Holes in the sanctions fence – why German exports to Kyrgyzstan have increased by 561 percent
MThe West is tightening its economic blockade again and again Russia. But interruptions in payment transactions, oil boycotts and price caps only have limited consequences. Moscow succeeds in circumventing import bans. The federal government wants to control the end-use of goods more closely. China and Turkey are high on the list of suspected sanctions breakers. The US has repeatedly warned Turkey, whose exports to Russia have skyrocketed, most recently, according to the Washington Post, against servicing Russian aircraft. Ankara, which rejects sanctions, rejects allegations.
Economists at the European Bank for Reconstruction and Development (EBRD) are now confirming Berlin’s suspicions about other ways sanctioned goods get to Russia. The countries connected in the internal market of the Eurasian Economic Union alongside Belarus ArmeniaKazakhstan and Kyrgyzstan have probably become a hub for bypass deals – although “not necessarily with the knowledge of Western exporters,” writes the bank.
Accordingly, the “dramatic decline” in Western direct exports to Russia is partly compensated by indirect exports via the Caucasus and Central Asia. “A substantial part” of the imports, which have risen sharply there, will be passed on to Russian buyers. The study proves “that intermediary trade via neighboring economies is used to circumvent the sanctions”.
Deliveries could be incorrectly declared
The authors, led by EBRD chief economist Beata Javorcik, continue to write: “The decline in EU exports to Russia was around 80 percent more for sanctioned goods than for other goods, while exports of sanctioned goods to Armenia, Kazakhstan and Kyrgyzstan fell by 30 percent in comparison to other goods.” However, Javorcik warns that the intermediate trade “is only a fraction of what was previously exported directly to Russia”. To be precise, it is 5 percent.
In truth, the proportion is likely to be larger. Only statistically documented transactions were examined. By definition, contraband does not appear in it. Deliveries could be incorrectly declared, the authors note. In the detailed analysis, they noticed that among the goods imported by the countries in question, the proportion of goods that Russia should not receive has grown disproportionately.
So did the imports of pumps and compressors from the EU and Great Britain in Armenia, Kazakhstan and Kyrgyzstan compensated for their decline in business with Russia by more than half. For cars it was about 60 percent. From May to August 2022, their export value increased elevenfold compared to the comparative data from 2017 to 2021. The replacement rate for washing machines was more than 70 percent, and for paints and varnishes over 90 percent. In the case of computers, caterpillar tractors and combine harvesters, imports more than compensated for the decline in business with Russia.
Record-breaking export figures
This often only involves amounts in the two or three-digit millions. However, measured against the economic power of Kyrgyzstan and Armenia, this adds up to impressive growth of 4 to 6 percent. Imports from China and the Turkey If you add this up, according to the Eastern European Bank, you get more than 15 percent of the gross domestic product.
The strong growth is also reflected in the German trade statistics. According to the Federal Statistical Office, exports to the small Kyrgyzstan climbed by a record-breaking 561 percent to 323 million euros in 2022. Armenia imported 166 percent more than the year before the war, Kazakhstan 95 percent. Uzbekistan and Tajikistan, both non-members of the Moscow Customs Club but members of the post-Soviet CIS alliance, achieved growth rates of 130 and 74 percent, respectively. Uzbekistan’s Prime Minister Abdulla Aripov was in Germany this week with a business delegation for political talks.
The Committee on Eastern European Economic Relations puts the increase in exports into perspective by looking at the absolute figures: the drop in exports to Russia of 12 billion euros is offset by an increase in exports to other countries of just 2.5 billion euros. Nevertheless, the situation is complex: “There is no doubt that there are Russian circumvention efforts, parallel imports, but also legal exports to Russia via neighboring countries.”
On the other hand, many of Russia’s southern neighbors have benefited economically from the crisis caused by the attack on Ukraine – which creates additional demand. Many Russians have fled there, and new job and business opportunities have opened up. The consultants of the German Economic Group point out that the gross domestic product in Armenia rose by 12.5 percent last year, and per capita income by 40 percent to $6,600.
The economy of Georgia, the transit country currently heavily used in goods traffic between Armenia and Turkey with Russia, also saw double-digit growth for the second time in a row in 2022 at 10.2 percent. In contrast, in Georgia, which is politically west-oriented, the analysis by the Eastern European Bank did not identify any increase in imports of goods whose export to Russia is prohibited.