_ Maria Levina. Bishkek, 24 January 2019.
Success of the Eurasian Economic Union (EAEU) in achieving its ambitious goals will depend on business. To this end, it is necessary to strengthen the relationship between government agencies, the Eurasian Economic Commission (EEC) and the business community, Kyrgyz Deputy Prime Minister Jenish Razakov said.
“It is vital to strengthen relations between businesses and government agencies not only within the EAEU member countries but also with third countries,” said Executive Director of the International Business Council based in Bishkek, Askar Sydykov.
The Kyrgyz Ministry of Agriculture, Kyrgyz Union of Industrialists and Entrepreneurs and X5 Retail Group LLC from Russia signed a protocol on increasing the presence of Kyrgyzstan’s products in the X5 Retail Group stores which has more than 14 thousand stores in Russia.
A Committee on the integration of food markets under the EAEU Business Council was created and a Memorandum with Russian trade networks and Kyrgyzstan’s suppliers signed.
The event was held at the initiative of the Kyrgyz Union of Industrialists and Entrepreneurs together with the Office of the President and the Government of Kyrgyzstan, and the Trade Representation of the Russian Federation in the Kyrgyz Republic.
Obstacles and barriers
The EAEU integration is hampered by restrictions and barriers related to legislation which is not fully harmonized, said President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin.
All five EAEU member countries — Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia — are bound with other agreements, for instance, with the WTO. Currently, solutions are being developed to unify some laws in the EAEU member countries, Kyrgyz Deputy Prime Minister Razakov said. Many negotiations with third countries are being held. “Participating in the EEC Standing Committee meetings, I saw some misunderstandings between the countries, but there is a clear idea that businesses need to work more closely,” Razakov added.
According to Galiya Dzholdybayeva, Director of the EEC Business Development Department, there are 49 sectors in the unified service market, but there is no feedback. “We do not know how this system works, since there are no complaints and suggestions,” she said.
Using competitive advantages
The EAEU needs to use its competitive advantages, especially in digital transformation, said Alexander Shokhin, who is also the EAEU Business Council Presidium member.
The Eurasian financial development institutions should offer businesses affordable and profitable banking products and to provide them with modern programs and financial resources.
Shokhin told about main EAEU objectives including digital trading, building transport corridors, cooperation, data turnover and regulatory sandboxes for projects. He explained that the regulatory sandbox allows FinTech startups and other innovators to conduct live experiments under regulators’ supervision. Regulatory sandboxes are gaining popularity, mostly in developed financial markets.
The EAEU has significant transit potential, because the Union countries are located at the main transit routes with access to Europe.
Kyrgyzstan offered its own integration directions including the B2B activity and the creation of a single platform of credit histories. Razakov urged the business community to come up with its own initiatives.
The EAEU integration is slow due to objective and subjective factors, and the business feels it, said Alexander Murychev, vice president of the Russian Union of Industrialists and Entrepreneurs. New tools and motivation are needed to create a trusting environment between the state and business. For businesses to trust the state, government policies should be predictable, and the business needs guarantees of investments protection ensured by law, Murychev concluded.
Kyrgyzstan and Kazakhstan
Kazakhstan is interested in creating joint ventures with Kyrgyzstan. According to official data, the trade turnover between Kazakhstan and Kyrgyzstan increased by 10% in 2018.
“We believe this figure should be higher. According to our experts, there is a great opportunity for trading in 20 commodity items,” Vice Minister of National Economy of Kazakhstan Aibatyr Zhumagulov said.
There are unequal investments between Kyrgyzstan and Kazakhstan. Since 2005, Kazakhstan has invested $700 million in Kyrgyzstan, while Kyrgyzstan’s figure is of minus $100 million. The two countries need to develop mutual investments, Zhumagulov believes. Kazakhstan occupies the 28th place in the Doing Business rating and the first place in protecting minority investments. This means that investments are reliably protected by the state.
Kazakhstan is also interested in digital integration. There is a separate item on this in the Roadmap signed by the two countries in 2017.
There are about 50 areas that can be implemented together with Kyrgyzstan, the Kazakh Deputy Economy Minister concluded.
Russia and Kyrgyzstan
Foreign direct investment is among the main indicators of the countries’ relations, Vice-President of the Russian Union of Industrialists and Entrepreneurship Murychev said. Foreign direct investment accounts for 5% of the total EAEU countries’ GDP.
The participants discussed ways to increase integration and create attractive conditions for businesses. Regarding support for small businesses, a lot of papers have been written, but there is no control over their implementation. “We expect the governments to work more efficiently,” Murychev said.
Russian business is interested in infrastructure projects in Kyrgyzstan, including the construction of roads, airports and terminals, as well as the railway and everything connected with it. Russian business can also invest in mining and agriculture.
Problems faced by businesses
On January 25, Kyrgyz Economy Minister Oleg Pankratov and representatives of the leading business associations discussed topical problems that impede the development of the domestic business.
Leaders of business associations told about the complexity of international transportation when crossing the borders of Russia and Kazakhstan, and shortcomings of the harmonization of excise taxes on alcohol and tobacco. They also informed on the problems faced by entrepreneurs working in the free economic zones.
This year, the tax exemptions for FEZ entrepreneurs will lose their full force. The business proposed to extend tax breaks for the FEZ entities. According to the Bishkek FEZ General Directorate, the FEZ output is expected to decrease by 30% if the new rules are introduced.
The parliament deputies supported the suggestion to extend tax breaks but the Economy Ministry insists on its proposal to remove tax benefits, as it would help increase tax revenues to the state budget.
Currently, there are five FEZs in Kyrgyzstan — in Bishkek, Karakol, Naryn, Maimak, and Leilek. The most of entities, almost 300 enterprises, are located in the Bishkek FEZ.
Solving business problems requires an immediate response from the government. While the Economy Ministry is in search of solutions, businesses are facing barriers at the borders of the EAEU countries and suffering huge losses.
The Russian President extended the ban on the transit of goods from Ukraine until July 1, 2019. According to the EAEU Treaty, it is impossible to take discriminatory and restrictive measures that impede the promotion of goods and services against Kyrgyzstan, a full EAEU member. The conflict of one EAEU member state with a third country should not bring economic damage to the rest of the EAEU members, Vice-President of the Kyrgyz Chamber of Commerce and Industry Nurlan Musuraliyev said.
There are also complaints of Kyrgyz carriers about Russian customs authorities including the actions of the Orenburg Customs mobile groups, which conduct customs inspections without specifying the reasons for inspections. According to the Kyrgyz CCI, this is a disregard for the EAEU principles of the free movement of goods and services.