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finding the line: central asia welcomes russian businesses, but fears sanction violations

Finding the Line: Central Asia Welcomes Russian Businesses, but Fears Sanction Violations

Author: Devon Sealander

Apr 13, 2022

Image source: Reuters

Economic sanctions against Russia have hit at all levels of the country’s economy, prompting an exodus of Western businesses with the flexibility to relocate elsewhere or abstain from Russian operations entirely. For the businesses that remain, the ongoing war in Ukraine has not only created critical operating challenges, but also public image problems that have made retaining top talent and international clients difficult. The comprehensiveness of these sanctions has prompted Russian businesses to look abroad in the hopes that reestablishing operations elsewhere will provide some relief, although the challenges associated with relocation have led to only a modest number following through on such plans.

Shared historical and economic ties have contributed to making Central Asian countries top contenders for relocation. Russian businesses find themselves drawn to familiar business environments and considering ease of trade with Russia. Armenia, Kazakhstan, and Kyrgyzstan are members of the Eurasian Economic Union (EAEU), along with Belarus and Russia. The EAEU’s goal is to increase economic cooperation and trade among its members. Economic, demographic, historical, and geographic realities give Russia the ability to call the shots within the grouping on anything it deems important.

Additionally, most Central Asian countries offer visa free travel to Russian citizens. With airspace across much of Europe and North America now closed to Russian planes, the relative ease of cross border movement has made the former Soviet Republics a leading destination for significant portion of the 200,000 Russians who fled the country in the first weeks of Russia’s invasion of Ukraine.

Many of these individuals belong to the IT and computer technology sector, one of the sectors to pivot away from Russia-centered operations the fastest. As many as  70,000 computer specialists have already left Russia, with many more likely to follow. International businesses with branches in Russia have sought to extract their workers and set up new outposts in Armenia, Israel, Turkey, and Central Asia. But it is not just international corporations that have withdrawn from the turbulent Russian economy; Russian cab-hailing app, InDriver, has confirmed its intent to move to Almaty. Other Russian businesses in manufacturing and transit sectors have expressed interest in relocation, but have been slower to follow through on these plans.

Central Asian governments recognize the economic boost that these businesses could provide and are eager to take advantage of current opportunities. Already, Central Asian governments have sought to implement additional measures to make their countries attractive for corporate operations including making the process to obtain business licenses easier for Russian IT workers. Attracting foreign workers and businesses to Central Asia has been an important cornerstone for the region’s development strategy. Kazakhstan, in particular, has sought to incentivize technological innovation through the development of a specialized technology park and by offering tax breaks, loans, and grants to entities that established business there. The recent Tashkent International Investment Forum, hosted by Uzbekistan and attended by high profile international business leaders, continued dialogue on regional development plans, focusing on measures to engage in greater regional cooperation and means to entice foreign capital. The movement of skilled workers and businesses from Russia provides a unique opportunity for the Central Asian countries to accelerate the achievement of their established development goals by increasing the number of skilled workers and technical jobs available domestically.

While eyeing new opportunities that this influx of Russian capital can provide, governments must work to ensure that they are not abetting Russian businesses that seek relocation as a means to avoid sanctions. Public statements show Central Asian governments are willing to act to uphold western sanctions, but the full scope of actions needed to maintain compliance is not currently clear. In a recent interview, the Kazakhstani Vice-Minister of Trade and Integration Kairat Torebayev quipped, “Where is the red line between aeroplanes and yogurt?” The ambiguity in sanctions has raised a number of questions about their specific intent, targets, and reach. It is not always readily apparent what types of businesses are able to continue routine operations with Russian entities without running afoul of the sanction regimes. At the same time, and as noted in the Executive Order President Biden signed April 6 there are definite negative, severe ramifications for companies and individuals running afoul of those sanctions efforts.  

Kazakhstan has sought clarification from the European Commission, receiving clearance to act as a conduit for European businesses to legitimately sell goods to Russia while ensuring that sufficient controls are enacted to ensure that sanctions are not bypassed. This type of dialogue is necessary to ensure that the exact intent of western sanctions is precisely delineated so that Central Asian countries may conduct business without fear of accidentally violating existing sanctions and incurring significant penalties.

Central Asian countries have indicated their willingness to work to ensure they do not run afoul of the international sanctions and their implementation. The West should respond to these efforts. In this regard, greater engagement from the U.S. government, especially the Treasury Department, is also needed now in the region to clarify guidelines to avoid violating sanctions and allowing legitimate business.

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