprise including identification of medium and long term tendencies on the interested markets, definition of internal reserves and "bottlenecks", market opportunities in terms of increasing competitiveness, etc. This is followed by development of specific recommendations based on the results of the analysis and their practical implementation: such as improvement of business processes, etc.

 

But you are right, companies today do not have enough free resources for this, and this is just one of the cases where the state can help, through partial funding of invited consultants. We already have such experience in Moldova, e.g. within the framework of EBRD's TAM/BAS program or the World Bank's Competitiveness Enhancement Project.

 

InfoMarket: Are there many consulting companies in Moldova that can offer such services? 

 

Valeriu LAZĂR: I don't think there are more than ten or fifteen at the moment. But demand creates supply. Launching such a company means hiring serious specialists and investing in their additional training, etc. If there is no "critical mass" of demand on the market, this means that there will also be no supply. In our country there are still intelligent specialists: economists, financiers, engineers capable of forming multidisciplinary teams able to carry out serious management consulting projects. It is another matter that in Moldova there is no culture of consulting services consumption yet. And, let's face it, the quality of consulting services is very low on average - precisely because there is no healthy demand and there is no market as such. 

 

InfoMarket: Are there any examples when companies themselves, at their own expense, have already ordered management consulting services from you, such as, for example, diagnostics?

 

Valeriu LAZĂR: Yes, we have such experience, but I would not say that there have been many such projects, much less than "agreements of intent". Rarely have any of our potential clients been willing to fully assume the cost of paying for our services, and they cannot be cheap. We are not in the business of "batch production" of the so-called business plans for 100-200 euros apiece, but we are rather a "boutique" consulting company, and take only complex and interesting projects requiring original solutions to match our skills and experience. 

 

That's why we constantly analyze the local and regional market where we work and try to structure and offer innovative and useful to the economy (from our point of view) consulting products and approaches.

 

For example, in this year full of challenges, we have mastered and tested at a real enterprise a relatively new and little-known in our region international quality standard (ISO) - Guidelines for achieving sustainable success of an organization, which does not replace the most used ISO 9001:2015, designed to ensure the required quality of goods and services of an enterprise, but aims precisely at improving the quality of the enterprise itself and provides a wide range of analytical tools and managerial recommendations for " achieving the sustainable success of an organization in a complex, demanding and constantly changing environment”. Very relevant, isn't it?!

 

Returning to your question, right now we are in the final stage of such a project with a large Moldovan company. Frankly speaking, it is a real challenge for me and my colleagues, because we had to adapt "on the march" to the current conditions of almost complete uncertainty and unpredictability almost all of our professional tools, management approaches, etc. This is not at all an easy task: to "predict the future" and, all the more so, to develop applied managerial recommendations for a real and important enterprise under conditions of constantly changing, usually for the worse, conditions. For example, how to maintain financial stability and even more so how to cope with growing competition requiring constant investment, if you have put a profit margin of 18% in your business plan, when you took a bank loan at 8-9%, and the bank later notified you in an imperative form that the rate is already, say, 19% per annum?

 

InfoMarket: And how can you help the business in such a situation?

 

Valeriu LAZĂR: There is always an opportunity to help. The main thing is to soberly assess the situation by carrying out a professional and impartial analysis, to reveal the internal reserves for raising efficiency and competitiveness and the market opportunities for raising sales and their profitability, and then to help the enterprise specialists in developing and even introducing adequate managerial decisions. 

 

It is not easy at all to do this in the current conditions, but experience shows that it is possible: provided that the owners and management team of the enterprise are actively involved in this process and are ready to depart from the templates, think and act originally, boldly and responsibly. 

 

In any enterprise, if you dig, you can find reserves to improve efficiency. For example, experience shows that only through an energy audit and the implementation, following its results, of measures to improve energy efficiency, it is possible to save on average at least 30% of energy costs, and this is in conditions when in our country the energy intensity of the economy exceeds about three times the European average. It is just a huge reserve for improving the efficiency of the economy as a whole, and almost every business separately. And in this sense, state support programs to stimulate enterprises that implement energy audits and energy efficiency measures would be very, very useful.

 

When I was Minister of Economy and also Executive Officer at EBRD, two credit programs were launched with EBRD financial support in Moldova, through local commercial banks: MoREEFF for residential buildings and MoSEEF for companies. They had a grant component that covered the interest rate for implementing energy efficiency technologies. These programs have exhausted themselves in their original form and today's realities require more comprehensive solutions, but it is a pity that they no longer operate. 

 

InfoMarket: But the insolvency law works.

 

Valeriu LAZĂR: Oh, yes! By the way, I would revise it, or at least the approach to its application. The law was drafted under the completely different circumstances and the results of its practical implementation show a great deviation from the authors' expectations and an obvious bias towards liquidation of enterprises, to the detriment of the public interest in saving the business "showing signs of life" through the restructuring procedure provided for by the law.

 

The disappearance of any business means the loss of at least three jobs. I have recent statistics: from November 2021 to November 2022 there were 2,747 legal entities and sole proprietorships in insolvency proceedings, of which only 9 were under restructuring, which is only 0.3%! And yet many of them did everything right, did not make gross managerial errors. But the world has changed unpredictably, inflation is off the scale and the cost of borrowed capital is directly proportional to it, market laws almost do not work, governments manage economic processes in "manual mode", etc.: it is a complete force majeure, which, by the way, no one in our country has officially declared. 

 

Yes, the state needs to collect more taxes, but how can it do this if the tax base is shrinking? So, it simply must carefully analyze the situation and try to adjust it in the right direction, taking into account the public interest.

 

Yes, the task of creditors is to take their money, and they care less or not at all about the enterprise surviving and performing its important social functions - economic, social, fiscal, etc. As a rule, creditors pursue their immediate interests and do not "think" about the cost of developing plans to restructure debtors, so the system of liquidators works very well for us. 

 

InfoMarket: What can the state do without violating laws and investment protection principles?

 

Valeriu LAZĂR: Putting up roadblocks to creditors in their right to take their money is not right either, and that's the other extreme. The task is to help the enterprises overcome this crisis, which is largely man-made, and to balance the chances: the enterprise - to survive, the creditor - to get his money back, but not always at the cost of "destroying" the entrepreneurial class. I know many smart local entrepreneurs who are ready to hand over, figuratively speaking, their offices’ keys and the company's seal to their creditors, as a rule to financial institutions, so that they could show them how to "properly" run their businesses in our troubled times. And they themselves are ready to start from scratch somewhere in Romania. By the way, the process of emigration of entrepreneurs to European countries is in full swing.

 

A few months ago, the official government websites published a draft of the state program "Second Chance", which was to be implemented by ODA. Briefly, its principle was that an entrepreneur could apply to ODA for financial support to partially pay for the services of consultants who would help make a professional diagnosis, develop a restructuring plan and on the basis of that convince the creditors not to take extreme measures, prove that the company has temporary difficulties and in the common interest give the business a chance to survive and further develop - under the supervision and support of creditors and professional management consultants, partially financed by the state. This project might not be ideal and required some improvement, for example in terms of the need for accreditation of consulting companies according to clear criteria and establish a transparent and competitive mechanism for their contracting, but it somehow disappeared from the official government websites and I do not know its further fate.

 

With or without this program, BIS is ready to be actively involved in the process of developing plans for the restructuring of enterprises in insolvency proceedings: we have the necessary competencies for this.

 

InfoMarket: And could the state implement these programs through ODA?

 

Valeriu LAZĂR: Through ODA as well. ODA has an adequate status and rich experience in the implementation of successful business support programs which, in my opinion, have become too numerous lately, and this leads to the "loss of focus" and reduction of efficiency. It is necessary to update the priorities as soon as possible, to systematize the quantitative and qualitative content of these programs and, most importantly: capitalize them while using internal and external resources.

 

Besides ODA, Moldova also has an Investment Agency. Unfortunately, after the reform, along with obtaining a higher status, it became a budgetary organization and lost the opportunity to attract professionals of the highest class: its employees are civil servants, which implies salary limits and the impossibility to use funds allocated by development partners to pay for their work. In my opinion, we should assign the Investment Agency its former status, following the example of ODA, or even better - following the model of the National Vine and Wine Office, and let the new director realize his potential of an aware and energetic specialist in the field of investment promotion and attraction. I am sure that there will also be applied programs of export promotion and investment stimulation and more tangible resources of development partners for their implementation.

 

Let's not forget about AIPA. With regard to the agriculture and food industry, there are a lot of projects that are being implemented in our country directly by the staff of development partners. So I wouldn't say we lack the institutions and competencies to successfully implement business support programs. And we don't have time right now to create new organizations. We should use what we have and what works, and improve the efficiency of existing organizations, improve cooperation between them, and thus achieve greater synergy and real benefits for business and people from the resources allocated. 

 

InfoMarket: The question I can't help asking: would you like to go back into politics?

 

Valeriu LAZĂR: In 2014, I came to the conclusion that one phase of my life was over, with all the results and inevitable mistakes. On the very day, July 3, when I was leaving the government and party life, the Moldovan Parliament ratified the Association Agreement with the EU. Everything I could do in that place and in those realities, I did with maximum responsibility. And you won't find a single field in the Ministry of Economy where I didn't leave my successors "sets" of at least the following elements: long-term strategic planning documents, concrete plans for their implementation, capable institutions: the ministry's central apparatus, deservedly considered one of the best among all state institutions and having a weighty voice in the inevitable "apparatus struggle", ODIMM, MIEPO, Energy Efficiency Agency, etc. Behind was also an average annual GDP growth of nearly 5% for the period of 2010-2013, including record GDP growth of 9.4% in 2013.

 

A special place in the list of "inherited" documents was the Roadmap to improve the competitiveness of the Moldovan economy in the process of European integration, which, unfortunately, has not lost its relevance today. At that time, I thought that I could be more useful to the real sector, which faced huge challenges. At the moment there are even more challenges than then, so I prefer to stay "in line" on the side of business.

 

And finally, I find it very interesting to work with real enterprises, situations and active people, to "turn on" the brain and find original solutions to complex problems, to create new opportunities and to enjoy positive results together. // 06.12.2022 - InfoMarket.