Central Asian Cash Flow Remittances from Russia Increase as Belt and Road is Restricted to a Project Based Source of Funds
Monies flowing into Central Asia have risen at extraordinary rates during the first quarter of 2018 as Russia’s economy rebounds after refocusing on Eurasia, and investment opportunities present themselves as a result of connectivity projects developed as part of China’s Belt and Road.
As an example, remittances from Russia to Uzbekistan have risen by 28.5 percent, the Uzbek Central Bank reported on June 27. It said that in the first quarter of the year, remittances from Russia rose from US$570m to US$733m — a rise of US$163m. This is important because Russia is the driving force behind remittances to Central Asia and the data underlines the improvement in its economy. Remittances from Russia made up 77 percent of all cash flows to Uzbekistan during the first three months of the year. This indicates that despite China’s Belt and Road ambitions in the region, it is Russian sourced income that still provides much of Central Asia’s cash flow, much of it from migrant workers.
“Businesses in Russia that have Central Asian origins are innovative yet somewhat cynical in how they hire staff”, says Chris Devonshire-Ellis of Dezan Shira & Associates. “For lower and medium level workers, instead of hiring nationals from their own country, they will hire from other Central Asian regions. There are wage considerations and competitiveness but also issues such as family or other ties to consider. It is far easier to dismiss a Kyrgyz employee from an Uzbek business in Russia than it would be to fire an Uzbeki.”
Russia is the key source of remittance flows and the largest trade partner for most of the economies of the Central Asian region. Although figures are hard to come by due to a lack of information published on the subject, second place among cash transfers made from Russia to Central Asian economies is taken by Tajikistan. About 870,000 Tajiks have worked in Russia over the past five years. The figure for remittances in 2017 was US$2.3 billion, again up from the previous year. In third place is Kyrgyzstan, with US$2 billion, up from the US$1.5 billion recorded in 2015. Remittances actually account for 30 percent of Kyrgyzstan’s total gross domestic product, and over 90 percent comes from Russia.
|Russia To Central Asia Individual Worker Remittances|
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Money is also flowing in the opposite direction in some cases. For example, Kazakhstan, which is a relatively wealthy Central Asian nation, ranks first among countries of origin for money transfers from Kazakhstan to Russia. According to the National Bank of Kazakhstan, about US$650 million worth of remittances are sent to Russia to pay for education and health services for Kazakh nationals studying or receiving medical treatment there.
“Moscow will be hoping that Chinese infrastructure development funding will increase Central Asian development wealth over time”, says Devonshire-Ellis. As and when that happens, it is likely more funds, such as in the Kazakhstan case, will flow back to Russia than vice-versa. Moscow will be more appealing than Beijing in this regard. Talks of China taking over Central Asia from Russia have ignored the cash flow and familiarity aspects of regional infrastructure development.”
Infrastructure projects undertaken by Chinese contractors have often been built-operate-transfer (BOT) agreements, with no room for local short term labor benefits for Central Asian nations. Instead, Chinese companies import Chinese labor to fulfill the construction obligations. This is due more to experience and THE numbers of workers that China can provide; countries such as Tajikistan and Kyrgyzstan have relatively small populations more familiar with agricultural work than infrastructure development.
“China’s Belt and Road Initiative is project, not cash flow finance based”, concludes Devonshire-Ellis. “It is the role of local governments and businesses along the Belt and Road to work out how best to exploit the opportunities that this brings. But for Central Asia, once the infrastructure is built, it will be to Russia that these countries will want to promote services, not China. China already has a highly competitive labor market. Russia has a shortage of labor. Although China is and will remain a consumer market of interest, the services aspect of improved Central Asian infrastructure will be looking to Moscow and Russia’s other key cities for satisfying demand.”
Russia Briefing is produced by Dezan Shira & Associates. The practice provides risk assessment, due diligence, legal, tax and operational advise to Governments and businesses throughout Russia and Eurasia and maintains both a Russian desk and a Belt Road desk as part of our 28 office organisational structure. Please email firstname.lastname@example.org or visit us at www.dezshira.com for assistance.
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