The regional elites, under the influence of stereotypes, as well as internal and external propaganda, had an impression that things were not going too well for Russia. Only in recent months, the assessments of Russia’s prospects began to change for the better, writes Grigory Mikhailov.
The conflict between the West and Russia, as well as the degradation of the system of international relations, have given the countries of Central Asia a chance to rethink their role in the world, build new relationships with each other and push for the economic development of the region. After the start of Russia’s special military operation in Ukraine, the USA, EU, UK, Japan, Canada and a number of other countries began a campaign of economic pressure on Russia. Sanctions restrictions have affected many areas, including trade, finance, and transport. Disruptions in supply chains, financial restrictions and asset freezes have led to a significant increase in the transit of goods to Russia through Turkey, the Caucasus and through Central Asian countries.
Through Kazakhstan, Uzbekistan and Kyrgyzstan, goods from the EU, China, USA, South Korea and other countries arrive in Russia. Since March 2022, thousands of Russian businessmen, representatives of enterprises and companies have gone to Central Asia to negotiate cooperation. Business activity in the region has increased manifold — in coffee shops in Astana, Bishkek and Tashkent negotiations are regularly held on the supply of aircraft engines, electronics, machine tools and dual-use products... The “hotter” the product, the higher the mark-up. In some cases, it reaches 250-300%. This extremely profitable business involves tens of thousands of people, including representatives of the most influential local families.
The enterprising businessmen of Central Asia and their customers from the Russian Federation quickly found their bearings — within two weeks, the first containers with sanctioned cargo left for Russia. The activity of Central Asian carriers has weakened the effect of sanctions imposed by the US and EU against Russia. It became clear that it will not be possible to strangle the Russian economy if sanctioned cargo continues to be purchased in the thousands of tonnes by residents of Central Asia and delivered to Russia.
Western diplomats began knocking on the doors of the offices of high-ranking officials and security officials, demanding that transit to Russia be blocked. Local media carried out an information campaign with US money, convincing citizens of the need to stop the flow of cargo. US attempts to force local elites to stop supplies met with effective sabotage. Officials are getting sick, negotiations are being postponed, Americans and Europeans are being presented with obviously impossible demands as conditions for stopping transit to Russia.
However, this Western pressure cannot be called completely ineffective. The activity of the envoys and the lobbyists they hired is causing nervousness among local officials and businessmen. Representatives of the US, UK, and EU are threatening to put countries, as well as politicians and companies associated with them, on sanctions lists. Another unpleasant circumstance is the increasing frequency of refusals to issue US visas to close relatives of local high-ranking officials, which was not previously practiced. Trying to reduce possible damage, over the past year and a half, the elites have transferred some of the funds from Western banks to the United Arab Emirates and Southeast Asian countries, but have not completely gotten rid of their dependence.
The United States prefers not to swing the “sanctions baton” in Central Asia. During the year, only a few companies were subjected to restrictions. None of the major local players were affected by the restrictions. Washington fears that more radical measures could embitter local elites and reduce Western influence in the region.
Publicly, the authorities of the Central Asian countries try not to conflict with the United States. Officials regularly report that they fully comply with all US and EU sanctions requirements, after which cries of “everything is lost” can be heard in the media and social networks. In practice, cargo continues to go to Russia. This intractability is explained by a purely pragmatic consideration — the desire to make money.
The regional elites, under the influence of stereotypes, as well as internal and external propaganda, had an impression that things were not going too well for Russia. Only in recent months, the assessments of Russia’s prospects began to change for the better. The reason for this was the failure of the Ukrainian offensive, Washington’s attempts to negotiate behind the scenes with Moscow, as well as data on the stability of the Russian economy.
The changes affected not only re-exports, but also the production of goods in the region. One of the most striking examples is the consumer goods industry. After Western companies left Russia, textile manufacturers from Central Asia began to fill the vacated niche. In addition, after the restriction on payments in foreign currencies, a number of Russian companies moved production to the region; here you can pay in rubles.
The consumer goods industry in Kyrgyzstan has been booming over the past year and a half. New clothing workshops are being opened. There is a shortage of qualified seamstresses in the country. A paradoxical situation has arisen: hundreds of thousands of Kyrgyz migrants are in Russia while there is a shortage of workers in their homeland. A little-known fact: after an unsuccessful search for seamstresses within the country, the owners of private workshops found a way out. They began importing workers from abroad on a large scale. Over the course of the year, over 50,000 people came to Kyrgyzstan, mainly from Bangladesh and Pakistan. Seamstresses work in workshops 12 hours a day, 6 days a week. They live in the same place, don’t go out into the streets, and don’t have contacts with locals. The Kyrgyz authorities are trying not to advertise the arrival of tens of thousands of migrants.
Even before the SMO, Kyrgyzstan was an active exporter of textiles to Russia, but after the introduction of sanctions, production increased hundreds of times. As a result, in 2022 supplies of women’s outerwear and knitwear from Kyrgyzstan to Russia increased by more than 200 times, men’s shirts by 146 times, sport suits by more than 90 times, and bed linen by 25 times. In 2023, supply volumes became even larger. Re-industrialisation is not being observed only in Kyrgyzstan. Large-scale production with an eye on Russia is being developed in Kazakhstan and Uzbekistan. Large Western firms that left Russia moved part of their capacity to these countries. European companies also come here in search of cheap gas and electricity. Dozens of giants have launched or are preparing to launch production in Central Asia, including Samsung, Nestle, and Glock.
The Russian market is still of interest to the departed companies. To avoid scandals, some of them are launching production in Central Asia under new brands. Mainly Kazakhstan and Uzbekistan are fighting for the right to accept investors. Businessmen are promised minimal pressure from regulatory structures, tax benefits, and stable supplies of electricity and gas at reasonable prices. In the interests of investors, some free economic zones (for example, Navoi FEZ, Uzbekistan) have switched to the English legal system. Kyrgyzstan loses the fight for investors more often; the main reason is the weak protection of foreign businesses in the country.
New logistics
The change in cargo transportation routes that occurred after the start of the special military operation provided a significant impetus to the development of logistics infrastructure in Central Asia. The sharp increase in demand for cargo transportation and warehousing services has led to the massive construction of logistics centres in the region. Now countries are rapidly expanding routes (both railways and roads), improving the operation of checkpoints at borders, attracting foreign specialists, and adjusting logistics. Large-scale events require serious investments — officials negotiate funding for projects with China, the United States, Russia, the EU, Middle Eastern countries and Turkey. It doesn’t always work — interest in investments is reduced by political instability, contradictions between external players, as well as doubts of potential investors about the profitability of a number of proposed projects.
China remains the most active external player investing in the development of local infrastructure and logistics. As part of the Belt and Road Initiative in Central Asia, dozens of projects have been implemented using loans from the PRC. Now China is starting to change its approach to distributing money. The PRC is concerned about the negativity from debtor countries, which previously willingly took Chinese loans, but now cannot or do not want to give the money back. The PRC does not want to create conditions for conflicts with debtors, even at its own expense. In this regard, China plans to change its lending approach by diversifying the format of participation in projects.
Competition between Central Asian countries
Thanks to an influx of investment and a sharp surge in transit volumes, additional funds have begun to flow into the budgets of the Central Asian countries. This has led not only to economic growth, but also to increased competition between states in the region. The West’s deepening conflict with Russia and China, as well as the collapse of the traditional Western-dominated system of international relations, has led to a power vacuum in the region. Russia is busy with other problems; the US and the EU are not as strong as before. The old rules are dying out, and new ones have not yet been formulated. For some elites, geopolitical chaos is a threat to their position, but for Astana and Tashkent, which are gaining strength, chaos is a staircase, a chance to rise to the top.
Intraregional competition has been intensified by a sense of instability and growing competition between external players. Local elites regularly receive either tempting offers or dark hints from Western players who want to prevent the growth of influence of China and Russia in Central Asia. For example, the United States has repeatedly offered assistance in solving the problems of local airports and airlines, provided that the latter do not come under the control of Russian or Chinese companies. Washington did not raise any objections to the options of transferring strategic facilities to companies from Qatar or the UAE.
Over the past year and a half, the countries of the region have been feeling uncomfortable — geopolitical risks are growing and intraregional problems are intensifying, threatening to destabilise Central Asia. These include, in particular, the impending drought, the deterioration of strategically important infrastructure, and a lack of electricity and gas.
Attempts at intraregional integration have become much more frequent. It would be beneficial to form common positions on key issues and jointly defend them in negotiations with external players, but accumulated contradictions between the countries of the region are hampering them. At the same time, the desire to overcome old grievances, compromise and negotiate is still too weak.
A recent example is the region’s water problem and the development of uniform transportation tariffs for the countries of Central Asia. There were plans to make a decision on both topics on September 14 at a meeting of the heads of state of Central Asia in Dushanbe, but no result was achieved. The leaders only voiced their accumulated problems and complaints to each other. Against the backdrop of failed negotiations, the temptation arose to get one’s way through threats, pressure or force. Hence the border blockades, disruptions in the supply of electricity and gas, as well as an increase in arms purchases and the strengthening of the armed forces. So far, no one in Central Asia wants to make concessions.
