Increased trade, investment and regional security promised by Putin as 2022 Russia-Central Asia trade grows by 16% YTD, yet tensions remain over sanctions and Afghanistan
The Council of Heads of State of the Commonwealth of Independent States (CIS) had their annual meeting in Astana, Kazakhstan over the past weekend, with Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan and Uzbekistan all taking part. Turkmenistan, Mongolia and Afghanistan all have associate or observer CIS status and additionally participate.
Collectively, the CIS covers an area of 20,368,759 km2 and has an estimated population of 234 million. To compare with the European Union, it has roughly ten times the land mass of the EU and about 60% of the EU’s population. The CIS operates as a loose Free Trade area, although member states negotiate trade agreements with each other rather than collectively. It has a GDP of about US$2.2 trillion and an average GDP per capita (PPP) of US$28,000. The debt to GDP ratio is about 17% (EU: 88%).
Due to various covid and other restrictions in place, this year’s meeting took place in a slimmed down format, although representation from all sides took part. Meeting in person were President Ilham Aliyev of Azerbaijan, Prime Minister Nikol Pashinyan of Armenia, President Alexander Lukashenko of Belarus, President Sadyr Japarov of Kyrgyzstan, President Vladimir Putin of Russia, President Emomali Rahmon of Tajikistan, President Serdar Berdymuhamedov of Turkmenistan and President Shavkat Mirziyoyev of Uzbekistan.
President of Kazakhstan Kassym-Zhomart Tokayev as host introduced the sessions, which concentrated on CIS humanitarian partnership, climate change, security and trade, including several initiatives aimed at expanding trade-economic cooperation, maintaining close cultural-humanitarian ties between the countries, as well as increasing the potential and international prestige of the Commonwealth.
There was some criticism aimed at Russia from Tajikistan in terms of a perceived lack of trade support and investment, where China has been more pro-active in project financing as part of its Belt and Road Initiative. Tensions were also displayed between the Armenian and Azerbaijani Presidents, whose countries are engaged in a simmering conflict with occasional flareups.
Most of the work, however, revolved around trade ties and discussions concerning the potential for secondary sanctions. Some of the CIS economies such as Kyrgyzstan and Tajikistan are relatively vulnerable and have been impacted by the sanctions upon Russia, creating the potential for some civil unrest. They will have required reassurances from President Putin over this issue. Putin on his part, asked for increased cooperation in organizing parallel imports.
Meanwhile, a positive for Moscow given the current situation is that the Eurasian Economic Union (EAEU) members within the CIS – Armenia, Belarus, Kazakhstan and Kyrgyzstan in addition to Russia have all agreed to pay for Russian energy in Rubles, although Kazakhstan is still evaluating the dynamics – its President Tokayev plays a more considered role in balancing Kazakhstan’s trade and diplomatic relations with the West than other members are wont to do.
Russia-Central Asia Forum
Following the CIS meetings, the Presidents of Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan grouped together as part of the Russia-Central Asia Forum, to further efforts to expand interaction between Russia and the Central Asian states. The agenda included measures to protect common trade and economic interests in the current geopolitical situation and regional security issues in the context of the situation in Afghanistan, an issue also on the agenda with the SCO and which China has an active involvement.
Putin’s commitment to Central Asia was highlighted in his speech to the forum, during which he said
“It is clear that the relations between our countries are built in different areas and various formats. We maintain constant contact, direct contact, communication via bilateral channels, within the CIS, the EAEU, the CSTO and several other organisations. We can always ask for each other’s advice and address certain problems. However, I believe that this new format will also be useful and add value.
We are prompted to invigorate all mechanisms of interaction between us by the deteriorating global situation and the challenging regional situation, too, but primarily by the external attempts to prevent the development of our integration in many areas and upset our historically close ties and political, economic and humanitarian cooperation.
We believe there is a real demand now for the well-coordinated joint steps of our countries to build up our allied relations and strategic partnership and enhance the sustainability of our economies.
For its part, Russia is open to strengthening versatile cooperation with our Central Asian friends, in particular, to participating in creating new production-and-marketing chains, to ensuring the failsafe functioning of joint ventures and building alternative logistics routes.
We are also interested in your countries joining Russia’s large-scale initiatives on import substitution and other programmes and projects. I am sure this will benefit the development of all our economies and the acquisition of new competences.
Russia-Central Asia Trade & Investment
Overall, Russia’s interaction with the Central Asian Five is satisfactory. Over the past five years, Russia’s trade with these countries has doubled to reach US$37.1 billion. In the first six months of 2022, our trade with Central Asia increased by another 16%. Russia is the leading investor in the Central Asian economies. Overall, our direct investment is about US$5 billion.
Reconfiguring Intra-Regional Finance In The Wake Of Sanctions, De-Dollarisation
The process of reconfiguring financial settlement mechanisms has been launched, eliminating the unnecessary involvement of Western companies and operators. Instead of SWIFT, we are switching to the proven Russian financial messaging system for contract settlements, similar to the national systems of your countries, and expanding the practice of opening direct correspondent accounts between lending institutions.
A Unified Energy & Supply Chain Mechanism
Cooperation between Russia and the five countries in the field of energy security is intensifying. We are talking about partnerships in creating generating capacity, building nuclear power plants, and introducing digital technologies. In particular, our country is ready to provide practical assistance to restore the unified energy system of Central Asia, which will certainly increase energy security for all countries in the region.
Meaningful opportunities are opening up in such areas as expanding oil transportation routes, as well as joint development of energy reserves in the Caspian Sea, providing affordable and clean natural gas vehicle fuel, building or expanding pipelines, and increasing the sale and shipping of coal to Asian markets.
General Regional Trade Facilitation
Russia’s reorientation of exports and imports is stimulating the development of transport corridors throughout the Greater Eurasia region. The key task is to develop new trans-Eurasian corridors passing through the territories of your countries: East-West, North-South and Europe-Western China. The introduction of information technologies and the use of artificial intelligence, as well as the development of border checkpoints for the seamless transportation of goods and cargo can significantly accelerate cargo flows.
I must mention the opportunities which are opening up for our cooperation through the Eurasian Economic Union. By the way, the EAEU has adopted a set of measures to ensure the sustainability of member states’ economies and their macroeconomic stability. We estimate that the implementation of these measures will increase total gross domestic product by 2.5%, or approximately US$49 billion. The Eurasian Development Bank also effectively supports the national economies of EurAsEC members. Its investments over the next five years will total almost US$11 billion.
I would like to emphasise that Russia regards the various forms of cooperation within the EAEU with countries that have not yet joined our union (Ed: Turkmenistan and Uzbekistan) as very useful.
Covid and Health
One more important issue is the improvement of interaction in ensuring epidemiological and sanitary safety. The pandemic starkly confirmed the need to develop a comprehensive regional system of measures capable of ensuring the health and wellbeing of our people, and the technological independence of the region’s states. It would make sense, for one, to think about the possibility of establishing a research laboratory as part of CIS infrastructure.
One of our priorities is to build up a joint technological information security resource. We suggest starting to implement in the CIS projects on digitising the urban environment (smart cities) and government administration (e-government), ensuring network security and providing digital education.
I mentioned just the obvious areas on which we should jointly focus in mid-term perspective. The Joint Statement that we will endorse following our meeting describes these plans in the minutest detail. I propose instructing our competent departments to start implementing this important document as a priority and develop consistent cooperation with each other.
The foreign ministries of our countries could coordinate further activities in the Russia–Central Asia format. I understand they will also prepare proposals regarding our next summit.
In conclusion, I would like to say a few words about the situation in Afghanistan, which was discussed in detail at the recent summits of the Conference on Interaction and Confidence-Building Measures in Asia (CICA) and the CIS.
A hotbed of tensions is indeed smouldering on our southern borders with the potential to unleash waves of refugees, terrorist threats and the spread of extremist ideology. In the process, Western secret services, primarily American and British, are cultivating units that are opposing the Taliban, pointing them in the direction of the border areas of some of our countries to shell.
We are aware of the related risks and threats and so we are maintaining the required level of contacts with the Taliban leaders. It is in our interests to prevent another civil war in Afghanistan.
Facing economic decline, the Taliban government has had to tolerate some ways of making money, including drug trafficking, that have already become traditional for Afghanistan. This is common knowledge. Under pressure from foreign secret services, the Taliban is closing its eyes even to the appearance of terrorist support bases in the north. Cross-border ties of jihadists pose a threat to all of us.
Of course, we must work with the current authorities in Afghanistan. You know my position. But this is also a subject of meticulous analysis for us and we coordinate work in this area.
This is extremely important for all of our states. I would like to assure you that Russia is ready for work and will work, as before, in a very close contact with you in this area.”
Putin showed commitment to Central Asia and the CIS yet also had to deal with some flak over the economic problems bought to some of these economies due to sanctions being imposed on Russia because of the on-going Ukraine conflict. It should be noted that Ukraine had been a de facto member of the CIS until 2018 and Kiev maintains some individual ties with the member states.
Putin’s response to much of this criticism was to encourage the use of parallel imports via CIS nations to Russia, which will increase their trade flows and allow middle-men to make a margin. However, this is probably not enough to allay fears of secondary sanctions – the CIS nations will be looking for more bilateral trade support, although it is true that the Western companies withdrawing from Russia does to some extent present an opportunity for CIS countries to replace some of these supply chains. Bilateral trade support will be sought by changes to the Russia-CIS multilateral trade legislation to give CIS exports to Russia a boost, while increases in Russian investment will also be requested – although this is happening to some extent as Russian MNCs are moving east, a process that will accelerate during 2023. This means that Russia will probably be able to offset CIS secondary sanctions fears.
Of additional security interest to the Central Asian states was the promising establishment of better energy supply chains to the region, in addition to potential military support to Afghanistan. Putin has already agreed an oil deal with the Taliban, whom Russia, China and the Central Asian states believe are the key to holding peace in the country. As Putin pointed out, the United States and UK appears intent on destabilizing the country yet again. The danger for Putin here is that conflict once again breaks out on a wider scale, although this would also mean US involvement at a time when Washington’s military focus is elsewhere. Nonetheless, there are US hawks who would wish to see conflict in Ukraine, Afghanistan and Taiwan break out amid some views that the US could be engaged upon three fronts – a worrying prospect.
Putin will be looking therefore to be seen to be showing some initial positives towards Central Asia and will be discussing this not just with Russia’s energy MNCs but other business sectors as well. Doing that however will require trade motivation – Russian businesses are overly cautious when it comes to investing overseas and creating new supply chains, although the sanctions issue has motivated many to do just that. What is probably required however is legislative adaptions to further motivate Russian investment into Central Asia and the CIS, and we may expect regulatory bills promoting this to be introduced to the State Duma in early 2023.
Source : Russia Briefing