An Analysis of the Impact of EAEU Accession on the Kyrgyz Republic

12.08.2020 | Case Studies | Kubanychbek Sagaliev

This blog is part of the series, “Joining the Eurasian Economic Union: Perspectives from the Eurasian Business Community.” It features analysis from renowned economists from EAEU member states and Uzbekistan. This series follows the CIPE-supported virtual roundtable held on October 13, 2020 in partnership with the American Chamber of Commerce in Uzbekistan. The event recording is available in both English and Russian

 

This paper focuses on features of the accession process for the Kyrgyz Republic, the primary positive and negative consequences for the country in different areas, as well as the prospects for the development of economic relations both with the EAEU members and with other countries.

The research was carried out in two stages including desk research and stakeholder interviews. The report is based on official data from the National Statistical Committee of the Kyrgyz Republic, the Ministry of Economy of the Kyrgyz Republic, the Ministry of Finance of the Kyrgyz Republic, and other verified sources. Additionally, it takes into account findings from reports by the Eurasian Economic Commission and other independent international organizations. In addition, the research team conducted several meetings and interviews with representatives of the Ministry of Economy of the Kyrgyz Republic and the Apparatus of the Government of the Kyrgyz Republic, with the aim of obtaining their expert opinion on the issues at hand.

The research covers the specifics of the accession process for the Kyrgyz Republic, its main supporters and opposition, as well as the positions of stakeholders. In addition, the report contains detailed analysis of the implications of accession for domestic firms in several economic sectors. It also suggests a brief review of the impact that joining the EAEU had on the public sector.

In particular, the research team takes stock of the implications of accession for the state in matters of policy development, taxation, and participation in the consultative process on the EAEU policy. The last section presents an overview of the impact of EAEU membership on trade and economic relations of the Kyrgyz Republic with other countries.

Five years after the integration of the Kyrgyz Republic into the EAEU, the state, business community, and broader society understand that the country’s EAEU accession was not a one-time, short-term event, but a transition to a new integrated model of the country’s development.

We can look at several changes within the country as the main advantages of EAEU membership for the Kyrgyz Republic. Primarily, joining the EAEU contributed to an overall improvement in the business climate. Kyrgyz business is gradually establishing relations with and integrating into the EAEU business community. Second, membership in the EAEU also provided a simplified employment procedure and improved living conditions for labor migrants. Besides, membership pushed the Kyrgyz Republic to improve quality standards in the manufacturing sector, the formation of modern laboratory infrastructure, as well as the modernization of checkpoints on international borders. It is worth noting the support of EAEU partners through the Russian-Kyrgyz Development Fund, through which Kyrgyz entrepreneurs gained access to preferential loans to finance business projects.

Trade barriers at the stage of market formation can be considered one of the difficulties that arose after the accession of the Kyrgyz Republic to the EAEU. Formal and informal barriers remain a part of the protectionist trade policies of the EAEU member states. Entrepreneurs (mainly SMEs) faced difficulties in adapting to the new business environment. They expressed complaints about new administrative rules and requirements for entering the EAEU market. Namely, they mentioned that requirements for export documentation were often difficult to comply with.

Five years after the integration of the Kyrgyz Republic into the EAEU, the state, business community, and broader society understand that the country’s EAEU accession was not a one-time, short-term event, but a transition to a new integrated model of the country’s development. Over the next five years, local businesses are expected to continue adapting to new requirements for exporters. Entrepreneurs from the Kyrgyz Republic will continue to improve their products to comply with technical regulations and standards in the framework of trade relations with EAEU countries. Besides, it is possible to predict significant consequences of integration for the Kyrgyz Republic with the formation of a single EAEU energy market. The country is also expected to benefit from the promotion of the Union’s digital agenda. Lastly, the EAEU aims to create a single market for services and capital by 2025, which is expected to have a positive impact on the business environment in the Kyrgyz Republic.

After completing the study, CIPE, together with the American Chamber of Commerce in Uzbekistan, organized an online presentation of the research results. Beyond Investment Group’s team had the opportunity to meet leading experts from Armenia, Kazakhstan, Russia, and Uzbekistan. Group discussions on the research results were brief but open-minded and reasonable. It was especially interesting for our economists to discover that the process of Armenia’s EAEU accession was similar to the situation in the Kyrgyz Republic in many ways. In addition, the discussion on the processes of protecting the interests of Kazakhstan in the EAEU were interesting. This event was a valuable experience for Beyond Investment Group’s team. It built a platform for dialogue and knowledge exchange, which allowed us to take a fresh look at modern trends and prospects in the context of integration both for the Kyrgyz Republic and for partner countries.

 

Kubanychbek Sagaliev is the Director of Beyond Investment Group, a management consulting firm based in Bishkek, Kyrgyz Republic.