CHISINAU (Expert-Grup) - In 2014, Russia lost its leading position to Romania as the main destination of Moldovan exports, due to its economic problems, the sanctions imposed to Moldova and trade diversification efforts undertaken by Moldovan businesses, says a study by Chisinau-based think tank Expert-Grup.
The share of exports to Russia amounted 18.1% of the total exports in 2014. At the same time, domestic exports (ie total exports minus re-exports) in Russia had a 12% share in 2014. Therefore, domestic exports to Russia account for 2.3% of GDP in 2014 – a level high enough to bear a significant impact on the Moldovan economy – but incomparable to the level recorded a decade ago, when the share of domestic exports to Russia exceeded 10% of Moldova’s GDP.
Therefore, Moldova’s exposure to Russian market has steadily declined in recent years, this while the most exposed industries are not the most productive nor have a significant share of GDP. However, Russia's sanctions namely targeted agriculture and food industry - sectors which are socially vulnerable through their considerable share in total exports and the number of people employed. It is worth noting that agricultural exports to Russia account for only 3.7% of the total agricultural production in Moldova, but the exposure to this sector derives from the large number of jobs provided and from the indirect exposure on the food and beverage exports.
At the same time, Russia is a major import partner for Moldova, with 13.5% of total imports. This high share is primarily due to strong dependence on the Russian gas, which represents 65% of the total imports from Russia.
Although establishing the DCFTA between Moldova and the EU has increased the share of exports to the European market for some product categories, the volume exported in EU and other countries failed to cover the losses generated by the Russian market, due to economic uncertainty in the EU market and the low competitiveness of Moldovan products.
In order normalize the trade relations with Russia, Expert-Grup recommends Moldovan authorities to continue their negotiations with its Eastern counterpart, given that Russia also needs closer trade relations with the EU and the Moldovan market could serve as a “gateway”.
At the same time, Moldova should seize the opportunities offered by the DCFTA and Association Agreement with the EU by joining COSME – a program which provides instruments for Moldovan entrepreneurs to penetrate the EU market, by extending the applicability of the DCFTA or animal products and by improving product quality management.
In addition, Moldova should start capitalizing on other markets besides Russia and the EU, such as Ukraine, Belarus, Kazakhstan and Turkey, but also by providing a viable standardization and evaluation system that is compliant with the EU requirements, which will increase demand for Moldovan products from other countries that trust European standards.
This is a study published by Expert-Grup - a leading think tank based in Chisinau, Republic of Moldova, specialized in economic and policy research.