Transdniestria’s new opening?

A Sheriff-owned supermarket in Transnistria. Photo: Guttorm Flatabø (CC) www.flikr.com

 Moldova buys Transdniestrian electricity which, in the whole trade structure of Transdniestrian exports, makes up around 20 per cent. Overall, Transdniestrian production has become dependent on western buyers and neighbouring states which – diplomatically speaking – do not have the best relations with Russia.

To the west, from the east

Transdniestria’s imports are a whole different story. As much as 40 per cent of the goods that arrive in the unrecognised para-state come from the Russian-led Eurasian Economic Union (primarily from Russia). In turn, EU exports to Transdniestria amount to a mere 15 per cent. Clearly, in its foreign trade the para-state has started to benefit from buying cheap products from countries that are in the East and selling goods, customs-free, to the West. This strategy has been possible mostly because of Transdniestria’s inclusion into the EU-Moldova Deep and Comprehensive Free Trade Agreement (DCFTA) which took place in January 2016. However, it is only now that the Transdniestrian economy is starting to see the real benefits of the agreement. In 2018 Transdniestria’s trade balance increased by 30 per cent, compared to the previous year. The biggest increase was recorded in exports to the EU and imports from the EEU. The former grew from 167 to 237 billion US dollars, while the latter increased from 365 to 503 billion dollars.

There is no doubt that trade with the West is now the foundation for the functioning of the Transdniestrian economy. Even more, the Transdniestrian elite has started to perceive the West as an area where they can reap the largest profits. However, it would be an exaggeration to claim that this trade arrangement with the West is an indication of a Transdniestrian geopolitical re-orientation. There are numerous political, military, social, cultural and economic reasons that would not allow for such a serious change.

Understanding the last factor – that is, economic ties – requires a look into the composition of Transdniestria’s exports. In 2018 as much as 41 per cent of its exports were metallurgic products, while 20 per cent were fuels and energy – especially electricity. Textile items, produced by Tirotex, a Bendery-based factory, made up six per cent of Transdniestrian exports. They were mostly sent to Western Europe where Tirotex textiles are used by prestigious clothing brands. The remaining six per cent of exports were machines produced in Transdniestria and sold in the East.

Given the above, it raises the following question: what gives Transdniestrian products a competitive advantage? The answer is short and simple. The authorities do not pay for the gas that the para-state receives from Russia. This allows Transdniestrian factories to run production at extremely low costs. Nonetheless, should Russia one day start charging for the gas it delivers, the competitiveness of the Transdniestrian production would immediately decrease. Transdniestria’s gas bill, as for now, is formally picked up by Moldova, whose debt to Gazprom weighs in at almost seven billion dollars.

With Russia’s blessing

Seemingly, Transdniestria’s trade with EU states is possible mostly thanks to Russia’s approval. This also explains why, among other things, there is no chance of a future geopolitical re-orientation of Transdniestria, no matter how business-motivated. Nor are there any signs that Transdniestrian may loosen relations with Moscow. Nevertheless, the international context in which the para-state operates in today is completely different from what it was a decade ago. The new situation offers real opportunities to both the West and the Transdniestrian elite, while at the same time not posing any real threats to Russian interests in the region.

Russia needs Transdniestria primarily to maintain its military and political pressure on Moldova and Ukraine. The Kremlin’s policy is to maintain the presence of Russian troops on the left bank of the Dniester River (i.e. Transdniestria) as well as efforts to ensure a pro-Russian attitude among the residents of Transdniestria. The former could prove particularly useful in case of re-integration of Transdniestria and Moldova. In such a case, the Transdniestrian voters, disciplined and certain of their convictions, could play a decisive role in strengthening the pro-Russian orientation of the republic, which remains deeply divided. Without a doubt, with Transdniestria re-integrated, Moldova would fully fall back into the Russian sphere of influence.

Since 2016 the Kremlin has visibly changed its policy towards Tiraspol (the capital city of the self-proclaimed republic), which can be seen with reductions and delays of Russia’s money transfers to the para-state. Overall, Russia has been supporting the para-state on three levels. The first is gas. The second is support for Transdniestrian pensioners who make up around half of the republic’s population. This assistance takes the form of a “supplement” that is added to Transdniestrian pensions and amounts to around 12 US dollars per month. Also importantly, the residents of Transdniestria have the chance to receive a direct Russian pension, which is larger than the one they receive from the para-state. However, it is only available to residents of Transdniestria who hold a Russian passport (often provided to citizens of the former Soviet Union in para-states who are not necessarily Russian in order to justify its presence and increase influence – editor’s note).

The third level includes direct money transfers that Transdniestria receives from Russia. This amounts to between 90 and 140 million US dollars per year and covers 40-60 per cent of the para-state’s budget (depending on the fiscal year). Significantly, in 2017 the transfer of Russian funds was halted. In 2018 Transdniestria recorded problems with supplementing pensions. The lack of money coming from Russia seriously worried many in Transdniestria and forced the so-called president, Vadim Krasnoselsky, to publically declare, “Why didn’t we get the money? We can discuss it and we will realise that things are not easy for Russia either. As the public chamber, a community, a national forum, you can approach the Russian Federation with an official question as to why no money has been transferred from the Russian Federation to help compatriots.” This statement was broadcast on November 21st 2018 by state television.

In your hands

Considering earlier communications between Moscow and Tiraspol, the words of the president should be interpreted as very assertive, or even bold. They were probably an illustration of Krasnoselsky’s frustration. His words also reflected a fear that he could no longer count on the support of Moscow that he had expected. The change in Russia’s approach towards supporting Transdniestria can thus be seen as the Kremlin sending the following message to the elite of the quasi-state: you now have all the tools in your hands, take responsibility for your own budget.

Three factors can best explain the change in the Kremlin’s attitude. First, Russia has been coping with its own financial problems. They are a result of western sanctions that were imposed since the illegal annexation of Crimea in 2014, as well as the high costs that come from Russia’s military and political engagement in Donbas and Syria. Second, Transdniestria was included into the EU-Moldova DCFTA, which has offered new economic opportunities. Third, Transdniestria continues to be controlled by one political and business group. Illustratively, while Krasnoselsky has been president since 2016, both the legislative and executive powers are in the hands of the powerful Sheriff holding, which owns a chain of petrol stations and supermarkets, controls most of the transport of goods and has a role in many other segments of the economy. Russia has likely become frustrated with pumping money into Transdniestria, especially as it understands that the end beneficiaries include neither the republic nor the residents. Instead, the biggest recipient has been the ruling elite, or Sheriff, to be more precise.

Overall, the size of Russia’s financial assistance to Transdniestria was more or less equivalent to the size of the para-state’s budget spending. Thus it covered pensions and salaries for civil servants, teachers and social workers. However, after receiving money, the Transdniestrian recipients would spend it in shops, restaurants and at gas stations which – in most cases – belong to the Sheriff conglomerate. What is more, Sheriff enjoys significant tax relief and operates in a world where there is no VAT on the products it sells. As a result, the lion’s share of Russia’s financial support, which flowed through the republic’s budget and its residents’ wallets, reached the pockets of the Sheriff owners who, as a matter of fact, hold the real power. 

Identity, first

Russia appears little bothered by the level of exports that Transdniestria has been sending to the EU. This is partially due to the fact that by doing so, a burden of responsibility for supporting the para-state is somewhat taken off the Kremlin’s shoulders. Nevertheless, there is now more engagement of the West in Transdniestria than ever before and the Transdniestrian elite has much more freedom to pursue their own business goals. The Transdniestrian authorities are no longer strictly limited by the pro-Russian, or Eurasian, political doctrine. They are aware of the red line which forbids them from undermining – at least publically – the alliance and historical ties between Transdniestria and Russia. And in this way, both the competitive advantage of Transdniestrian products and the para-state’s budget remain fully dependent on Moscow.  

A departure from the status quo will not be possible for a several reasons. The first obstacle is the identity of the residents of Transdniestria – who are more than merely pro-Russian, as they are often described. They actually feel that they are part of the larger Russian cultural and political space (Russkiy Mir). These sentiments are deeply rooted in Soviet patriotism and enforced by the identity and historical policy pursued by the para-republic’s authorities. That is why the elite who determine the direction of Transdniestrian foreign policy only operate in a very narrow framework largely determined by the goodwill of the Russian patron and the cultural identity of society.

Despite all this, western states have recently managed to increase their influence in Transdniestria. This unprecedented new opening should be used as an opportunity to establish contacts with the Transdniestrian elite, which would allow the West to increase its understanding of the situation on the ground and build greater trust between the two banks of the Dniester River that could lead to a decrease in tensions in the region. The Transdniestrian elite has always been extremely pragmatic. First and foremost they want to maintain and expand their power, privilege and incomes. However, for the first time the real interests of Russia and the EU towards Transdniestria overlap in many areas. This is certainly true in the short- and mid-term, although excluding the principal matter, namely political re-integration with Moldova. Thus, as long as Russia allows the situation and the EU puts up no obstacles, the Sheriff owners will cautiously take advantage of these new opportunities. We can expect them to become more flexible with regards to some social and technical matters which, in turn, will allow for the rebuilding of ties between Moldova and its breakaway region.

The multipolarity of today’s world will allow a new arrangement to last for quite some time. In addition, the ambivalent policy of US President Donald Trump’s administration towards Russia, increased American isolationism and an openly positive attitude of some European leaders towards Vladimir Putin will not permit the return of strong tensions between Russia and the West. For the Transdniestrian elite this creates an unprecedented opportunity to include their unrecognised state into the international system and adequately profit from it.

Translated by Iwona Reichardt

Piotr Oleksy is a Polish historian working at the Institute of Eastern Studies at the Adam Mickiewicz University in Poznań. He contributes to such magazines as New Eastern Europe, Nowa Europa Wschodnia and Tygodnik Powszechny. He is also a member of the board at the Center for Regional and International Initiatives and an author of two books on Transdniestria.

Transdniestra, Transnistria