The war in Ukraine is affecting the economy of the Republic of Moldova, which is already the poorest country in Europe. Tens of thousands of refugees are currently on Moldovan soil, the markets in Russia and Ukraine are much harder to access, imports from those countries are suffering, and all this is compounded by rising global prices and energy dependence on Russia. However, Chisinau could also benefit from the crisis, by accelerating its accession to the European Union.
Worrying report of the Moldovan Central Bank
A report by the National Bank of the Republic of Moldova, published at the end of last week, includes even gloomier forecasts. The overlap of at least four crises - pandemic, gas, inflation and refugees - leaves the Republic of Moldova in an extremely insecure area from a socio-economic point of view, but also turbulent from a political point of view.
In the first quarter of this year alone - from December 2021 to March 2022 - inflation rose by 8.3%, reaching 22.2%. At the end of the year, it is expected to reach the 28.8% threshold. The governor of the National Bank of Moldova (NBM), Octavian Armașu, has said that this is the result of the war in Ukraine, which triggered the very high increases in prices in the Republic of Moldova.
On the other hand, the presidential adviser on economic affairs, Veaceslav Negruța, reproached Armașu that the NBM makes forecasts like a “hag” and that the Bank should have intervened earlier and not lost control in the first four months of this year.
At least with regard to ensuring a lower degree of dependence on Russian energy resources, the Republic of Moldova has already taken the first step, after recently announcing that it will buy 30% of the electricity it needs from Ukraine. Until now, all the energy has come from the Cuciurgan thermal power plant in Transnitria. The plant burns gas from Gazprom to produce electricity, which it sells for the most part on the right bank of the Dniester. The plant is owned by the Russian company Inter RAO.
Moldovan farmers, hit from all sides
Veridica spoke with the economic analyst of IDIS “Viitorul”, Veaceslav Ioniță, about the economic situation of the Republic of Moldova today.
“After the start of the war, exports to the east have been blocked. There are several aspects here. The first is the logistics that has become more difficult and the second is the Russian market, where the ruble has depreciated, consumption has fallen and demand has disappeared. Farmers in the Republic of Moldova have been the hardest hit by this”, the expert explained.
Ioniță said that farmers suffered because 75% of the fertilizers needed for agriculture used to be purchased from the Russian Federation.
“There would be alternatives for these fertilizers, but the problem is that these products have very high prices. They have just rocketed”, Ioniță added.
According to Moldovan producers, prices for fertilizers brought from Russia have increased by up to three times since the beginning of the Russian invasion of Ukraine.
The trend of rising prices is not limited to fertilizers, and the problem is exacerbated by the fact that the Republic of Moldova no longer has access to the range of cheap and affordable products for the poorer layers of the population which it used to import from Russia and Ukraine.
“The third element is related to the fact that the Republic of Moldova exports a lot of cereal products; wheat, corn, sunflower, in short, all kinds of seeds and grains. The Republic of Moldova used a lot the Ukrainian port of Reni, but also Odessa to a certain extent, and the export potential of the Republic of Moldova was 250-300,000 tons per month. After the start of the war, this export potential fell threefold. Moldova's capacity to export has decreased three times. We have problems with cereals in the Republic of Moldova”, added Ioniță.
The expert pointed out that another problem that is getting worse is the competition with Ukraine.
“Through the Black Sea, Ukrainians used to secure a trade volume of around 100 million tons per year. The Republic of Moldova had a volume of 3 - 3.5 million. Now Ukraine is looking to trade through the Republic of Moldova and Romania”, he added.
The Republic of Moldova has suspended grain exports since March 1, amid uncertain circumstances regarding the evolution of the war in Ukraine, in order not to endanger the country's food security. However, the Chisinau authorities are considering whether to start exporting for commercial reasons, primarily to bring profits to farmers, but also because of potential issues with the storage capacity for cereals.
The problems do not end there, because another thing hitting the Republic of Moldova hard has been the increase in fuel prices.
“Moldova imports about 70% of its oil products, diesel in particular. The biggest consumers are farmers. Moldova imports diesel from Romania, but few people know that the company that brings diesel to the country is Rompetrol of Kazakhstan. It brings diesel from Kazakhstan through the port of Novorossisk, which is in the war zone, about 200 kilometers from Mariupol. Then the prices have increased and now we are in another competition with the big companies”, according to Ionita.
Opportunities created by the crisis
But as there are opportunities in any crisis, the Republic of Moldova could move quickly and reorient its exports more towards the EU. They already account for 60% of the total, but the figure could get higher. In contrast, the volume of exports to Russia has steadily declined in recent years to 8% of the total.
Each of the previous crises - embargoes imposed by Russia in 2005 and 2013 on Moldovan products - has pushed Moldova closer to the EU economically.
“The one that brought the Republic of Moldova closer to Europe was Putin, through all his actions aimed to penalize Chisinau. Yes, it is a trend, but it won’t be easy”, Ionita said
However, the trade balance is extremely unbalanced between Russia and the Republic, with a ratio of one to five. Chisinau imports a lot of cheap products, especially food, from Ukraine and Russia. Thus, about 50% of Moldova's imports came before the war from Ukraine (35%) and Russia (15%).
Moldova is now working hard to get higher quotas from the EU for its products, especially those with short shelf life, which cannot be stored in cold rooms for long periods of time. The head of state, Maia Sandu, said last week that she had already asked for higher quotas from the EU for Moldovan products.
Romania could absorb even more of the products from the Republic of Moldova, which sends a quarter of its exports across the Prut anyway.
A case in point is that of Moldovan apples. According to statistics, 95% go to the markets of the Russian Federation. Of the approximately 450,000 tons of apples produced annually in the Republic of Moldova, about half remain in the country, for domestic consumption, while the other half go to Russia.
However, with the start of the war, Moldovan producers claim that shipping times have tripled, as have detours to Russia. Here, too, the solution could come from Romania, which could take over a large part of the Moldovan apples that are exported to Russia.
Veridica spoke with the ambassador of the Republic of Moldova to Bucharest, Victor Chirilă, who stated that authorities are working to put Moldovan producers in contact with major retailers in Romania.
“Some producers in the Republic of Moldova need branches in Romania as well, with which the big networks can work and conclude contracts. They should have warehouses and other logistics facilities”, the diplomat said.
He also said that Romanian retailers demand a constant flow of products and for this it is necessary that the traffic be streamlined for the trucks in the customs area between Romania and the Republic of Moldova.
“Green corridors are needed, because fruits and vegetables can't wait too long at customs. Especially summer products that don't last long. They must be brought in very quickly “, said Victor Chirilă.
Basically, if Moldova plays its cards right, it now has the chance to accelerate its integration into the European space that it also aspires to politically.
