Kyrgyzstan in the EEU: persisting problems, vague prospects

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BISHKEK (TCA) — The Kyrgyz Government should pursue a tougher policy to defend the country’s interests in the Eurasian Economic Union (EEU). Kyrgyzstan has 10 months of the transition period only and should use its advantage.

Differences in the economies are the main obstacle for the participants of Foreign Economic Activity (FEA) within the Eurasian Economic Union, the Association of Customs Brokers of Kyrgyzstan said at a roundtable to discuss Kyrgyzstan’s economic prospects in the EEU.

Official opinion

“It is incorrect to say that domestic business suffers from joining the EEU. With time, we will realize how our businesses can compete with other, stronger entrepreneurs who have access to cheap capital,” the Eurasian Economic Commission (EEC) Minister Danil Ibrayev said. Any product that enters the territory of Kyrgyzstan can be freely moved to any place of the EEU. Kyrgyzstan is now in the competitive area, Ibrayev added.

Despite the Kyrgyz som is a reliable currency, Kyrgyz citizens do not trust it and calculate all profits and expenses in US dollars. The reason is that the country is dependent on imports.
Kyrgyzstan received 5.9 billion soms as its share of the EEU’s total customs revenues from October 2015 to February 2016, the Finance Ministry said.

Kyrgyzstan’s revenue was supposed to be half as much but the forecast was too optimistic against the sanctions and general economic downturn in the EEU countries. At present, the country gets a little more than it donates to the common EEU customs purse. The share of Kyrgyzstan in the EEU’s total customs duty collection is 1.9 percent.

Lack of money

Kyrgyzstan’s entrepreneurs have to survive on their own because the Government did not prepare them for consequences of the country’s entry to the EEU, experts said. Kyrgyzstan does not produce enough goods and services, and is not ready to compete in the EEU market.

The Kyrgyz economy is suffering from a lack of money, business representatives said. The dollar growth and the global and regional crisis have affected the economy of Kyrgyzstan.

The state provides loans to farmers at low interest rates, but it is a drop in the ocean. The only financial resource is the Russian-Kyrgyz Development Fund, but it lends in the US dollar.

It is a big problem for local entrepreneurs who borrow in dollars and sell manufactured goods in soms in Kyrgyzstan and in rubles and tenge in Russia and Kazakhstan. Due to the local currency devaluation, entrepreneurs lose money while banks make profit. The business community has asked to lend in soms.

Trade problems

Cane sugar is now imported from Kazakhstan in large volumes, which hits Kyrgyz sugar producers. According to the agreement on the CIS free trade zone, Kazakhstan has a quota for the supply of raw sugar from third countries, but it may not sell processed sugar in other CIS countries.

Kyrgyzstan also has a quota for 100 thousand tons of raw sugar to be processed for domestic consumption only.

Kyrgyz authorities do not stop the supply of cheap sugar from Kazakhstan, which results in local sugar producers suffering losses and the state budget receiving less tax.

Kyrgyzstan’s budget lost almost one billion soms during two months in 2016 due to the smuggling of fuel and flour from Kazakhstan, MP Iskhak Pirmatov said. About 30 percent of all imported gasoline in Kyrgyzstan was smuggled, he added.

After Kyrgyzstan’s accession to the EEU the import of cars to the country has sharply decreased. Most cars are imported from Japan. According to the State Customs Service, Kyrgyzstan imported 77,395 Japanese cars worth $320.6 million in 2014, and 1,178 cars worth $20.9 million in 2015.

The import of cars from the EEU countries has also declined. Kyrgyzstan imported Russian cars worth $8.4 million in 2014 and $2.1 million last year. Currency devaluations in the EEU and lowering purchasing power of the population have affected the demand for cars.

In the meantime, Dordoi, Kyrgyzstan’s largest wholesale market located in Bishkek, continues to operate, switching from the sale to production of goods. After Kyrgyzstan’s accession to the EEU, the customs tariffs increased for goods imported from Turkey and China. To resolve the problem, many local businesses have started producing inside Kyrgyzstan instead.