Russia’s economic cooperation with Central Asian countries is gaining momentum despite expectations of a decline or even a complete rupture in trade and economic relations under the influence of anti-Russian sanctions. At the same time, the sanctions pressure has opened up new opportunities for the establishment of additional sources of economic growth for partner countries, Aza Migranyan writes.
Russia’s economic cooperation with the countries of the Central Asian region is based on preferential free trade zone agreements within the CIS and a common market for the goods, services, capital and labour resources of the EAEU, as well as bilateral agreements on trade and economic cooperation. Starting from 2022, the intensity of trade and economic interaction has increased significantly, which has been due to the active involvement of Central Asian countries in the parallel import regime and the transformation of logistics and payment/settlement models for Russian participants in foreign economic activity against the backdrop of anti-Russian sanctions. The main stimulating factor for the growth of economic cooperation has been the high premium for residents of the countries of the region, the size of which has essentially determined the GDP growth rate over the past three years.
The countries of the region can be classified according to the channels used to redistribute the income of Russian residents depending on national economic models and forms of cooperation with the Russian economy. There are several channels for transferring additional insurance and/or discount margins from direct or indirect cooperation with Russian residents.
• The first (traditional) channel: subsidising economies through the pricing mechanism for energy resources supplied by Russia. Discounted prices for energy resources have actually been an element of hidden subsidising of the economies of the countries of the region for almost all the years of their independence, but this mechanism was especially evident in 2022-2023, when world prices for oil (including its derivatives) and gas increased several-fold. This format of cooperation can also be considered as an established form of redistribution of Russian budget revenues to the economies of Central Asian countries (Kyrgyzstan, Tajikistan, Uzbekistan and Kazakhstan to a lesser extent). In the period under study, it became one of the most important mechanisms for curbing inflation in these countries.
• The second channel: as a result of sanctions restrictions, it became possible to obtain an increased discount on export operations with energy resources due to increased risks and price volatility in the global energy market. This is applicable only to countries exporting hydrocarbon fuels (Kazakhstan and Turkmenistan).
• The third channel: participation in foreign trade transactions and operations between Russian agents and representatives of third countries. It assumes the presence of transit logistics infrastructure (Kazakhstan) and a developed infrastructure of the financial sector and trade in goods and services (Kyrgyzstan, Uzbekistan), the use of which allows countries to receive additional income due to increased insurance premiums, price discounts, and increased transport and consignment costs for Russian participants.
• The fourth channel: capital inflow due to the increase of transfers from individuals (migrants and citizens living abroad), change of jurisdiction and transfer of part of the production of enterprises from Russia (almost all CIS countries). This stimulates the growth of domestic demand and the development of the hospitality sector, as well as the development (in some cases, the establishment of new industries, for example, mechanical engineering and digitalisation) of the industrial sector and the service sector.
The influence of these channels was reflected in the growth rates of various sectors that determined total GDP growth in 2024: in Kyrgyzstan (9.6% growth), Tajikistan (8.4%), Uzbekistan (6.6%), Turkmenistan (6.3%) and Kazakhstan (4.8%). The contribution of the external sector to economic growth fluctuates between 25-30%. At the same time, trade with Russia is growing in the region as a whole, the share of Central Asia in Russian exports from 2021-2023 increased by 0.9% and amounted to 6.2%, and imports from the region reached 4.9%. However, the growth rates of trade turnover with countries vary significantly depending on the intensity of bilateral cooperation and production factors.
Over the past three years, investment activity has increased significantly. Traditionally, Russia is among the top five investors in all republics of the region, the accumulated portfolio of direct investments for 2023 amounted to $23.9 billion. About 140 large investment projects are being implemented and the great potential for the development of investment cooperation with the countries of the region remains in infrastructure construction and the technological modernisation of social infrastructure (including communal services), where Russia has no competition. In the most profitable industries, competition is quite high, given the activation of the “5+” format by the EU, USA, Canada, China, Turkey and Iran.
The attractiveness of the Russian labour market, however, remains an unconditional competitive advantage. Based on the 2023 data, the share of remittances in GDP was exceptionally high in Tajikistan (45.4%), Kyrgyzstan (23.7%), and Uzbekistan (16.9%); data for 2024 will only be available in the second quarter of 2025. Taking into account the growth rate of remittances from Russia and their share, the following conclusions can be made:
• the volume of remittances to countries with high migration potential in 2024 remained the main source of increasing the solvency of the population;
• at the same time, the Russian labour market remains the most attractive one for migrants from these countries, despite a slight decrease in the volume of transfers from Russia to all countries, which was due to the sanctions risks facing the financial and payment systems that carry out cross-border transfers from the Russian Federation;
• there has been a decrease in transfers from Central Asians who have relocated to Russia, which is associated with their employment in the host country and/or moving to third countries.
In the context of anti-Russian sanctions, interest in the region’s transit potential has grown significantly, the use of which can help diversify the international transport corridors used by Russian residents. The most promising from the point of view of Russian companies are the Eastern route of the North-South ITC, the Kyrgyzstan-Uzbekistan-Turkmenistan-Russia corridor with the inclusion of sea transit along the Caspian Sea, and the Trans-Caspian ITC. The demand for the old Central Asia-Centre pipelines, through which reverse gas supplies from the Russian Federation to Uzbekistan via Kazakhstan have been launched, and for Kazakhstan’s oil pipelines, which have the potential to increase the transit of Russian oil to China, is also growing.
In general, the development of a new architecture of trade relations between Russia and the countries of the world through the Central Asian region has a great potential for the development and expansion of cooperation. Independent systems and mechanisms of financial settlements and payments should be created that will help overcome the risks of secondary sanctions and create conditions for a free competitive market for the entire macro-region.
The growth of risks of secondary sanctions in relation to Russia’s partner countries cannot significantly reduce the volume of mutual trade, since the volume of income allows them to be covered in multiples. A distinctive feature of foreign trade activity over these years for the Central Asian countries has been the stabilisation of trade flows due to the establishment of new foreign trade routes and logistics. Regional cooperation processes have had a tendency to accelerate due to the transformation of external markets, international transport corridors, financial and payment systems and the increasing intermediary role of Russia’s regional neighbours in organising a new architecture of foreign trade and financial relations.
The Valdai Discussion Club was established in 2004. It is named after Lake Valdai, which is located close to Veliky Novgorod, where the Club’s first meeting took place.
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