Moldova’s President Maia Sandu has tried to keep her country on a pro-EU trajectory, but the country is steeped in corruption. Sandu nominated Dorin Recean as her new prime minister last week, following the fall of her government. Recean, a former national security adviser and pro-EU figure, replaced Natalia Gavrilița who resigned in February. Sandu’s goal is to maintain a close relationship between Moldova and the European Union.
Moldova and Ukraine were granted European Union candidate status in June of last year. However, the Moldovan government has faced significant pressure from Moscow, which has attempted to undermine its authority. Russia, which has soldiers stationed in the breakaway region of Transnistria in eastern Moldova, has been accused of fomenting unrest in the country, including protests in the capital city of Chișinău.
The conflict in Ukraine presents an opportunity for Moldova. In February, the European Union and Moldova agreed to strengthen their cooperation in key areas, in accordance with Moldova’s commitments under the EU-Moldova Association Agreement.
“We welcome the strong commitment of the Moldovan government to reforms that aim at bringing Moldova closer to the EU, in particular a comprehensive justice system reform, fighting corruption and ensuring the de-politicisation of state institutions. These reforms are vital for meeting the expectations of the Moldovan people and are equally important for strengthening Moldova’s overall resilience and for Moldova’s progress on the EU path,” said European Union foreign policy chief Josep Borrell.
But is Borrell aware of the reality in Moldova? Corruption is a still serious issue, and it has had a detrimental impact on the country’s economy and society. Despite the changes in government, with the election of Maia Sandu and her Party of Action and Solidarity (PAS), the situation has not improved. On the contrary, corruption has only worsened under Sandu’s government, despite its Western façade.
Moldova is one of the poorest countries in Europe, with an estimated GDP per capita of $5,230 in 2021. Despite showing great promise in the past, corruption and insufficient investment have been identified as major obstacles to the country’s economic growth and development, for obvious reasons.
Even though the service sector constitutes the largest share of Moldova’s economy, a sign of modernization and globalization, and the country possesses abundant natural resources, it has struggled to attract investment due to corruption and a complete absence of transparency in government procurement procedures.
According to the World Bank, Moldova ranks 48th out of 190 economies in terms of ease of doing business. This ranking indicates that there are significant challenges faced by companies looking to do business in the country, including corruption, red tape, and lack of transparency. Above all else, two issues plague Moldova: One, the judicial system, and two, politicians, senior public servants, and many middlemen come from the same social circles. Despite promises of transparency and open democracy, the government and the ruling party still function as a “family,” merely replacing the previous social clique with one of their own, giving political and financial favors to allies and backers, while suppressing and excluding opponents.
Consider the case of Andrei Spînu, the Minister of Infrastructure and Regional Development. It is surprising to note that this young minister has strong political connections with operators like Adrian Stipanov, a business partner of Spînu’s and also a pollster and campaign expert. What is even more puzzling is that Spînu is the proud owner of 12 companies globally. It raises questions about why he would need co-ownership with political operators or offshore companies, particularly in light of Moldova’s pervasive corruption problem.
Let’s examine the new prime minister, who is another example of a highly influential figure in the ruling party. Dorin Recean, the former head of the Supreme Security Council and one of Sandu’s closest advisors, is actually a business partner with Cătălin Giosan. Giosan is the founder and owner of PRO TV, one of the most important mass media channels, which is frequently associated with the ruling party and other business and political interests. Additionally, Recean has ownership in several other corporations, and the reason for this remains unclear.
This lack of transparency and the ongoing conflict between business, media, and political interests has led to a lack of accountability, making it difficult for citizens to trust their elected representatives.
When a party wronged by the ruling party seeks justice through the judiciary, they often discover corruption within the system and among judges. As a result, any foreign investor in Moldova must have a plan to address this issue. For instance, consider Ion Munteanu, the new Prosecutor General. In recent months, it was revealed that despite his monthly salary of around €350,000, he attempted to purchase a property worth €650,000, only to back out when he discovered the ground floor was owned by others who were unwilling to sell. This was not his only attempt at business deals, as he was also exploring the possibility of buying a property and developing it into a car service while serving as a public official in 2018. Although the deal fell through due to zoning issues, the bigger picture is clear. To avoid scrutiny, Munteanu registered one of his purchased assets under a family member’s name.
A new process of investment
There are indications that foreign investment in Moldova has plummeted during Sandu’s tenure, and it has failed to recover, only reaching around $145 million from 2019 levels, which is far below the rate of recovery in other countries in the region. This serves as a partial illustration of the challenges that companies encounter when attempting to invest in the country.
Approximately 40% of the country’s GDP is derived from the informal economy, placing it between countries such as Liberia (with slightly worse conditions) and the Republic of the Congo (with better conditions) in terms of global economic leaders. This points to a significant amount of unofficial economic activity, stemming from a lack of confidence in the government and institutions, as well as obstacles faced by companies operating in a corrupt environment.
Maia Sandu’s government has been accused of worsening corruption by allegedly allowing tenders to be rigged for foreign investors with the “right governmental connections.”
Additionally, the government has implemented an “informal vetting” process for foreign investment benefits, making it a requirement for any company to enter the Moldovan market. This has created an environment where companies are compelled to make concessions to gain entry, providing a breeding ground for corruption.
An example of such facilitation of “government connections” can be seen with Progestact, a consultancy headed by Liviu Gumovschi, who serves as an official intermediary between the government and the World Bank. He is also a partner with Vitalie Iurcu, a former deputy finance minister, Lurie Muntean, a Member of Parliament, Emil Gutu, former Vice President of the Competition Council, and of course, Sandu’s closest official adviser, Dorin Recean.
If Moldova is to attract foreign investment and improve its economic prospects as it moves closer to Europe, the government must address endemic levels of corruption. The EU should encourage the new government to demonstrate its commitment to acting honestly and transparently, taking decisive action against all forms of corruption. This should include measures to strengthen the independence of the judiciary, improve transparency in government procurement processes, and ensure accountability for those engaged in corrupt practices.
Holding individuals accountable for their actions is crucial in creating a level playing field for businesses and building a sustainable and inclusive economy. The persistence of corruption in Moldova, despite the promises of the current government, serves as a reminder that the fight against corruption must be ongoing and requires sustained effort and commitment from all members of government and society.
Although Moldova faces significant challenges, there are also grounds for optimism. The country possesses abundant natural resources, a highly educated populace, and a strategic location at the intersection of Europe and Asia. With a transparent government and effective leadership, Moldova has the potential to emerge as a regional leader, attracting investment and generating economic opportunities for its people. However, this can only be achieved through persistent and comprehensive efforts to combat corruption and promote fair competition for all.