Eurasian Economic Union Ratifies Observer Status to Moldova, Could Become Low Cost European IT Hub

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The Supreme Eurasian Economic Council, the main leadership body of the Eurasian Economic Union (EAEU), has agreed to grant observer status to Moldova. Russian President Vladimir Putin made the statement yesterday. The proposal and acceptance was originally made in August, last year.

“I would like to point to our decision to establish observer status at the EAEU,” he said, summarizing the results of the Council’s private meeting. “We have agreed to grant such status to the Republic of Moldova,” Putin added.

In this connection, the Russian leader extended a welcome to Moldovan President Igor Dodon who joined the meeting. “We expect that as an observer state, the Republic of Moldova will actively participate in our union’s activities,” Putin said. “We are ready to consider applications of other countries, first and foremost, our CIS neighbors,” he added.

Putin also pointed out that the private meeting had passed “not without debate.” “But we managed to come to common solutions,” he said.

Moldova is Europe’s poorest country, becoming independent from Romania following the collapse of the Soviet Union in 1991. It had been part of the Russian Empire since 1812, previously having been a principality under the Ottoman Empire, since the 14th century. There have been recent suggestions that it reunite with Romania, and therefore, gain access to the EU, but these have been rejected in favor of maintaining independence and seeking eventual membership of the EAEU.

The country is a member of the World Trade Organisation, as well as the Commonwealth of Independent States and the Black Sea Economic Co-Operation. The nation is home to some of Europe’s most sought after wines, and has long been recognized as a quality producer of exclusive and rare vintages. The Moldovan population is about 3 million with a total GDP of US$20 billion. Per capita income is about US$5,657. (Both figures in PPP).

europe-map-moldova

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “Moldova could in future represent another potential access point to the European Union for the EAEU as it shares a border with Romania. Interestingly, Moldova’s economy is dominated by the services industry, which makes up 60 percent of its economy. Even if the country has some of Europe’s lowest per capita GDP, in future it could become a hub for e-commerce and IT.

While the country is landlocked, an agreement reached with Ukraine in 2005 gave Moldova access to the Black Sea via a 600 km stretch of the Danube. It can be expected that this may now be further expanded in terms of facilities. The Giurgiulesti Port has seen a huge increase in traffic over the past three years, and is also operated as a Free Trade Zone, meaning goods destined for the EU can be imported and warehoused – duty free – until called upon for shipment into the EU.

Moldova’s position next to the EU, should port facilities expand and it eventually joins the EAEU as a full member, has wide ranging implications. It could provide the EAEU with another direct border with the European Union. This takes on particular significance when taking into account China, India, and other Asian nations such as Singapore, Iran, and Turkey, which are all in the process of establishing free trade agreements (FTAs) with the EAEU, and if ratified, will bring their goods, duty free, right to the borders of the European Union. China is currently in the process of studying its own bilateral FTA with Moldova, and has also loaned the country US$1 billion for IT infrastructure development projects. Moldova has, in time, the potential to become a Southern version of Estonia should it get its development plans right, and learn to coordinate with Chinese and Russian services demand in e-commerce.”

 

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Russia Briefing is written by Dezan Shira & Associates and covers business and investment news concenring foreign investment into Russia and the Eurasian Economic Union. The firm maintains three liaison offices in Russia and provides intelligence, legal, tax and advisory services to foreign investors throughout the region. Please contact russia@dezshira.com or viist us at www.dezshira.com

 

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