Customs union could bankrupt Kyrgyz businesses

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BISHKEK -- The July 1 launch of the Russian-Kazakhstani-Belarusian Customs Union is harming Kyrgyzstan.

“(The) Customs Union regulations may lead Kyrgyzstan to economic collapse”, said Aleksandr Knyazev, a consultant at Kazakhstan’s Institute for Political Decisions and a political scientist at Kyrgyz-Russian Slavic University.

The union raised customs duties and implemented complicated customs procedures for non-member countries. Kyrgyz customers now pay more for Russian and Kazakhstani goods. The price of 92-octane gasoline has increased to 39 KGS/litre (US $0.88/litre) from 30 KGS/litre (US $0.66/litre) in May. Prices for Russian and Kazakhstani groceries have gone up 15 to 30%.

Figures like that hit every Kyrgyzstani, since the three countries account for almost 41% of Kyrgyzstan’s trade, according to the Kyrgyzstani Economic Development Ministry: Russia (28.5%), Kazakhstan (10.7%) and Belarus (1.7%).

Prices for all Russian and Kazakhstani goods, particularly cars, will likely spike for Kyrgyzstani buyers, Askar Beshimov, executive director of the NGO Otkrytaya Pozitsiya and former deputy foreign minister, predicted in a special report for the Economic Development Ministry.

“These countries will raise duties on foreign automobile producers”, he said. “They are imported to Kazakhstan and Russia from the UAE and Europe and only then go to Kyrgyzstan”.

“The previous government knew about the threat that the Customs Union posed to us, but did not do anything, and the new government has had no time”, complained Nur Omarov, head of the Association of Political Analysts of Kyrgyzstan.

One Russian businessman, Yurii Mironov of Omsk, said his light-industry export business has had to abandon his Kyrgyz suppliers.

“The transport of Kyrgyz-produced consumer goods accounted for 45% of our volume, but now they have ceased to be profitable for our company”, he said.

Even if trade volume with Kazakhstan doesn’t shrink, Kyrgyzstan will suffer, Talgat Akuov, president of Kazakhstan’s Independent Association of Entrepreneurs, said.

“Entrepreneurs will recede into the ‘shadows’ and begin working in ‘black’ and ‘grey’ margins, and this means that tax collection will decrease”, he said.

China, a non-member, could also contribute to Kyrgyzstan’s woes, said Arkadii Dubnov, a Central Asia observer at the Russian newspaper Vremya Novostei.

He said that, as a Customs Union member, Kazakhstan must levy stiff tariffs on Chinese goods re-exported by China.

“This (business) was profitable for Kyrgyz and Kazakhstani entrepreneurs alike. Now prospects … look unpleasant”.

Bishkek-based Dordoi — Central Asia’s largest bazaar — could come under further threat if Kyrgystan joins the union, warned former Kyrgyz MP Nikolai Bailo. He said China would likely raise prices on goods sold to Kyrgyzstan, in that case.

Anarhan Rakhmanova, chief of the Economic Regulation Ministry’s Office of International Trade, said the damage will be done regardless of whether Kyrgyzstan joins the market.

“The revenue from re-exporting Chinese goods is a fairly large portion of the state treasury’s receipts”, Anarhan Rakhmanova, chief of the Economic Regulation Ministry’s Office of International Trade, said. “Therefore, (Dordoi businesses) need to reorganise and the government will help them as much as it can … We will consider all of (their) suggestions and complaints”.

Knyazev said Kyrgyzstan should use domestic resources, investments, grants and loans to facilitate competitive enterprises at all levels and prop up the economy.

Others contend Kyrgyzstan should join the Customs Union. “Developing independently will be very difficult”, said Zhumadyr Akeneyev, an economist. “The Customs Union at least offers political dividends”.

“We are completely determined to join”, President Roza Otunbayeva said at a Eurasian Economic Community summit, according to the government’s press office.

But the door might not be open, no matter how badly Kyrgyzstan wants in, suggested Ekspert-Kazakhstan newspaper columnist¬ Nikolai Kuzmin.

“The presidents of the Customs Union countries will say that they welcome such a decision, but they will provide certain conditions that Kyrgyzstan does not presently meet”, he said. “This country is not a profitable partner for them. In addition, the new government … must still prove its viability … which will take a long time”.

The issue of legitimacy dogs the Kyrgyz government, added Konstantin Syroyezhkin, chief researcher at Kazakhstan’s Institute for Strategic Studies.

“There is no one to talk to in Kyrgyzstan”, he said. “Otunbayeva is an interim president, and there is no parliament that could ratify an international treaty”.

“We need to make the right decision, so we will not rush”, Economic Development Minister Emil Umetaliyev said. Russia will make the final call, Sergei Ponomaryov, chairman of the association of Kyrgyzstan’s Markets, said. “It is important to understand that neither Kazakhstan, nor Kyrgyzstan will be able to dictate its own terms for the Customs Union”, he said. “Whoever has the greatest share of the (Customs Union) will be the manager. … Russia holds 57%”.