WELCOME TO IWPR'S REPORTING CENTRAL ASIA, No. 622, July 23, 2010 TURKMENISTANS DUBIOUS HARVEST CLAIMS Officials report high grain production but farmers say that is impossible given the current state of agriculture. By IWPR Central Asia
COMMENT COMMON MARKET TO TRANSFORM KAZAKSTAN Agreeing customs arrangements with Russia and Belarus just the first step towards greater economic viability. By Vyacheslav Dodonov INTERVIEW CUSTOMS DEAL BRINGS KAZAKS CLOSER TO RUSSIA Joining customs union with Russia and Belarus means good as well as bad changes for Kazak businesses, economic expert argues. By Saule Mukhametrakhimova **** NEW ************************************************************************************ VACANCIES AVAILABLE: http://iwpr.net/what-we-do/vacancies **** IWPR RESOURCES ****************************************************************** CENTRAL ASIA PROGRAMME HOME: http://www.iwpr.net/programme/central-asia IWPR COMMENT: IWPR COMMENT: http://iwpr.net/report-news/editorial-comment BECOME A FAN OF IWPR ON FACEBOOK http://facebook.com/InstituteforWarandPeaceReporting FOLLOW US ON TWITTER http://twitter.com/iwpr **** http://iwpr.net/ ********************************************************** RSS FEEDS: http://iwpr.net/syndication/builder DONATE TO IWPR: http://iwpr.net/donate **** http://iwpr.net/ ********************************************************** TURKMENISTANS DUBIOUS HARVEST CLAIMS Officials report high grain production but farmers say that is impossible given the current state of agriculture. By IWPR Central Asia The Turkmen authorities upbeat claims for this years grain harvest are not shared by farmers and agricultural experts. They say that because of numerous difficulties facing the farming sector, the true figure is likely to be much lower. Speaking at a cabinet meeting on July 9, Turkmen president Gurbanguly Berdymuhammedov reported that at the conclusion of the annual grain harvest, farmers had gathered enough to satisfy domestic demand. At somewhere over 1.4 million tons, the official harvest figure fell short of the target of 1.6 million, the Russian news agency RIA Novosti. It was nevertheless hailed as a success, as it was 200,000 tons more than the figure announced for last year. When the Soviet Union collapsed in 1991, Turkmenistan found itself dependant on grain imports, as its agriculture was largely given over to cotton production. The harvest traditionally ends with great fanfare, with Galla Bairamy, a national holiday established in 1998, the year the harvest first topped one million tons, allowing the Turkmen leadership to announce that the country was now self-sufficient in grain. The festivities held around the country on July 18 combined agricultural exhibits, food stalls and awards ceremonies for the most successful farmers. Meanwhile, the state-run media put out stories saying that the harvest success was thanks to agricultural reforms pursued by President Berdymuhammedov since he came to power in 2007, following the death of his predecessor Saparmurat Niazov. The reforms included paying farmers more for produce sold to the state, offering them better loan facilities and improving social infrastructure in the countryside. But farming experts say the reforms have so far had little impact on the fundamental obstacles that prevent more efficient production. Under Niazov, the large Soviet-era collective farms were dismantled and replaced by small private farm holdings. But Farmers say the old ways persist, and the state continues to decide where grain is to be sown, set production quotas for farmers and buy up crops at prices too low to create any incentive. Its impossible for a farmer to earn money for himself because of the contracts imposed by the state, said one farmer. Its just notional that farms are held privately, while in reality we are forced to sell all our harvest to the state for next to nothing, without keeping anything back in reserve for our own needs. Government quotas are the same for all regions of Turkmenistan, regardless of differences in climate, soil quality and the availability of irrigation water in this arid country. The state does provide farmers with seed and fertiliser, which relieves them of some of their cashflow problems in spring. But a farmer from Balkan, a western region, complained that these inputs were often sub-standard quality, with damp seed that did not produce seedlings. Another farmer, from Dashoguz in the north, complained that it was almost impossible to meet government targets there because this part of the country was short of water. An expert in the agricultural industry said the result of all these shortcomings was that a more accurate figure for this years production was likely to be under 800,000 tons, or half the amount the government was claiming. He said that to keep the population supplied with the staple bread, the government regularly imports grain from neighbouring Kazakstan, and this higher-quality flour is on sale at almost every market in Turkmenistan. A former collective farm head in the southern Ahal region who gave his name as Oraz was similarly sceptical. All the information that the country has achieved independence in food production is wishful thinking on the part of the authorities, he said. This farmer said pressure to complete the harvest meant that the end date was ordained from above, rather than being extended for as long as necessary to ensure the crop was ripe. As a result, the crop was often cut before it was ready, and would rot in storage, further depleting grain reserves. Despite claims of high production, and the addition of imports from Kazakstan, bread shortages are not uncommon outside the capital Ashgabat. In the provinces, people often have to queue for hours before the bakeries open. People from villages near Ashgabat travel into the city just to buy bread. (The names of interviewees have been withheld out of concern for their security.) This article was produced jointly under two IWPR projects: Building Central Asian Human Rights Protection & Education Through the Media, funded by the European Commission; and the Human Rights Reporting, Confidence Building and Conflict Information Programme, funded by the Foreign Ministry of Norway. The contents of this article are the sole responsibility of IWPR and can in no way be taken to reflect the views of either the European Union or the Foreign Ministry of Norway. COMMENT COMMON MARKET TO TRANSFORM KAZAKSTAN Agreeing customs arrangements with Russia and Belarus just the first step towards greater economic viability. By Vyacheslav Dodonov When the presidents of Russia, Kazakstan and Belarus signed off on common customs procedures on July 5, it was a major step towards activating the trilateral customs union that came into being at the beginning of this year. Within Kazakstan, there is a need to depoliticise the question of customs union membership and judge it solely by the hard facts and probable effects, rather than by unfounded statements by a narrow class of businessmen or politicians pursuing their own ends. That means looking at the implications for the various actors consumers as well as producers in the wider context of globalisation. In its final form, the customs union envisages an end to customs barriers between member states, common duties on imports from third countries, and a shared trade policy. For Kazakstan, accession to the union will have complex, diverse and multi-faceted effects. These will be variously positive or negative for different social groups and corporate entities. This is logical given that their economic interests differ for example, consumers and producers have completely opposing interests when it comes to pricing. As Russian and Belarusian companies gain easier access to the Kazakstan market, domestic companies will clearly face greater competition, and local producers will be at a disadvantage, particularly those in the food and light industrial sectors. But what is bad for producers may be good for the consumer, as competition will bring lower prices. Take another problem increasing duties to the Russian level will make imports more expensive for Kazakstan, for example cars, which Kazakstan imports but does not make, unlike Russia. But it is important to realise that customs union arrangements are reached through compromise, so a rise in import duties for Kazakstan will be compensated for by reductions in other areas. For instances, transit charges for Kazak goods passing through Russia will go down, while agricultural produce from Kazakstan will gain wider access to the Russian market. Regional integration is now a rising trend around the world. There are now 34 regional trade agreements including 14 customs unions spread across all continents. It is an essential part of globalisation, driven by the need to make national economies more competitive and stable in an environment of increasing global instability. In all such arrangements, wherever they may be, elements of national economic sovereignty are delegated to a supra-national institution. Until the Russia-Kazakstan-Belarus union has really made some headway, it will be impossible to quantify the advantages of membership. For now, one figure worth noting is that the actual customs revenues Kazakstan will get will be much higher than they would logically be if they were directly proportional to its share of all imports from outside the customs union. That reflects the measures taken to compensate it for higher duties on imports within the union. There may be fears that higher import duties for items coming from outside the union will fuel domestic inflation by bumping up retail prices. But this is only part of the story. One must not forget that duties on items from Russia and Belarus will generally be lower, and since these include foodstuffs, they account for a high proportion of the average consumer basket. There is thus little need to fear that the customs union itself will result in inflation. What is more likely is that prices will go up as the economy grows and the standard of living rises, assuming that Kazakstans exports benefit from healthier global commodities markets. In short, the overall balance sheet looks positive. Kazakstans entry to a common customs zone will reduce the cost of trading with fellow-members an important factor given that Russia is its biggest trading partner. Stronger trade will stimulate economic growth, as ahs happened in other customs unions. And most important of all, the main advantage for Kazakstan that being in a common market which will make its economy look more inviting to investors. Its market is not currently big enough to attract large manufacturing firms. And it needs this kind of investment if it is to diversify from its current reliance on the extraction and export of oil and metals. As part of a market of 170 million consumers, Kazakstan could realistically move towards high-end manufacturing driven by foreign investment. Vyacheslav Dodonov is senior researcher at the Kazakstan Institute for Strategic Studies. This article was produced jointly under two IWPR projects: Building Central Asian Human Rights Protection & Education Through the Media, funded by the European Commission; and the Human Rights Reporting, Confidence Building and Conflict Information Programme, funded by the Foreign Ministry of Norway. The contents of this article are the sole responsibility of IWPR and can in no way be taken to reflect the views of either the European Union or the Foreign Ministry of Norway. INTERVIEW CUSTOMS DEAL BRINGS KAZAKS CLOSER TO RUSSIA Joining customs union with Russia and Belarus means good as well as bad changes for Kazak businesses, economic expert argues. By Saule Mukhametrakhimova Leaders of Russia, Kazakstan and Belarus signed a statement on July 5 introducing a single customs regime for all three countries, a significant step towards creating a common market for a combined population of some 170 million people by the end of 2012. The deal was signed at a meeting in the Kazak capital Astana on July 5 by Russian president Dmitry Medvedev, Kazakstans leader Nursultan Nazarbaev and their Belarusian counterpart Alexander Lukashenko. The three countries have been in a customs union since the beginning of the year, following a final agreement signed by the three leaders in November. The July meeting took place on the sidelines of a summit of the Eurasian Economic Community, EurAsEC, a wider grouping that also includes Kyrgyzstan, Tajikistan, Ukraine and Armenia. During the summit, Kyrgyz and Tajik officials expressed an interest in joining the customs union. IWPR asked Galina Nakhmanovich, an economist with the Almaty-based Institute of Political Solutions, to explain the significance of the new customs rules for Kazakstan. IWPR: Whats the significance for Kazakstan? What specifically has changed? Nakhmanovich: The entry into force of the customs code will have a profound effect on the way business is done in Kazakstan whether its large exporters of raw materials or a small and medium-sized commercial firms operating only on the domestic market. The specific nature of Kazakstans economy its orientation towards raw materials exports, its underdeveloped processing industries, the low level of domestic consumption, and its remoteness from markets in the developed world in terms of transport makes it particularly vulnerable to things like this. For a transitional period when certain existing standards continue in force for some member countries, the changes will not be so visible. But later on, if the customs union project works out, there will be radical changes. IWPR: Kazakstans accession to the customs union has been criticised by various political and business groups inside the country, who say it wont benefit the country. Are their criticisms justified? Nakhmanovich: The constructive criticisms mainly concern the numerous unresolved legal issues, above all the mechanics of trade regulation. Such criticism mostly comes from those who are practically involved in running businesses, and above all those working on the logistics side. Kazakstans businessmen have an interest in rules for transporting, promoting and selling goods, capital and labour that are as understandable, transparent and simple as possible. Many of their comments are valuable and should be looked at by the customs union commission. Theres also criticism from certain commercial circles which dont want to change current ways of doing business and are therefore trying to fight back by exploiting the lack of public awareness. The customs union also has its political opponents, above all among the national patriots, who want to gain political capital by resisting it and using various scaremongering slogans to the effect that Kazakstan is falling under the Russian yoke, that its becoming Russias back yard for raw materials, or that the customs union is a road back to the USSR. IWPR: One of the concerns expressed by critics of the customs union is that Russia will use its dominant economic position to ensure that the customs unions rules are more advantageous to it. The most commonly cited example is that car import duties will rise to Russian levels, which will benefit Russian manufacturers but hit consumers in Kazakstan. Are these concerns justified? Nakhmanovich: Its impossible to say for sure that Russia is the only one dictating its own rules for the customs union . Each country has its own, long-established customs practices. So far, some of the issues have been resolved by introducing a transitional phase during which customs duties on some categories of goods, for example car imports to Kazakstan and Belarus. At the same time, Kazakstan has made concessions by cancelling the old simplified procedures for individuals importing up to 2,000 tons of consumer goods. IWPR: This will obviously have an impact on small traders. What are the implications of this new rule for this kind of trade? Nakhmanovich: Abolishing this import regulation and introducing new rules for individuals effectively changes the entire business of local shuttle-trading. Its still hard to say what impact it will have on their income, expenditure and costs. One thing that is clear is that it will change the logistics of their business. The common customs area carries risks but offers big opportunities by providing access to markets in Russia and Belarus. By using its geographical advantage its location between Russia and China Kazakstan could earn a good income. The new legal and regulatory framework, standards and regulations introduced by the customs union will have a significant influence on wholesale and retail trade . It means the beginning of the end for shuttle trading in Kazakstan . Initially it will lead to price rises for imports that used to be cheap, as the volume of grey imports will be significantly reduced. As for the prospect of unemployment created by the customs union, this is a multi-faceted problem. On the one hand, the closure of flea markets will put traders there out of work. On the other hand, the customs union will mean new trade and logistical centres are needed, generating new jobs. Moreover, people who are laid off will not only get new jobs, but also social guarantees, for example, guaranteed wages, pension contributions, paid leave and so on. It is no secret that many of these workers are basically operating illegally, with no guaranteed wages and completely reliant on the integrity of their employer. IWPR: The introduction of the customs union is just the first step towards establishing a common economic space among member countries. What other practical issues have to be solved along this road? Nakhmanovich: All the member states view the introduction of a customs code as the start of a transition that will precede the full operation of the customs union. Common customs duties are in place, the customs code has been signed, and discussions are under way about the next stage of integration developing a legal and regulatory framework for the common economic space. But many issues remain unresolved strengthening the borders of member countries, the time-scale for ending customs controls on the borders harmonisation of members members tax legislation, and much else . The success of the customs union project depends to a large extent on how long and effective the transitional phase is, since the legal ambiguities and confusion will prolong the process for many years and negate efforts towards its creation. There are examples of how problems can be solved. As of July 6, Russian, Belarusian and Kazak businessmen can either use a common customs declaration confirming the quality of goods or continue to use their national documents until January 2012. Saule Mukhametrakhimova is IWPR Central Asia editor in London This article was produced jointly under two IWPR projects: Building Central Asian Human Rights Protection & Education Through the Media, funded by the European Commission; and the Human Rights Reporting, Confidence Building and Conflict Information Programme, funded by the Foreign Ministry of Norway. The contents of this article are the sole responsibility of IWPR and can in no way be taken to reflect the views of either the European Union or the Foreign Ministry of Norway. **** http://iwpr.net/ ********************************************************** REPORTING CENTRAL ASIA provides the international community with a unique insiders' perspective on the region. Using our network of local journalists, the service publishes news and analysis from across Central Asia on a weekly basis. The service forms part of IWPR's Central Asia Project based in Almaty, Bishkek, Tashkent and London, which supports media development and encourages better local and international understanding of the region. IWPR's Reporting Central Asia is supported by the UK Community Fund. The service is published online in English and Russian. The opinions expressed in Reporting Central Asia are those of the authors and do not necessarily represent those of the publication or of IWPR. REPORTING CENTRAL ASIA: Editor-in-Chief: Anthony Borden; Managing Editor: Yigal Chazan; Senior Editor and Acting Central Asia Director: John MacLeod; Central Asia Editor: Saule Mukhametrakhimova. IWPR PROJECT DEVELOPMENT AND SUPPORT: Executive Director: Anthony Borden; Head of Programmes: Sam Compton. **** http://iwpr.net/ ********************************************************** IWPR gives voice to people at the frontlines of conflict, crisis and change. 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