Page 60 - bne IntelliNews monthly magazine October 2024

60 I Eurasia bne October 2024
Exports of goods like high-end washing machines from Europe to Kyrgyzstan and on to Russia have ballooned, some of which the Russians have
been stripping for their sophisticated operating microchips that have then found their way into Russian missiles. Likewise, in Armenia's case trade has tripled, in Uzbekistan it leapt by 52% year on year and in Kazakhstan by 30% y/y.
Armenia now imports twice the chemicals, five times the IT hardware and four times the electronics from Europe in 2023 as it did in 2021. Azerbaijan has also jumped on the bandwagon, by boosting sales of gas to Europe, despite the fact that it barely has enough to meet its own domestic demand; there has been speculation that it is exporting more of its own gas to the EU, but importing more Russian gas through the backdoor to meet the domestic shortfall, something the president denies.
Tiny Kyrgyzstan has probably been the biggest winner and Uzbekistan the least. Bishkek has seen trade volumes leap by thousands of per cent, fuelling an economic boom. Budget revenues have doubled and GDP growth in
2023 was over 8%. The only European country that has seen trade volumes with Central Asia fall is Poland, which has been making a genuine effort to enforce sanctions. Western Europe’s companies seem happy to turn a blind eye to the fact that the demand for high- end Mercedes saloons or sophisticated computers suddenly spiked in what used to be the dirt-poor part of the Former Soviet Union (FSU).
And there is no sign that this trade is slowing down. Quite obviously, these countries are acting as transit routes to Russia for goods under sanction, but not only. As bne IntelliNews reported, the technology sanctions have largely failed and Russia has been able to source 98% of the machines and chips it needs from abroad in 2023, according to a report by the Kyiv School of Economics.
However, the majority of the trade is simply Central Asian countries
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Most EMs in the CCA boosted goods exports to Russia in 2023-2024
Source: Oxford Economics/Haver Analytic; Data labels denote an annual percentage change
stepping in to provide Russia with non- sanctioned goods that are no longer being sold to Russia by the EU.
A study by Bloomberg found that only 7% of the goods being sent to Russia from Kazakhstan were sanctioned goods. This remake of supply channels has also spurred a boom in local investment to set up new production in what appears to be a permanent change in supplier relations, and it is working to Central Asia’s advantage.
An EBRD report looked at the example of Kyrgyzstan, “whose textile sector expanded by 42% in 2022, with textile exports accounting for 45% of total exports to Russia... and will expand above potential in 2024 at 3.6%.” All of the Caucasus countries – Armenia, Georgia and Azerbaijan – have seen similar steep rises in Russia import volumes since 2022.
The country that has benefited the least is Uzbekistan, which saw import growth of a relatively modest 13% in 2022 and 6% in 2023. Uzbekistan is double- landlocked, making it the most difficult and expensive of the 'Stans for the transit of goods from Europe to Russia.
A secondary side-effect from the war is that the influx of hundreds of thousands of Russian emigrants has also boosted local demand, pulling in more imports.
Most have arrived with significant savings and have deposited millions of dollars in Georgian and Uzbek banks.
These factors have also pulled in growing imports from China as the 'Stans tool up to meet the burgeoning demand. Exports to Armenia, Georgia and Uzbekistan grew by double-digit rates in 2022-23.
“Over the last two years, the region has seen a sizeable increase in publicly
and privately financed investment in transport, logistics and export-oriented manufacturing capacities. Robust growth in wages and real incomes, coupled with a surge in international arrivals and tourism, fuelled a consumption boom, further supported by technological advances in consumer lending,” the EBRD said in the report.
Intra-regional trade, investment and tourism continued to rise, assisted by much-improved regional cooperation on common challenges ranging from water and energy shortages to transport and border management bottlenecks. Inflation receded to single-digit levels in all countries in line with broader global trends, allowing central banks
in most Central Asian countries to reprioritise growth and start softening their monetary policy stances, according to the EBRD.