High skills and low costs give Moldova a tech edge

The IT sector in Moldova has rapidly become a major driver of economic growth over the past decade, and a policy priority for all ruling parties. It contributed 5.7% to the country’s GDP in 2017, and presents a slew of opportunities for foreign investors. 

Moldova’s ICT infrastructure is one of the country’s greatest strengths, ranking 59th out of 175 countries in the ICT Development Index and providing faster internet speeds than many of its peers in central and eastern Europe, such as Ukraine and Serbia. The country’s e-government system for online public services is also highly regarded.

Vladimir Bobu, project manager at the Frankfurt Biotechnology Innovation Centre, says: “Moldova is getting more eye-catching for foreign investors, especially for IT due to its tax rates and legislation. Foreigners can easily open a joint-venture investment, and Moldova’s cultural harmonisation is also key, as most people speak English and it is located right next to the EU. Moldova also has cheaper labour and intelligent people.”

Export growth

Moldova’s tech scene remains modest in size and maturity, but is growing fast and boasts very competitive legislation. It has expanded almost consistently over the past decade, and in 2019 it employed a record high of about 14,000 people, while its export of IT services has almost trebled since 2012 to reach a total of $164m in 2018, comprising one-tenth of the country’s total export of services, according to the National Bank of Moldova. 

For the first time ever, IT services exports exceeded that of wine in Moldova, for one quarter in 2019, according to Marina Bzovîi, executive director at the Moldovan Association of ICT Companies (ATIC).

Over the past two years, exports have shown particularly impressive growth, partially due to the opening of Moldova IT Park in 2018, a virtual park that provides simplified and reduced administration to local or foreign tech companies on Moldovan soil; for example, a single tax of 7% on turnover. 

“This specific legislation is probably one of the region’s best. After [36 months], about 490 companies are registered [employing about 9000 people]. We also offer support in terms of obtaining residency and work permits. Basically, all procedures [considered], you can start your operations within a month,” says Valentina Stadnic, an administrator at Moldova IT Park. 

The vast majority of the park’s companies are exporting services abroad, and about 25% of them are funded by foreign capital originating from 27 different countries, especially the US and the EU, according to Invest Moldova. The average monthly salary at the park is €1300, against a national average of just below €350.

Adding value

Moldova is home to a small but growing number of successful tech companies, both local and foreign. The country already has a strong track record in IT nearshoring for major global players such as Orange, DHL, Xerox, Ford and LG, according to a recent report from the International Data Corporation (IDC). 

However, because the country does not have the resources for outsourcing centres employing thousands of people, it needs to transition to higher value-added services, says the IDC. It estimates that over the next five years, R&D and engineering services within IT will be the best performing segment in Moldova.

The transition has already begun. For example, fintech company Endava has grown fast in recent years to now employ 900 world-class engineers in Moldova. It is the country’s only tech unicorn, founded in London and Chisinau almost 20 years ago. A more recent success story is Salt Edge, a fintech company with offices in London, Toronto and Chisinau that was co-founded by a Moldovan. 

Meanwhile, artificial intelligence-based recruitment chatbot company Xor raised $9.5m in 2019, according to Ana Chirita, ATIC’s strategic projects director, who says that this small but impressive sum shows how Moldova’s landscape is changing.

Foreign companies are taking notice of such innovative talent. Ellation, a Silicon Valley-based company, acquired Yopeso Chisinau in 2017 and now employs dozens of software developers to operate its premium video experiences. Moreover, US-based company Mixbook (which designs unique photo products) has its main development office in Moldova, while Japan’s Metal Product employs people in Chisinau to export complex digital designs within engineering.

Companies wanting to hire foreign talent in Moldova now go through the IT Start-up Visa, launched in 2017 for EU or non-EU professionals. 

Talent and training

Moldova’s tech sector is attractive due to its quality employees, alongside the country’s very low labour and operational costs, according to Keisuke Mizuno, director general of the Japan External Trade Organisation. The average salary for a software developer is currently €1300 per month, one of Europe’s lowest and cheaper than Bulgaria and Romania. 

Doina Nistor, chief of party of the Moldova Competitiveness Project, which is funded by USAID as well as Swedish and the UK aid agencies, adds: “[However], the quality of our IT professionals is as high as Romania, where they employ many more people in ICT, but the value and productivity generated by our numbers is greater.” 

Moreover, the number of employees in Moldova's IT industry is growing, despite other sectors and the national population witnessing decline [due to migration out of Moldova] while Moldova’s small population has already made it a good testing ground for new IT applications, such as 5G deployment, she adds. 

However, alongside perceptions of political instability, arguably the greatest threat to the Moldovan economy is the ongoing exodus of talent. Even the tech sector is witnessing an under-supply of available talent, according to Ms Chirita at ATIC. The country’s annual output of 2000 ICT graduates a year is, she says, insufficient. 

The Moldovan government is aware of the human capital problem, as are professional associations such as ATIC, which are making concerted efforts to amend the situation. For example, ATIC, supported by international development partners, created Tekwill in 2017, a $4m innovation space to develop human capital and support start-ups – in partnership with Moldova’s Technical University (MTU) and the country's government, among others.

In just two-and-a-half years, Tekwill has trained 43,000 people in its educational programmes funded by the likes of Oracle, Microsoft and IBM, according to Ms Chirita. Moreover, Tekwill has implemented educational robotics classes across 140 schools in the country. 

Retaining the brains

Other evidence of progress in Moldova is the fact that collaboration between universities and tech companies, such as Endava, is on the rise, while the number of students admitted to MTU’s computer science-related programme has increased from 400 in 2015 to 700 in 2019, according to university rector Viorel Bostan.

The ongoing construction of Chisinau’s $35m Digital Park is another impressive example of Moldova’s IT development. Already home to two US companies and an educational programme, it will provide grade A office space for more than 2500 people when complete. 

Since Moldova’s medium IT salary is triple the national average, and purchasing power is high, the tech sector appears to be the country’s best defence against the ‘brain drain’.