Kyrgyzstan: Accession to Customs Union set for this month

Plans to officially sign documents that would welcome Kyrgyzstan back into the tight embrace of its former Soviet countries are set to be signed on December 23, when Prime Minister Joomart Otorbayev will officially join the Customs Union, which will be renamed starting next year as the Eurasian Economic Union, comprising Kazakhstan, Belarus, and Russia. This is the culmination of plans made in spring of 2011, when Kyrgyz officials decided to join the Customs Union, which is a framework of rules and regulations that make trade between member states much easier.

However, problems abound, particularly in terms of timing. Kyrgyzstan’s re-export industry, based on the resale of Chinese goods to Russia, will suffer significantly as a result of the accession, and will result in significant unemployment, as this industry is the most significant source of wealth for the Kyrgyz Republic after gold mining. Chinese logistics across Kazakhstan are thus far significantly more expensive than those in Kyrgyzstan, and Customs Union accession will raise the costs of transportation into Kyrgyzstan to such a degree as to negate competitive advantage against its northern neighbor.

Considerations such as these, along with Russia’s recessive economy, have created an outlook for Kyrgyzstan’s economy that is largely negative, according to a new report from the World Bank.

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News Briefs:

  • Kazakh President Nursultan Nazarbayev visited Turkmenistan on December 2, and held bilateral meetings with Turkmen president Gurbanguly Berdymukhammedov. Another guest will arrive in Ashgabat today – Iranian President Hassan Rouhani, who will apparently participate in a ceremony marking the opening of the railway line that links the three countries, known now as the Ozen-Bereket-Gorgan railway line which will increase trade across all three countries.
  • Uzbekistan and China announced plans to boost law-enforcement and security cooperation, specifically in anti-terrorism and anti-narcotics efforts after a meeting between Uzbek President Islam Karimov and Chinese State Councilor Guo Shengkun. Uzbekistan is currently the host country for the Regional Anti-Terrorist Structure of the Shanghai Cooperation Organization. Both named the East Turkestan Islamic Movement in Xinjiang as their primary target for this new effort.
  • Uzbekistan has banned the import, sale, and use of drone aircraft after Prime Minister SHavkat Mirziyaev signed an order that cites flight safety and unsanctioned use of Uzbek air space. According to government officials, ministries have been told to inform citizens about strict “legal and accountability consequences (sic)” about the use of drones.
  • The Mongolian government is seeking fresh bids for the Tavan Tolgoi coal deposit – and five international mining companies and consortiums are interested in developing the asset, which is set to be the largest coking coal deposit in the world. The consortium includes China Shenhua Energy Company, Japan’s Sumitomo Corporation, US Peabody Energy Corporation, and the Hong-Kong based Mongolian Mining Corp. Plans for the mine’s development and a $3 billion public offering for the Tavan Tolgoi deposit never came about due to volatility in the commodities market. Mongolia’s government is currently cash-strapped, and thus are interested in revisiting the prospects for the project.
  • The Russian economy is projected to officially fall into recession next year – with the Russian ruble down 40% against the dollar, inflation rising, capital flight rising, and oil prices plummeting – the Kremlin is seeing the worst economy since the fall of the Soviet Union in the early 90’s. Putin has begun to shelve his larger projects like the South Stream pipeline to supply southern Europe, and a high-speed railway from Moscow to Kazan. While the Russian government budget is highly dependent on oil and its own currency, most economic experts point to the nearly $700 billion owed to Western banks, much of it by state-run companies. Alternatives to Western banks lack the capacity to fulfill this role.
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