Russia-Kyrgyzstan: 2023/24 Trade and Investment Dynamics

Trade and investment is booming as Russia looks at Kyrgyzstan manufacturing reexports to Asia

By Emil Avdaliani

As the Eurasian trade patterns change due to effects from the Ukraine conflict, the subsequent imposition of Western sanctions on Russia and the latter’s expanding gaze eastward toward Asia, Moscow’s trade ties with Kyrgyzstan are experiencing both quantitative and qualitative changes – the growth in traded product volumes, and an increase in quality. With the positive commercial developments, however, Russian investment into Kyrgyzstan lags behind its other Central Asian trade and investment commitments.

Kyrgyz-Russia and EAEU Trade

The trade turnover between Kyrgyzstan and Russia has been increasing steadily over the past decade. In 2022 it increased by 40.3% reaching a record US$3.2 billion, the highest registered since 1994. Throughout 2022, imports from Russia to Kyrgyzstan increased by 18.8%, to US$2.3 billion, while exports of goods to Russia grew to US$964 million.

That US$3.2 billion mark is some US$700 million higher than in 2021, when the Russian-Kyrgyz trade turnover amounted to US$2.49 billion – a record number at the time and some 47% higher than in 2020. Clearly, post Covid trade has rebounded.

This trend is continuing. For example, in Q1 2023, bilateral trade increased by 26%. This development is somewhat surprising, given that in the first four months of 2023, trade between Kyrgyzstan and the member states of the Eurasian Economic Union (EAEU) reached US$1.1267 billion – some 7.6% less than in Q1 2022. This means that Russia has increased its overall EAEU share of Kyrgyz trade.

In fact, Kyrgyzstan’s commerce with the other EAEU fellow member states – Armenia, Belarus, and Kazakhstan – lagged somewhat in 2022. With Armenia it reduced by 8.8%, achieving just US$1 million. Yet, while Kyrgyzstan’s exports to Armenia grew by 55.2%, imports from Armenia decreased by 14.8%. However, Armenia has been involved in conflict with Azerbaijan which probably accounts for the decrease.

However, a similar trend is in fact observable with Russia whose imports to Kyrgyzstan in the first quarter of 2023 dwindled by some 21.9%. Overall, the volume of trade between Kyrgyzstan and the rest of EAEU in the first months of 2023 amounted to US$545.3 million, which is 11% less than in 2022. The largest share of bilateral trade between Kyrgyzstan and the EAEU member states in early 2023 fell to Russia – 61.6% and then Kazakhstan – 35.5% respectively.

Russia’s exports to Kyrgyzstan mainly consist of oil, gas, metals, emergency vehicles for the ambulance and fire services, medicines, textiles, non-ferrous metals, and agricultural products. Yet Russia comes only second among Kyrgyzstan’s trade partners. China is in the first place, with an overall share of Kyrgyzstan’s total trade volume of some 34.8%. Russia has a 28.2% share, while Kazakhstan is third with 10.2%.

Re-Exports To Russia

Despite the two countries not sharing a common border, Kyrgyzstan has always been dependent on Russian imports. This trend became even more pronounced in 2022. For instance, in the food industry, during the 2022-2023 period, approximately 75% of food in the Kyrgyz markets were imported from Russia. Grain, flour, and flour-made products as well as sugar (the latter a staggering 50,000 tons) are mainly coming from Russia. In the energy sector the situation is similar, with 90% of fuel and various fuel lubricants being imported from Russia. Kyrgyzstan is also highly dependent on Russian electricity – around 875 million kilowatt-hours are expected to be provided by Russia during this coming 2023-24 Autumn-Winter period.

The growth in Russia-Kyrgyzstan trade has also been powered by global geopolitical shifts such as the Ukraine conflict, and subsequent Russia-Western economic confrontation. For instance, in 2022 the exports of Western goods to Central Asian countries increased by more than 80%. Kyrgyzstan has especially benefited from the trend serving as an intermediary given the fact that trade with Russia and other EAEU takes place without duty tariffs as it is a Free Trade Area.

Kyrgyzstan earned some 36 billion Som (₽3.72 billion, or US$410 million) on intermediary trade between Russia and third countries – the figure which is 4% of Kyrgyzstan’s GDP in 2022 (919 billion Som).

In 2022 and early 2023 Kyrgyzstan began to export more cosmetics, clothes, and bags to Russia, reflecting the imports of these products from China, Belarus, Turkiye, and the UAE to Kyrgyzstan. For example, from January to August 2022, Kyrgyzstan sold 50 tons of perfume to Russia, while for the same period in 2021 this was less than one ton.

Positive trends in Russia-Kyrgyz trade ties fall within Kyrgyzstan’s overall promising economic outlook. In 2023 Kyrgyz GDP is expected to grow by 7%. Similar trends are observable in other Central Asian countries. In 2023-2024, average GDP growth in the region will range from 4.9% to 5.4%.

Mutual Kyrgyz-Russian Investments

The inflow of foreign direct investment into Kyrgyzstan in 2022 increased by 4% compared to 2021 and amounted slightly less than US$1.5 billion. The bulk of foreign direct investment – over 95% – is directed to mining, manufacturing, financial intermediation and insurance, wholesale and retail trade, as well as information and communications.

Despite this overall growth, the volume of foreign direct investment from the CIS countries to Kyrgyzstan during 2022 decreased by 12% compared to 2021. In 2022 investments from Russia decreased by 9.7%. However, by the end of 2021, Russia became the main investor in Kyrgyzstan, investing about US$2 billion, corresponding to 36.1% of the total volume of foreign direct investment accumulated by the country.

During 2023, the volume of direct investments from Russia to Kyrgyzstan this year to date has amounted to ₽70 billion (about US$770 million). The largest flow of investments have been concentrated in the manufacturing industry, geological exploration, mining, as well as in wholesale and retail trade. The two countries are also developing investment cooperation through a large-scale project for the extraction of gold, discovered in 2021 last year at the Jerooy deposit, as well as the organization of the assembly production of public transport buses in Kyrgyzstan.

There is also a special Russian-Kyrgyz Development Fund created in 2014 and which throughout the past 8 years, has initiated more than 3,000 joint projects worth US$427 million. The famous Koshoi sugar factory, with its 2,000 employer and 3,500 farms is among those projects. Another big production facility was a knitwear production with the involvement of 1,500 workers.

Export Manufacturing Capabilities 

Among the projects that are discussed between Bishkek and Moscow are projects in the light industry such as the Technopolis project in the Chüy Region where a new complex is expected to accommodate about 40 enterprises for 10,000 employees. Another project is the “Kyrgyz Textile Company”, planned to be opened in Osh and expected to create some 7,000 jobs. The third major project is the US$200 million construction of The Silk Way Industrial Park in Kyrgyzstan’s Chüy Region which is expected to have 112 specialized factories built to produce clothing, textiles, and footwear items. China has invested half of this capital with Russia the other half.

Clearly, Russia sees Kyrgyzstan as a gateway to China as well as potentially to other Central and South Asian markets. Investing in its manufacturing industries can show products as made in Kyrgyzstan rather than Russia and perhaps more amendable for export. As Kyrgyzstan, along with Russia is a member of both the EAEU and the CIS, this makes sense to take advantage of lower employment costs – providing the productivity gap between cheap labor and actual performance can be overcome.

For Russian manufacturers in Kyrgyzstan, neighbouring China is a huge consumer market. However, it also offers access, via China’s own rail network, to markets in Vietnam, which has a significant border with the PRC. That is relevant as the EAEU and Vietnam also have a Free Trade Agreement.

Kyrgyzstan’s positioning as a regional added value hub makes sense – it is undergoing a transition from a partially nomadic, agrarian society to one that is partially industrialised. As an ancient part of the old silk road, it is taking the mountain passes that lead to larger markets once again, combining and sending onwards products originally produced as far away as Moscow is from Beijing. The proposed China rail link and connectivity throughout Central Asia will only benefit this landlocked, mountainous nation.

Emil Avdaliani is a professor of international relations at European University in Tbilisi, Georgia, and a scholar of the new silk roads. Additional research provided by Chris Devonshire-Ellis.

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