EBRD Report: Anti-Russian Sanctions Are Boosting Central Asian Economies

But the United States is looking to block the EU off as its own exclusive market  

Countries in Central Asia and the South Caucasus have made impressive trade development strides thanks to the intermediary trade in goods from Western countries to Russia. After the introduction of sanctions, the trade turnover of the European Union with Russia’s neighbours to the East increased many times, while their Russia trade also increased. Intra-EAEU trade was up 40% in 2022.

In addition, Central Asian and Caucasian countries have replenished their own budgets through an influx of labour, capital and remittances, as well as the sale of their own oil and gas, the demand for which has massively increased following a huge decline in EU gas supplies from Russia.

In 2022, the export of Finnish goods to Central Asia has grown to enormous proportions. In Kyrgyzstan this increased by more than 800%. The greatest positive dynamics of this indicator were observed in H2 last year once supply chains had a chance to react.

According to the European Bank for Reconstruction and Development (EBRD) report “Eurasian Circularity: Trade Flows to Russia through the Caucasus and Central Asia” published in February, European Union and UK exports to Armenia, Kyrgyzstan and Kazakhstan increased by between 15 – 90% in 2022 depending upon the commodity.

As also noted, this coincided with sanctions which resulted in Western exports to Russia falling by 50% implying the two figures are related.

The discrepancy between flows to Russia and towards its neighbours from the south continues to increase. “With many Western companies leaving the Russian market, and Russian ports under sanctions, the Central Asian economies are showing significant success in trade with Russia and China, both through the export of their own products, such as textiles and consumer electronics, and through transport and re-export services,” the report says.

While Kazakhstan and Turkmenistan are generating unprecedented oil and gas revenues, Kyrgyzstan, Tajikistan, and Uzbekistan are benefiting from significant increases in labour, capital, and remittances. For example, the volume of individual financial remittances to Kyrgyzstan in 2022 reached a record high of US$2.7 billion.

The intermediary trade of the countries of Central Asia and the South Caucasus with Russia, although it does not bring them significant profits, nevertheless, is a significant cash flow source for them, with the sheer volumes on offer keeping margins low. Fashion and other items such as iphones and so on remain easily available in Russia with an average markup of just 5% above 2021 prices.

Kyrgyzstan, with an annual GDP of US$9.75 billion, earned US$411.5 billion from intermediary trade with Russia last year, while Armenia, with a GDP of US$19.5 billion, earned US$1.17 billion. While this can be expected to grow, some of the items will have built-in redundancy as Russian manufactured alternatives also begin to creep into the market and displace imported products, although highly prized Western brands will remain coveted.

Russia’s bilateral trade with Uzbekistan increased by 23%, to US$9.3 billion, including textile and agricultural exports to Russia. In Kazakhstan, its timber exports to the European Union increased by 74 times, and from Kyrgyzstan by almost 18,000 times as EU buyers seek Russian alternatives. But things may not always be what they seem.  There are almost no timber reserves in Kazakhstan or Kyrgyzstan, meaning the wood sold to the EU is of Russian origin.

Western governments have indicated outrage that Russia is “circumventing sanctions” with the help of the countries of Central Asia and the South Caucasus. However, it is EU buyers that are desperately looking for replacement products. No source of timber – no new housing or furniture constructions.

This hasn’t stopped the US Department of Justice, who have decided to involve an additional 25 prosecutors looking for loopholes through which Russia “bypasses sanctions and export controls” with US officials set to work in the counterintelligence and export control division. They will be tasked with monitoring organisations that help Russia circumvent sanctions. If necessary, prosecutors will be able to initiate criminal cases against violating companies.

Whether those companies are the original Russian suppliers, middlemen in Central Asia or European buyers remains to be seen, as does any political fallout created by the US imposing sanctions on countries way outside its geographical sphere. It goes without saying meanwhile that in the case of timber – the United States and Canada wish to build up their own timber exports – and sell them to Europe. The sourcing of products by EU buyers could become very difficult indeed when trying to cope with North American sales prices and attempt to obtain cheaper alternatives.

Source: Eurasia Today with additional commentary by Chris Devonshire-Ellis

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