Laying the right foundations: Why Ukraine’s reconstruction plan should include investments in Moldova

As plans for Ukraine’s reconstruction ramp up, the EU should ensure that its neighbour Moldova is not left behind in the process

President of Ukraine, Volodymyr Zelenskyy visits the Republic of Moldova on June 2, 2023
Image by picture alliance / | President Of Ukraine

As Ukraine’s brave resistance to Russia’s invasion continues, the devastating cost of the war rises – as does the need for reconstruction. This will be a massive undertaking with significant economic contingencies, requiring careful planning not just from Ukraine but also from its neighbouring countries. This is particularly the case in Moldova, where Ukrainian demand may divert much needed labour, construction materials, and investments from its own economy. To prevent this, as the European Union and its partners begin setting up the institutional frameworks and financial instruments to rebuild Ukraine, they should also include investments to improve Moldova’s infrastructure and connectivity and to streamline its commercial and administrative capacities. In doing so, Moldova can benefit from the reconstruction process alongside Ukraine, ensuring a stronger and more resilient eastern neighbourhood.

The scale of destruction in Ukraine is staggering. Estimates indicate over $150 billion will be required just to rebuild critical infrastructure like roads, bridges, railways, airports, and utilities destroyed in the war. Beyond infrastructure, immense investment will be needed for housing, schools, hospitals, commercial buildings, and factories. In March, the World Bank put the cost of reconstruction at $411 billion, a figure which only grows as the war drags on. The strategic planning of these reconstruction efforts is an element of Ukrainian resilience, both during and after the war.

To coordinate these efforts, institutions like the Ukraine Recovery Conference have been launched, bringing together government leaders, international organisations, and private sector stakeholders. The European Commission has also proposed a Ukraine Reconstruction Platform to connect rebuilding projects with funding from donors like the EU, G7, and international financial institutions. Multiple grant and lending programmes are being set up, including the EU’s Ukraine facility of €50 billion for the period of 2024-2027.

Individual countries are also preparing assistance packages. Poland, for example, has passed legislation to provide export insurance and has supported forums to enable Polish firms to assist rebuilding projects in Ukraine. Romania has started bilateral discussions with Ukraine’s government to plan out priority reconstruction areas like energy infrastructure. Local administrations in European countries are planning to partner with affected cities in Ukraine to provide technical expertise and rebuilding support.

These preparatory steps underscore how Ukraine’s reconstruction effort will reverberate far beyond its borders. The massive flow of financial resources, construction materials, technical equipment, and labour power to Ukraine will inevitably flow out of neighbouring countries integrated within the same regional economy.

For Moldova in particular, Ukraine’s reconstruction will stress already limited capacities and resources. Since the beginning of the war, Moldova has been punching above its weight, receiving the highest number of refugees per capita of any European country, supporting rail connections to ensure that goods can be exported from and imported into Ukraine, and completely diversifying away from Gazprom gas. The overlapping refugee, energy, security, and supply-chain crises, however, are putting significant additional pressure on an economy that was already weak before the war, with outdated infrastructure and heavy economic reliance on remittances. In the last 18 months, Moldova has faced deep stagflation: its economy contracted by 6 per cent in 2022 and inflation reached a high of 34 per cent in October 2022. Although the macro-economic indicators are showing some signs of a potential recovery by the end of this year, the cost-of-living crisis is making Moldova more vulnerable to elements of Russia’s hybrid war, that is, aggression below the threshold of a conventional war.

Once Ukraine’s reconstruction gathers momentum, Moldova could see critical road building materials diverted across the border, further delaying its own infrastructure projects. Technical personnel and construction companies may also be pulled away for more lucrative work in Ukraine. The war and its negative impact on the economy has further depleted Moldova’s labour force – a significant percentage of economically active Moldovan’s live abroad, with around 40-50,000 Moldovans emigrating each year. The brain drain of Moldova’s workforce seems likely to increase as demand rises from Ukraine’s rebuilding efforts.

Rising prices are another concern. Prior to the war, Ukraine imported a large part of its raw materials for construction from Belarus and Russia. Now the country will have to source more supplies from regional partners like Moldova. The prices for construction materials have risen by 37 per cent in Moldova, and further spikes seem imminent as local supply chains are redirected to Ukraine. Surges in real estate prices and rental rates also look unavoidable as speculators pour into the region hoping to profit from Ukraine’s reconstruction needs after the war ends.

For these reasons, Moldova cannot afford to wait idly as the process of rebuilding Ukraine unfolds. Despite the uncertainties about the scale, scope, and timeline of projects within Ukraine itself, Moldova and its partners must act now to reinforce its own economic capacities in strategic areas relevant to reconstruction efforts across the border. Ukraine and the broader region will not achieve increased resilience if Moldova gets left behind.

Ukraine and the broader region will not achieve increased resilience if Moldova gets left behind

Firstly, the EU and its partners should include Moldova in key institutional arrangements and financial instruments that support EU member states in the preparations for the reconstruction process. Some of these proposed institutional arrangements, such as designated coordinators from the EU and member states for the reconstruction process could begin work in Moldova before expanding their work in Ukraine after the war. This could take place as part of embassies or as part of an EU-designed project, for example.

Secondly, the EU and other partners should increase financing and accelerate plans already under way to upgrade Moldova’s border crossing points, port facilities, rail lines, and road infrastructure providing vital trade links both to Ukraine and EU markets. Improving Moldova’s connectivity will be crucial to supporting the efficient flows of goods and workers essential to making Ukraine’s reconstruction sustainable.

Finally, Moldova needs strategic investments to strengthen its domestic construction industry, attract foreign investors, and nurture competitive clusters in relevant supply chain industries like cement production, machinery manufacturing, and logistics. Providing guarantees and risk insurance to prospective investors could help overcome Moldova’s perceived risks. This could also provide important additional capacity for the absorption of funds.

While the devastation in Ukraine rightly has the world’s attention, Ukraine’s smaller neighbour Moldova also needs targeted support to reinforce capacities that will be essential to stabilising the recovery effort throughout the broader region. With proactive preparation, Moldova can avoid becoming collateral damage from unintended spillovers once Ukraine’s rebuilding gains momentum. By accelerating prudent policies immediately, Moldova can play a vital role in supporting Ukraine’s reconstruction and unlock the potential of this historic project to also boost sustainable development for its own citizens.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.


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