The Eurasian Development Bank headquarters in Almaty, Kazakhstan. Economic cooperation among the Central Asian countries could get a shot in the arm from Chinese interest in the region.  Photo: Shamil Zhumatov, Reuters
The Eurasian Development Bank headquarters in Almaty, Kazakhstan. Economic cooperation among the Central Asian countries could get a shot in the arm from Chinese interest in the region. Photo: Reuters / Shamil Zhumatov

The Covid-19 pandemic and economic slump have halted trade growth among the member states of the Eurasian Economic Union, a free-trade bloc. But Russia is keen to keep its Greater Eurasia project alive, and a virtual congress to that end was held in Moscow late last week.

In May, the Eurasian Economic Commission (EEC), the executive body of the EAEU, estimated that collective gross domestic product this year could contract by somewhere between 3.2% and 7.2%.

In August, the EEC stated that trade turnout increased by 2.5%, to US$4.1 billion, in the first half of 2020 compared with the first six months of last year. But in monetary terms, mutual trade in non-primary non-energy goods decreased by 7.0%, to $18.2 billion.

Other data reveal that freight turnover decreased by 6.6% in January-September compared with the same period last year. The decline will likely be even steeper as the countries in the union are struggling with a second wave of the Covid-19 pandemic and anticipating the third one in a few months.

As in the rest of the world, the EAEU has been struggling with unemployment. According to recently published data, around 3.9 million people in the bloc were recorded as jobless at the end of October. That is almost four times as many as in the same time last year.

The numbers seem better if contrasted to the slump within the European Union. But declining prices on energy sources and political volatility in Armenia, Belarus and Kyrgyzstan raise further concerns about future integration.

The economies of the EAEU members, first and foremost, rely on the export of raw materials. This has made them vulnerable to the disruption of supply chains, the slump in global demand and, most important, the long-term transition to a green economy among leading economies.

In April, data from January-April revealed that mineral products constituted 62.6% of trade with non-EAEU members, metals and metal products 9% and agriculture 7.2%. Russia holds the lion’s share with four-fifths of the export.

Moscow managed to avoid a double-digit economic decline this year, in contrast to neighboring EU members. But the unclear long-term recovery trajectory and an overwhelming reliance on oil and gas raise concerns about Russia’s ability to remain an attractive trading partner for the former Soviet states.

These and other concerns were most recently addressed on the sidelines of the First Eurasian Congress, organized by the Eurasian Development Bank (EDB). The event was held in Moscow last Friday and attended, virtually, by Russian Prime Minister Mikhail Mishustin and other high-ranking officials and businessmen.  

During the event, VEB.RF, the EDB, the Development Bank of Belarus and the Development Bank of Kazakhstan signed a memorandum on cooperation among development banks of the EAEU. The document is intended to stimulate the investment activities of development banks, which, in turn, could strengthen the integration processes.

“The memorandum is not only the continuation of successful cooperation but also a new stage in the relationship between the key financial institutions of our countries, aimed at the development and integration of the EAEU countries,” said Nikolai Podguzov, chairman of the EDB.

During the panel discussions, special attention was devoted to investments in infrastructure. China’s trade turnout with the EU has reportedly increased six times during the past 20 years. The EAEU is hoping to take around 6% of that amount by 2030 by earnings from transit and its strategic geographic location.

Benefits could also come from a common energy market for the nations not sitting on large oil and gas reserves. This could significantly reduce the cost of lighting and heating homes. The formation of a common gas market that was agreed upon in 2016 and is due in 2025 was discussed during the congress on Friday.

China has increasingly been seen as the market on which the EAEU is pinning its long-term trade-diversification hopes. For instance, last year, a subsidiary of Russia Railways and a Chinese company called YuXinOu agreed jointly to expand the Agroexpress service to manage transportation of Russian food products on high-speed refrigerated container trains to the Chinese city of Chongqing.

As well, members of the union have been investing in constructing major highways to connect western China with the EU and most recently announced integration of digital services into transportation projects.

Although the EAEU has been increasing its investments into infrastructure, however, many problems remain.

In February, Kazakhstan’s Ministry of Industry and Infrastructure announced that almost all of the countries’ 51 border-crossing checkpoints required modernization. Kazakh Senate Chairwoman Dariga Nazarbayeva, the daughter of Kazakhstan’s first president, noted that the bloc currently recognizes 66 obstacles to trade, up from 60 when the organization was launched in January 2015. By all estimates, not a significant level of improvement. 

These obstacles consist mostly of non-tariff barriers, including conflicting regulations and procurement structures that put companies of EAEU members at a disadvantage compared with domestic ones.

In addition to infrastructure, the EAEU aims to implement its version of a region-wide import-substitution agenda. The agreed document consists of three sections, the first one listing 178 “large projects” in 18 areas requiring investments of around $200 billion to support domestic manufactures.

The industrialization map is scheduled to be posted on the official website of the EAEU, with the proposed projects being coordinated through the offices of the EAEU to avoid overlap and duplication.

In general, the organization of the congress underscored the Kremlin’s commitment to its Greater Eurasia project. It’s likely that during next year, we will see more efforts to advance integration processes across the EAEU.

Dimitri Frolowscki

The author is a political analyst and independent journalist. He is a consultant on policy and strategy and has written about Russia’s foreign policy.