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Central Asian Western Economic studies

Central Asian Western Economic studies

Central Asian Western Economic studies

By Raza Syed

The ongoing war between Russia and Ukraine is forcing the whole world to adapt to a new political and economic reality. Sanctions, counter-sanctions, and the breakdown of existing production and logistics chains are becoming a serious challenge for some, and a matter of survival for other states. The countries of Central Asia are also deeply affected by this situation.

The Central Asian states have their own issues. They have no access to the sea and are surrounded by states such as Russia, China, Afghanistan and Iran. Their direct access to Europe only comes through the Caspian Sea. Moreover, these states have been economically and culturally closely linked with neighboring Russia for centuries.

The close economic ties are reflected in the constantly increasing volume of trade of these countries with Russia. Thus, since 2019 to the end of 2023, Uzbekistan has doubled the volume of mutual trade with the Russian Federation to $10 billion. The volume of foreign trade between Kazakhstan and Russia increased from $19.6 billion in 2019 to $21.3 billion in 10 months of 2023. The same trend was observed in the case of Kyrgyzstan. In 2022, trade turnover between the Kyrgyz Republic and the Russian Federation increased by 37% and reached $3.4 billion. In the first half of 2023, trade turnover increased by 17.4%.

However, the increase in trade turnover between the Central Asian countries and the Russian Federation cannot be attributed to the result of bypassing the sanctions regime against Moscow. In this regard, it must be stated that Kyrgyzstan has previously been a center of trade – it is the most convenient land corridor for the delivery of Chinese goods to the markets of the CIS and Europe. A huge economic sector has developed around the two largest markets in Central Asia, Kyrgyz Dordoya and Kara-Suu. This situation is giving the authorities of Kyrgyzstan a real headache, since these markets act as states within a state.

In view of this situation, in March 2023, Prime Minister of Kyrgyzstan A. Zhaparov accused market owners of organizing rallies against the mandatory introduction of cash registers and the use of an electronic consignment note, which was supposed to ensure transparency in the activities of entrepreneurs and put a barrier to smuggling. However, in December 2023 the situation escalated again. To resolve it, the President of Kyrgyzstan met with traders of the Dordoi market.
Speaking about the essence of the reform, including the mandatory use of cash registers, the President noted, “…that the main goal of the innovation is the fight against the shadow economy. For example, the volume of goods coming to us from China is $14 billion. But when it comes to our statistics, this amount turns into 4 billion. This means there is a shadow economy. They sell everything wholesale and don’t pay taxes. Only with the introduction of the cash register system will we be able to find out the real flow of goods in our country.”

Thus the war in Ukraine, which exposed the problems of the shadow economy, also aggravated internal political processes in Kyrgyzstan. This has created an opportunity to overcome the challenges posed by trade mafia. The West understands that everything is not as simple as it seems from the outside. This was confirmed by US Secretary of State Antony Blinken. He noted that the United States was closely monitoring compliance with sanctions. “We understand that sometimes you need time to do this in a way that does not harm your business,” Blinken emphasized.

The United States manually warns its partners in Central Asia about what supplies look suspicious. Thus, there are no facts which show that states in the region are circumventing sanctions. In case of facts provided by individuals, these are investigated by law enforcement agencies. In particular, an investigation is underway in Kyrgyzstan against companies possibly involved in the supply of drones to Russia.

In general, the problem of re-export is being solved in the countries of Central Asia at the systemic level. Kazakhstan has also repeatedly stated that it will not become a platform for circumventing sanctions. But this is one of Moscow’s closest economic partners and its ally, participating in many joint integration projects from the CSTO power bloc to the Eurasian Union, which has formed a single economic space. Moreover, Kazakhstan and Russia have the longest border in the world, 7.5 thousand kilometers, which in itself should indicate the closeness of relations.

Moreover, Astana demonstrates independence in judgment and responds very quickly and correctly to various geopolitical situations, successfully balancing in interaction with all major powers. In Kazakhstan this is called a multi-vector policy. Astana does not impose sanctions on Russia, and this is understandable, but it also does not allow itself to become a platform for circumventing them.
Similar to the Kyrgyz initiative, electronic consignment note was also introduced by Kazakhstan on April 1, 2023. Mandatory registration of electronic consignment notes has been introduced in mutual trade with the EAEU countries. This will allow the tracking of the entire chain of movement of goods in real time.

Uzbekistan assured that it will comply with sanctions when it comes to the re-export of European goods to Russia. The European Union also expressed understanding in this regard.

“We do not demand that Uzbekistan comply with the full range of sanctions; that would be very difficult. But we have identified a very small number of about 45 products that are particularly important to the Russian military effort. And we are committed to preventing the re-export of these goods from third countries, such as Uzbekistan,” said EU Special Envoy for Sanctions David O’Sullivan, who has been in active negotiations with Tashkent for a year.

In general, the position of the Central Asian states, especially those that are closely connected with Russia, is clear and acceptable. It will be difficult for Tajikistan and Kyrgyzstan to survive the break with Russia. Millions of labor migrants, including illegal ones, continue to travel to their northern neighbor to work. Dushanbe also depends on Moscow’s military capabilities, given its proximity to unstable Afghanistan. It is obvious that even old and time-tested partners treat Russia’s current course with some caution.

Considering these and other factors, we can conclude that the political circles of the Central Asian states react extremely painfully to the sanctions policy. But at the same time, they treat it with understanding and do not try to become a back door for smuggling.


TAGS#Dordoi market#EAEU#Export#Kazakhstan#Kyrgyzstan#RUSSIA#The European Union#UKRAINE#War#Westerncentral asiaeuropeansanctionsUzbekistan