The Economist: Central Asia and Russia’s crisis

As the rouble plunges, Central Asia feels the pain

Is dad coming home?

EVEN in the fat years, when Russia’s oil-fuelled economy guaranteed her son a job, Enjegul Kadyraliyeva struggled to survive on the dollars he sent home to her in Kyrgyzstan. Now she fears she will have to feed her grandson on the loose change she earns selling dried yogurt balls and lollipops on the pitted streets of Bishkek, Kyrgyzstan’s capital.

Russia’s economic crunch and a falling rouble—a consequence, exacerbated by economic mismanagement, of sharply lower global oil prices—worry millions of Central Asians who depend on relatives working in the former imperial power to send money home. According to the World Bank, remittances are equivalent to a third of GDP in Kyrgyzstan and almost half in Tajikistan. As the Russian currency sinks, the amount guest workers are able to remit, usually in dollars, falls too. Remittances to Uzbekistan fell by 9% in the third quarter of 2014 compared with a year earlier, according to central-bank statistics in Russia. One analyst believes remittances to Tajikistan are a fifth lower than a year earlier.

Regional growth has been revised downwards again and again in recent months. Central Asian currencies have also fallen. On January 1st Turkmenistan, a secretive state that is rich in gas, devalued the manat by 19%. Thanks partly to weak exchange rates, Kyrgyzstan and Tajikistan, the two poorest post-Soviet countries, face double-digit inflation. The rouble, admittedly, has fallen much further—by half in the past year. That makes Central Asian goods uncompetitive in Russia, the largest market for most of the region’s five economies. Uzbekistan’s car exports to Russia are 35% lower than a year ago. A Tajik selling imported nuts and dried fruit in Moscow says his profit margins have gone.

As for Central Asian labourers in Russia, some of their leaders expect about a quarter to return home. The prospect of hundreds of thousands of unemployed young men flooding these weak states should terrify Central Asia’s graft-prone governments, which do little to create jobs and rely on emigration to ease social pressures. In 2009, in the previous financial crisis, remittances to Kyrgyzstan fell by 28% and men returned home. That set the scene a few months later for the violent overthrow of the country’s elected president-turned-dictator, Kurmanbek Bakiyev.

Yet despite the obvious risks of being yoked to the Russian economy, Kyrgyzstan is rushing to strengthen ties with Russia by joining the Eurasian Economic Union (EEU), an intended counterweight to the European Union. Dominated by Russia, the EEU is a customs union of former Soviet states whose rules came into effect on January 1st. Even Kyrgyzstani officials expect the country’s membership—to be finalised by May—to double unemployment. Aktilek Tungatarov, head of the International Business Council, a business lobby in Bishkek, says: “People are very anxious about the upcoming integration. Our leaders cannot explain what the benefits are.” Central Asian businesses say it will continue to be hard to break into the Russian market, while many Central Asians think the union is an attempt by President Vladimir Putin of Russia to reinstate the Soviet Union, in effect. Kazakhstan is a co-founder of the EEU and its only Central Asian member. But the union got off to a bumpy start. Trade with Russia fell by a fifth last year (by contrast, trade with China is growing fast). The two countries bicker over Russia’s meddling in Ukraine.

Kyrgyzstan’s prime minister, Djoomart Otorbaev, says there is “no alternative” to the country joining the EEU. For almost two decades, traders in Kyrgyzstan took advantage of WTO membership to import cheap Chinese goods and re-export them to other post-Soviet countries, including Russia. The EEU’s barriers put an end to that. “The old model does not work any more,” says Talant Sultanov, director of Kyrgyzstan’s National Institute for Strategic Studies, a government think-tank. He says Kyrgyzstan has to learn how to manufacture, which will be hard.

Meanwhile, Russia wants to expand the EEU and set its stamp on it. Roughly half of Tajikistan’s working-age males labour in Russia, along with as many as 6m Uzbekistanis. On January 1st Russia began requiring migrants from non-EEU members to sit Russian history and language tests. Moscow’s city government has tripled the amount foreign workers from outside the EEU must pay for work permits. These are not-so-subtle hints.

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About Ahmed Islamov

I was born and raised in Uzbekistan and lived in that country for about two thirds of my life. I left the country about 14 years ago but sustained tight bonds with my family and friends living there. I know and communicate personally with hundreds of people including blue-, white- or pink-collar workers. I am naturally very attached to and concerned with everything that is going on there.
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