COVID-19 Pandemic Encourages Caspian Countries to Further Develop Electronic Commerce
May 1, 2020
The need to remain at home for the duration of the COVID-19 pandemic is causing businesses in the Greater Caspian Region to adapt and to utilize the digital economy. As Kristalina Georgieva, Managing Director of the International Monetary Fund, told an audience on April 27, the digital economy will be a “big winner” coming out of the COVID-19 crisis. How far these efforts will go and how successful they will be in the countries of the Greater Caspian Region depend on a number of factors, including how well-developed the necessary backbone infrastructure is within a country as well as how open and comfortable the populations are with e-commerce. Still, while governments may adopt programs that promote e-commerce, many businesses are micro-enterprises, small family-owned firms or service providers that can only move so far into the digital economy.
Many countries in the region have imposed strict stay-at-home orders to curb the spread of COVID-19, causing people to seek alternative methods to acquire needed food, services, and household goods. With so many in the region restricted to their homes and some business owners fearful of accepting cash payments, the attraction of e-commerce platforms has greatly increased.
Several countries in the Greater Caspian Region had rolled out initiatives to improve their digital economies prior to the COVID-19 outbreak, e.g., as part of their economic diversification efforts or as part of programs to improve national infrastructure or strengthen regional connectivity. Georgia, for instance, was a pioneer in e-commerce programs and has a reputation for leading in this field. In 2009, it became the first country to complete a Visa contactless transaction among Caspian and Southern European countries. Georgia was also the first country in the Caucasus to launch Apple Pay in 2019. The country now has the highest percentage of contactless payments in the world as 95 percent of transactions are completed using contactless cards or digital wallets. To provide relief for Georgian families who do not want to leave their homes to purchase household goods, the government is beginning to allow companies to resume e-commerce services. These services were initially suspended after the state of emergency was declared, but they will be allowed to resume operations after passing an inspection sponsored by the government.
Mastercard sponsored the Cashless Azerbaijan 2018-2020 project to encourage people to switch to cashless transactions. Initiated by the Central Bank of Azerbaijan, the idea was to increase the proportion of transactions completed digitally to make the economy more secure and transparent. The project also seems to fit with the broader government efforts to regularize business activities, to improve and regularize its taxation system, and to move business activities out of the gray market.
Similarly, Kazakhstan initiated a plan in coordination with German companies to develop its digital economy in February. Officials hope that the initiative will improve the efficiency of essential industries. In 2018, then-President Nursultan Nazarbayev implemented “Digital Kazakhstan” to prioritize digital technologies. The program precipitated an annual increase of information and communications investments by 40.3 percent to $238.9 million in 2018.
Digital companies’ willingness to comply with local laws display their reliability in promoting the digital economies of the Caspian Region. For example, several foreign companies have voluntarily registered with the VAT office in Uzbekistan. These companies include Google, Netflix, Apple, and Samsung. The larger companies will act as an example for smaller enterprises looking to engage in the digital economy.
Remittances from those working abroad could be another factor encouraging the growth and use of digital services in the region. Russia’s decision to shut its borders to foreigners meant an additional economic burden for families in the region. According to the Bank of Russia, 33.9 percent of Tajikistan’s GDP is reliant on remittances from Russia. That figure is 29.7 percent for Kyrgyzstan, 9 percent for Armenia, 8.1 percent for Uzbekistan, 3.6 percent for Georgia, and 2.3 percent for Azerbaijan. More developed e-commerce platforms will make it more feasible to transfer remittance payments from Russia to their respective home countries.
The COVID-19 pandemic can provide further opportunities for the Caspian countries to digitize their economies, providing incentives for designing innovative solutions to serve customers and to keep their businesses functioning. Countries that have already instituted policies to promote e-commerce will be in a much better position to do so compared to those which have not been as active on this front, but others can certainly catch up.