Regime change in Moldova has been met with cautious optimism by Brussels, as President Igor Dodon pledged to dismantle the businesses that have long dominated political life. But mere months after a contentious coalition was brokered between Dodon and Maia Sandu, both international observers and Romanian media are pondering whether a pledged programme of “de-oligarchisation” amounts to “Dodon-isation” — as a president with questionable allies and commercial partners renews his attacks on the foreign owner of the country’s only international airport, while Sandu, now Moldova’s prime minister, remains silent.
For a president enmeshed in Moldovan politics for decades, and a well-intentioned prime minister who has had no choice but to make deals with questionable allies to form a functioning government, the persecution of foreign businesses has become a key test. Mere months after the coalition brokered between Dodon’s Socialist Party and Sandu’s ACUM bloc brought cautious optimism, a bitter commercial dispute with the new owner of Moldova’s only international airport has raised concerns amongst diplomats, media and the private sector.
Though not widely reported, President Dodon’s family have direct commercial links to Moscow. His brother Alexandru controls 15% of the equity in Archpley Development — a developer of one million square metres of luxury residential stock in central Moscow. His business partner, Igor Chaika, is the son of Russia’s prosecutor general, whose other son, Artem, happens to be a donor to a foundation controlled by the Moldovan president’s wife — despite his being subject to sanctions imposed by the Global Magnintsky List. A country thought to have broken the shackles of oligarchy this July looks increasingly like a family business, as Dodon seeks to “nationalise” many concessions granted by his predecessors — venting his ire at the foreign businesses that won’t capitulate to threats.
Since its admittance to the Eastern Partnership Programme in 2009, Moldova has promised reform repeatedly — yet recent events in Chisinau make the European Commission’s (EC's) Association Implementation Report published on September 11 seem optimistic. While foreign media state that the document has praised reform, the report really finds little tangible progress. The EC actually finds scant evidence of change, and urges “rapid action... to meet the legitimate expectations of Moldovan citizens and to ensure the country’s adherence to the values the Association Agreement is based on”. With the owner of Chisinau International Airport now threatening legal action if its assets are threatened, Dodon is not just risking the suspension of vital budgetary assistance, but turning Moldova into a proverbial nightmare for foreign investors.
When Sandu and Dodon formed a government after months of deadlock this July, oligarchs reviled by European Union officials such as Vlad Plahotnuic fled the country, creating a brief window to halt the corruption that has left Moldova lost in transition. Yet promises of peace, prosperity and neutrality seem hollow in a land where vendettas fought by figures of power against foreign investors have contributed to inflation at more than 5%, with the cost of some consumer goods seeing an 8% inflationary price hike. When NRI Invest acquired the concession to operate Chisinau International Airport from Avia Invest — a Russian company represented by Moldovan oligarch Ilan Shor, who some allege to be the company’s beneficial owner — the deal looked good. As concessionaire, Avia Invest did very little to improve the country’s only international airport. In a reaction published on September 16 by NRI, the company hit back at the president’s ire for their project, outlining plans to improve infrastructure which would greatly improve transport to Moldova. NRI declined to comment when contacted, but a source familiar with the concession’s transfer confirmed that the stated foreign direct investment is in line with that presented to government at the time of the transaction’s completion. The deal was initially supported by Sandu, but after it piqued Dodon’s wrath, she appears to have switched positions.
Moldova’s GDP growth in the second quarter of 2019 hit 5.8%, yet the starting point for this leap was desperately low — which is why the country is desperately prospecting for loans in Western European capitals. As such, attacks on investors like NRI raise significantly greater questions about the new custodians of Moldova’s ailing economy, than they do about foreign investments.
For instance, Santander estimates that foreign direct investment (FDI) inflows were 31.91% less in 2018 than they were prior to the financial crisis, noting, ominously, that “the Moldovan economic and political environment is not particularly attractive to investors. The country faces a number of challenges, including the need to fight corruption, improve the investment climate, remove obstacles for exporters, convert remittances into productive investments and develop a reliable financial sector”.
Meanwhile, the World Bank’s economic forecast, amended May 13, finds that “with declining productivity levels, lower external financing and existing structural deficiencies, Moldova remains highly vulnerable to shocks. Political uncertainty and vested interests undermine the reform agenda and the investment process”.
It was thus puzzling when, in a recent Facebook post, the prime minister renewed her opposition to the concession, announcing that the country’s Public Property Agency had filed proceedings, “requesting the recognition of the nullity of the contract” which Sandu described as “abusive”. This statement is quite remarkable, as NRI will invest at least $79.2mn in Moldova by the end of the year. To be clear, Moldova’s FDI inflow in 2018 was $330mn. The European Union, which resumed financial support for Moldova on July 9, will now pay about $55.8mn to Chisinau. NRI’s investment thus amounts to a 24% top-up on the state’s entire FDI inflow compared to last year, and is higher than the European Union itself allocates in budget support payments. To gauge if this is “abusive” there must be something extraordinary in the concession’s drafting, something seriously awry with Moldovan economic planning, or a very good reason elsewhere to block this deal. Turning away such a serious sum seems peculiar to any Western business interested in working with Moldova. Investor confidence is falling accordingly.
As the country’s politicians seek to borrow elsewhere, daily attacks on several foreign investors besides NRI epitomise an attitude to public spending that’s not just sequacious, but dangerous. Fiscal accountability to the Moldovan taxpayer by lawmakers seems of less interest than regaining control of an airport, which, after NRI’s defence of its rights under the concession since August 30, prompted Dodon to announce plans for another airport, this time at Marlculesti. Someone needs an airport, and it is evidently not the citizens of this wonderful country — as a company which sees a future in Moldova is offering to vastly improve the capacity of the existing one.
Poorly informed and misleading statements by parliamentarians are fuelling attacks against the concessionaire in local media, which the European Union considers a tool to intimidate business.
Disillusioned voters, foreign investors and European diplomats — all sceptical of the government’s commitment to strengthening the rule of law — had cautiously embraced Sandu’s government. But attacks on foreign companies who bring well paid jobs to a country where unemployment is high, and migration higher, is leading to fear on the ground in Chisinau. Belief that Moldova’s political class remains chiefly concerned with pursuing business as usual has been reinforced by other economic announcements. LeBridge Corporation’s September 9 decision to cede its concession on the state tobacco company, Tutun-CTC, has reminded analysts of how in his previous guise as minister of economy and trade, Dodon made consistently peculiar decisions, which left Moldova’s economy in tatters. It is also misleading to the point of hypocrisy, that, in his condemnation of Chisinau International Airport’s new owner, Dodon was neither penitent, nor even forthcoming, about his past involvement with a duty free deal affecting the airport between 2007-2009. Insistence that a cigarette maker give back its concession acts as a pertinent reminder of how duty free smokes would ultimately cost Moldova millions of dollars in arbitration decisions — these being decisions for which Dodon’s ministry was seemingly responsible.
LeBridge Corporation Limited were one of the first foreign companies to acquire significant business interests in Moldova. Their September announcement that pressure would lead them to return the sum paid for the concession in its entirety does not mark the first time that director Franck C. Arif has clashed with Moldova’s president — via concession deals granted under Dodon in a past life.
On November 13, 2009, Arif — who is a French-Iraqi national — held a grand opening ceremony for his company’s newest business venture in Moldova. When Decision 172 passed into law on February 18, 2008, the authorities were asked to organise and conduct a tender for the creation of a network of duty free stores at key transit points on the Romanian border, for which Arif bid. On May 20 that year, the businessman learned that his bid to operate via his subsidiary, Le Bridge Travel Retail, had been successful. By July 1 Arif had signed the agreement with the then minister of the economy and commerce, Dodon, to commence work.
Under the contract’s specific terms, LeBridge acquired the right to open five retail points at Leuseni, Sculeni, Cahul, Costesti and Giurgiulesti. A further prerequisite of the concession, outlined in Clause 7.2, recognised that the government regarded Arif’s request to operate an additional duty free outlet at Chisinau International Airport as a reasonable idea that would be duly considered. By the time Arif came to celebrate his company’s new venture in Moldova in November 2009, his retail outlet at the airport had been approved to operate, and was ready to open a few days later.
“I believe Moldova will one day become a major market for luxury goods. It lies at a crossroads of 100 million people in Europe,” Arif told The Moody Report. Reasserting his belief in Moldova’s potential — just days before the new venture began its rapid decline — Arif assured journalists that his company had long-term objectives in the country. LeBridge had been present in the country since 1988, which led Arif to see the duty-free concession as a route to become “a major force in luxury goods” within Moldova.
Arif’s dreams were slow to materialise. After almost three years of intimidation, extra-judicial harassment, endless fire-inspections, numerous court decisions, and several death threats, Arif temporarily left Moldova. Robbed of its assets in the country, LeBridge’s only recourse was international arbitrage. In a ruling delivered on April 8, 2013 by the International Centre for Settlement of Investment Disputes in the District of Columbia, Arif alleged under oath that Moldova’s duty-free market had almost cost him his life. When politicians intensified their efforts to prevent his working in Moldova, he fled for the Romanian border at high speed, fearing his life. The government of Moldova — or, specifically, the Moldovan taxpayer — was ordered to pay Arif approximately $600,000 if he accepted restitution. This allowed LeBridge to resume its right to operate the duty free outlets in Moldova and required the government to return assets seized in the country. The alternative offered was approximately $3mn if Arif conceded the concession completely.
After a commercial dispute which dragged through courts for four years — at enormous cost to the Moldovan taxpayer — the government buckled. Arif was reluctantly allowed to operate his shops in more or less the manner provided for under the 2008 agreement, over which Dodon presumably held ultimate responsibility. This did not stop Dodon from complaining bitterly in the media about Arif’s mistreatment, despite his oversight over the entire concession agreement. Tobacco is a depressing industry by any barometer, but it seems more depressing still that fifteen years later, LeBridge must now return its controlling stake in the concession to the government, at a cost of $9.4mn.
Numerous agreements are under review with other international companies — which may simply choose to pay up and quit the Moldova game, before the penalties become too heavy. While Sandu’s remarkable record in opposition is still cause for hope, the Dodon presidency, with its rotating apparatchiks, present a challenge to foreign investment which currently seems insurmountable. Beside the president’s ties to long-serving lawmakers mired in corruption allegations, foreign investors do not believe Dodon’s pledge to ensure Moldova remain a “neutral” country with allegiance to neither Europe, nor Russia. This is principally because personal interests generally take precedence over national policy in Moldova.
Dodon was recently pictured with his brother’s business partner Chaika in southern Moldova at a traditional dance display. Chaika, who has also been granted the title of ambassador for Russian business in Moldova, is reportedly investigating the enticing opportunity to open cryptocurrency “mining farms” in the breakaway territory of Transnistria, a de-facto Russian protectorate. Transnistria is a grey economy, which operates in total secrecy.
The notion of mining crypto-currency with cheap electricity in a disputed region of Moldova which seceded during a bitter war in 1990, doesn’t exactly sound legal and directly contradicts the EU’s stated objectives. The former chairman of the European Parliament’s ad-hoc delegation to Moldova, Jan Marinus Wiersma described the Russian backed enclave as a “‘black hole’ in Europe in which illegal trade in arms, the trafficking in human beings and the laundering of criminal finance (takes place)” and successive EU parliaments have sought to reunite the region with Moldova. Dodon has repeatedly stated the desire to federalise the province.
Dodon has never answered for the disastrous dispute which arose with LeBridge. Instead, he has deftly ascended the greasy pole of Moldovan politics. While Dodon’s career prospects have improved exponentially, he has left countless disastrous deals with foreign investors and concessionaires in his slipstream. These clearly jeopardise many stakeholders in the country greatly — a fact which NRI itself has acknowledged, and will continue to fight.
Yet analysts also warn that in Nathaniel Rothschild, who controls NRI Invest, Dodon — like other presidents before him—has a dilemma. At the time of writing, Rothschild and his affiliates hold significantly more in liquid capital than the country that Dodon governs. NRI have not so much entered emerging markets in years past, as transformed them via investment, for which Montenegro is the case-in-point. NRI said little to begin with. On September 16, they made thinly veiled threats to litigate. As they are giving Moldova’s only access route by air an additional runway which will push down the cost of flights, it’s difficult to question their pathos. They expect to make a profit, and that is business. Moldova’s enormous diaspora need to get home. That’s in the national interest.
Whether NRI simply retain their 95% holding in Chisinau International Airport, or even cede their stake voluntarily, Moldova’s business reputation and currency will take a pounding. Dodon will face international condemnation, while despite her good record in government as minister for education, Prime Minister Sandu must be judged complicit for her silence. While plans to build that second runway are now on hold, Chisinau International Airport’s existing runway remains clogged — presumably due to vast capital flight.
Will Nicoll is a British editor and journalist, twice-shortlisted for the Shiva Naipaul Memorial Prize. Will has consulted on economic and political matters in the states of the Commonwealth of Independent States (CIS), Central and Eastern Europe and the Western Balkans. He contributes to Forbes.com.
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