INTERVIEW: EU integration is the biggest hope for Moldova, says economy minister

INTERVIEW: EU integration is the biggest hope for Moldova, says economy minister
Economy Minister Dumitru Alaiba says Moldova hopes for the accelerated growth achieved by previous candidate countries in the run-up to accession. /
By Clare Nuttall in Yerevan May 23, 2024

Moldova has had a tough few years, battered first by the pandemic, then by the outbreak of war in neighbouring Ukraine and energy crisis. However, with the EU’s decision to give the small country accession candidate status, there is hope it will see the same accelerated growth achieved by other states on their way to EU entry, said the country’s Deputy Prime Minister and Minister of Economic Development and Digitalisation Dumitru Alaiba in an interview with bne IntelliNews

The 2022 decision to give Moldova EU candidate status, followed by the December 2023 go-ahead for accession talks from the EU Council, “has sent a very strong message about where the country’s headed,” says Alaiba, speaking during the European Bank for Reconstruction and Development (EBRD) annual meeting in Yerevan.  

“If we look at other countries that have been on this path before, they have seen accelerated fast growth in this period we are entering now. A few years before and after [EU accession] they had the opportunity to really accelerate growth to converge and catch up with the rest of Europe.”

Alaiba believes the EU’s endorsement of Moldova is a signal to investors with a long-term perspective. “They are looking at this country, while accepting its imperfections and the fact that there is still a lot of work to do in certain areas. They look at where it could be in the next decade when making investment decisions. This is very good for Moldova, because in the next 10 years it’s extremely realistic, if you move now, you could triple your investment. It’s what countries in the neighbourhood have seen in a similar period.” 

No easy task 

Of course, EU accession is a lengthy process, even with the war in Ukraine forcing EU governments to look anew at enlargement. Some of the Western Balkan countries, in particular North Macedonia, have waited for a decade or more between gaining candidate status and starting membership negotiations. 

Alaiba acknowledges the hard work needed to advance towards accession, and says Moldova must not waste time. “We must move as fast as possible. We have wasted over three decades of time and we shouldn’t lose too much more.” 

One issue specific to Moldova is the frozen conflict over Transnistria, a small region of Moldovan territory that declared independence from Chisinau in the early 1990s and has been de-facto independent (and backed by Russia) ever since. 

Asked how this will affect the accession process, Alaiba stresses that “Transnistria is an integral part of Moldova and will keep being so”.  

“There will be a process of integration once the time is right,” he adds, pointing out that economic integration has already happened, with most of Transnistria’s exports now directed to the EU. 

Tough times 

Securing EU accession came after a very difficult time for Moldova. It suffered one of the deepest economic contractions in Europe during the coronavirus (COVID-19) pandemic. Just as that was easing, Russia launched its ‘energy blackmail’ of Chisinau, exploiting its position as the country’s main gas supplier to pressure the new pro-EU government. This was followed swiftly by Russia’s invasion of neighbouring Ukraine. 

“At the beginning of 2022 [we] were seeing good numbers in terms of consumption, investments and trade but when the war started, of course, the whole economy froze, us being so close to Ukraine,” says Alaiba. 

“No major investment decisions [were] going to be taken in such circumstances. This caused [the] economy to contract by almost 5% in 2022. Trade was affected as the port of Odesa, which was a major trade hub for us, is unavailable. Effectively [the] entire country is connected to the outside world via five tiny border crossings with Romania, for the entire economy of Moldova’s imports and exports. This put pressure on the competitiveness of our goods.” 

Reforms helped avoid recession 

Still, Moldova pulled through, managing to achieve modest growth of 0.7% in 2023. Alaiba attributes this largely to the “very intense reform agenda” pursued by the government in Chisinau. 

Among the steps taken were the removal of business barriers that Alaiba says were equivalent to at least 0.5% of GDP, and tax reforms targeting the IT sector and broader economy. 

60% of public services for entrepreneurs have been digitalised, and there is a target to reach 75% by the end of the year. At the same time, Chisinau has opened up the labour market to citizens of 47 countries who no longer need a work permit to obtain employment contracts in Moldova.

“All of that made the difference between plus and minus [growth] in 2023, and I’m sure it’s preparing the country for accelerated growth,” says Alaiba. 

Already integrated 

At same time, he adds, European integration is the biggest hope for the Moldovan economy. While Chisinau prepares to open accession talks, the country’s economy is already integrated with the EU’s to a large degree.

Moldova is also benefiting from the interlinked trends of ‘nearshoring’ and ‘friendshoring’, given its location on the edge of the EU and the current government’s firm commitment to EU integration. 

“This is what we seek to benefit from and how we see attracting investments. Right now we are seeing lot of movement in the services sector but we’re also looking at ways to attract manufacturing,” Alaiba says.  

“The IT sector is booming in Moldova without doubt, seeing year on year robust growth of 7-9% every year.” While most of the countries in the sector are local, Moldova has attracted investors from over 50 countries. Indeed, there are hopes that Moldova could eventually follow in the footsteps of mini tech powerhouse Estonia; Alaiba points out that the 2023 output of Moldova is very comparable to Estonia’s in 2015. 

However, the minister also sees room for growth in more traditional sectors such as agriculture and food processing.

All of these opportunities are to supply the markets of the EU and other Western countries, a trend that has been ongoing since Moldova signed its Association Agreement and Deep and Comprehensive Free Trade Area (DCFTA) agreement with the EU a decade ago. 

Alaiba describes a “180 degree shift” away from Russia and the Commonwealth of Independent States (CIS), which used to dominate Moldova’s trade, towards the West. 70% of Moldova’s trade is now with the EU, the European Free Trade Association (EFTA), the UK, the US and Canada – approximately the same share that was with Russia and the CIS 15 years ago. 

In terms of its economic orientation, he tells bne IntelliNews: “I don’t think you will find any other country that has shifted so rapidly in such a big way.”