The impact of the war in Ukraine on the Moldovan economy, discussed by experts and the business environment in a brainstorming session
More than 20 economic experts and representatives of the business environment met on Friday, September 9, during a brainstorming session about the impact of the war in Ukraine on the economy of the Republic of Moldova. The event was organized by the Center for Entrepreneurship and Economic Policies (CAPE), with the support of the International Center for Private Entrepreneurship (CIPE). the main purpose of the session was to evaluate the multitude of factors that have an impact on the economy, but also on the private sector.
"CAPE is launching a series of consultations with business associations to assess the risks of the impact of the war in Ukraine on the economy and the private sector in Moldova, including in the Transnistrian region, in order to develop practical recommendations for immediate anti-crisis measures", said the director of CAPE, Tatiana Lariusin.
The pandemic has exposed the vulnerabilities of the current economic model, namely dependence on private consumption fueled by imports, exports of agricultural origin with little added value, dependence on imported energy resources and inefficient public institutions. On the other hand, the war in Ukraine has additionally added a number of direct (dependency on Odessa logistics chains) and indirect (increased risks for territorial and economic security) costs.
"Contrary to expectations, Moldovan exports increased by 72% for the first semester of 2022, growth due largely to re-exports to Ukraine, accounting for exports from the Transnistrian region and increased grain exports. The energy crisis and the breakdown of logistics chains automatically generated a wave of price increases in the Republic of Moldova, and the war increased country risks, strongly affecting the confidence of foreign investors", says CAPE program director Ion Butmalai.
With the closure of the border by Ukraine, economic agents from Transnistria had to direct their exports and banking operations through the Moldovan banking system. Even so, they have no budgetary relations with Moldova, using the public infrastructure that is maintained from taxpayers' taxes.
At the same time, the decline of the private sector due to labor migration, including due to the war, but also the delay in reforms, including the regulatory framework, demotivates businessmen, who move their businesses to other countries.
According to the report signed by CAPE, Economic resilience in times of crisis: business concerns regarding managing the effects of the crisis, the business environment's perception of the future is a pessimistic one. These fears are fueled against the backdrop of falling household consumption, rising production costs due to high energy prices, and rising raw material prices due to imported inflation.
Therefore, in order to minimize the risks created by the war, the representatives of business associations, public institutions, but also the community of experts have the obligation to launch discussions regarding the reformation of the private sector and the current economic model. In this sense, experts, but also representatives of the private sector, in particular, small and micro companies, remain concerned about the effects of the war in Ukraine, production costs, the decrease in consumption, but also the increase in raw material prices.
"The war in Ukraine seriously affected the situation of foreign investments in our country, and brought to the surface the vulnerabilities of strategies to attract private investments", mentions Alexandru Fală, program director of "Expert-Grup.
For his part, Sergiu Tofilat, the president of WatchDog believes that "the Republic of Moldova will go through a difficult period from an economic point of view in the next two years due to energy dependence, but by diversifying sources, developing energy efficiency and reforming the energy sector, the situation in the favor of the population will be improved".
"Clearer and tighter coordination is needed when providing support to the war-affected private sector. And that's because some sectors of the economy don't understand the criteria for granting this support", says economist Ion Preașcă.
At the same time, Alexandru Bădărău, the president of the Association of Lavender Producers from Moldova, has the following opinion: "The Ukrainian government has depreciated the currency and in this way, they are more competitive in exporting, while our government is trying to support the affected population and less the business".
"Currently there is no strategy that formulates actions to support domestic producers. Small companies are supported, and the big ones are on the way to extinction. At the same time, our producers want economic integration, understanding that the days of the Tiraspol regime are numbered", emphasizes the executive director of the Speranța-Con Canned Producers Association, Mircea Manoli.
In order to overcome the economic effects caused by the war in Ukraine, the experts of the Center for Entrepreneurship and Economic Policies formulate a series of recommendations. According to them, public policies must focus on changing the economic growth model, eliminating kleptocratic schemes, integrating Transnistrian economic agents into the legal and budgetary framework, facilitating exports with high added value and applying quality standards in the context of EU candidate status.
The brainstorming session is part of a series of sessions held by the Center for Entrepreneurship and Economic Policies to assess and discuss the risks of the impact of the war in Ukraine on the economy of the Republic of Moldova.
The Center for Entrepreneurship and Economic Policy (CAPE) is an independent analytical center whose mission is to support the development of democracy and a functioning economy through public policies focused on the development of the private sector and the stimulation of private initiative. Through this, CAPE supports the participation of the business environment in the democratic process, the promotion of well-structured public-private dialogue, offers support to associations through expertise, facilitating the introduction of international anti-corruption and conduct standards, training and knowledge transfer.
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