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Russia Introduces Limits on Remittances. How Will They Affect Businessmen of Kyrgyzstan?

According to experts, this is a restriction of the freedom of capital transfer, which is envisaged by the EAEU. In the longer term, it will lead to the fact that Kyrgyzstan will lose its niche of a supplier of cheap sewn products in Russia.

According to the Central Bank of Russia, the largest remittances of individuals in Russia were made to Switzerland, Uzbekistan and Tajikistan in 2017.

In 2018, the majority of remittances were made to Uzbekistan, Switzerland and the United States.

Among the top ten countries that are destinations of cash remittances from Russia, Kyrgyzstan, Kazakhstan and China are at the bottom of the list. However, according to the analysis of the Central Bank, these are the countries that supply “grey import” – the goods that pass the border with lower tariff rates because of inaccurate declaration.

Thus, entrepreneurs from Russia make remittances to manufacturers of China and Vietnam, and to dealers of Kazakhstan and Kyrgyzstan. Moreover, these entrepreneurs do not register their activities and don’t pay taxes.

Therefore, the Central Bank of Russia introduced limits on cash remittances via payment systems to these countries on April 16. Now one can remit a maximum of 100 thousand roubles (1,587 dollars) per month from Russia to Kyrgyzstan without opening a bank account.

According to the estimates of the regulatory authority, this limit should cease the unregulated flow of money and make entrepreneurs work officially. The limit does not apply to migrant workers, but for businessmen it created serious obstacles.

According to the World Bank, Kyrgyzstan ranks second by the ratio of remittance volume to GDP among 214 countries with 33.6 per cent. In 2018, migrants remitted 2.69 billion dollars to the motherland, and this figure varies from 1.2 to 2.7 billion in the last 10 years.

The majority of remittances are made from Russia and after the introduction of the limit the volume of remittances has dropped significantly. 

Limits will make businessmen go underground

The leader of the youth organisation Mekenchil Zhash, Temirlan Bekbotoev, has worked on the issues of migrants and the Kyrgyz diaspora in Moscow for many years. In his opinion, the limit imposed by the Central Bank will make the services of illegal mediators very popular.

Temirlan Bekbotoev. Personal account on Facebook

“In fact, it’s difficult to run business in Moscow if you are a foreigner. Therefore, many people work here not as legal entities, but as individuals. I don’t think this limit will make these people register their limited companies at once, they’d rather seek other ways,” Bekbotoev said.

According to him, merchants in the markets usually resort to the services of intermediaries. For example, when they need to pay someone abroad, and the remittance fee is quite high, they resort to the services of people who can pay for them abroad, and in Russia they pay through their representative.

Entrepreneur Baktiyar Abdykarov has found another way out. He has been selling knitwear from Bishkek in Moscow for many years and has previously paid suppliers via money transfer systems.

“It was very convenient. It is a problem to remit large amounts via banks as an individual because it immediately raises suspicion. They start asking about sources of income and activities in Russia, they may suspect almost financing of terrorists,” the entrepreneur said.

According to him, getting a patent of an individual entrepreneur is also a problem. Therefore, now he has to search for people who can send money to Bishkek for a fee.

“In average, I sent about 10 thousand dollars a month, so now I have to ask 8-9 people to do me a favour,” Abdykarov said.

There is no official statistical data on how many such Kyrgyz entrepreneurs there are in Russia. According to expert Azamat Attokurov, the figure can reach 300 thousand people. These are manufacturers, carriers and resellers.

Azamat Attokurov. Personal account on Facebook

“Traditionally, in summer, trade gets intense and many people are involved into the Russia-Kyrgyzstan chain. These are manufacturers, suppliers, carriers. And this restriction will affect them all. For example, if an entrepreneur is not able to pay for the goods on time, the manufacturer, in turn, will not be able to buy raw materials on time, not to mention payment of salaries to employees,” Attokurov said.

Four years ago, Kyrgyzstan officially joined the Eurasian Economic Union of Russia, Belarus and Kazakhstan. Within the EAEU, participants are promised four freedoms: the movement of capital, goods, services and labour. And the introduction of limits on money transfers, according to economist Iskender Sharsheev, is a restriction.

“Do we have freedom of movement of capital? In this case, we do and it is not limited, but conditions have been changed so that businessmen find themselves in rigid boundaries. We were also promised that the EAEU laws would prevail over national legislation, but in fact the situation is the opposite,” Sharsheev said.

But the Kyrgyz government is not going to challenge the decision of the Central Bank of Russia. The ministry of economy believes that in this case, the rights of Kyrgyz entrepreneurs are not violated if they work within law.

According to the head of the department of macroeconomics, Nasirdin Shamshiev, this is only Russia’s strategy to counter the shadow circulation of goods.

“In this case we cannot speak about the violation of rights of our entrepreneurs because we should support only legitimate activities. But of course, this will have a minor effect on remittances, but not that significant, as main senders are migrant workers,” Shamshiev said.

Expert Nurgul Akimova believes there will be no critical decline in money transfers. In the long term, the restriction of the Central Bank will lead to change in the business activity structure.

Nurgul Akimova. Personal account on Facebook

According to her, this decline is an expected situation because people have encountered a problem and don’t know what to do about it.  However, the volume will restore after a while. Nevertheless, suppliers of clothes and fruit from Kyrgyzstan have won in the price competition due to their quasi-legal activity. It would be harder to compete if they need to register as a legal entity.

“In the long run, it will lead to the fact that Kyrgyzstan will lose its position of a supplier of cheap sewn products in Russia. The entrepreneurs involved will have to invest into something else or supply products not from Kyrgyzstan,” Akimova said.

Also she noted that many migrants prefer to save money and remit it to their homes in lump sums, for example, to buy a house. They have invested into improvement of their living conditions, but now are facing the obstacle. This will also affect the real estate market in Kyrgyzstan, especially in Bishkek.

Main photo: knews.kg

This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with the financial support of the Foreign Ministry of Norway. The opinions expressed in the article do not reflect the position of the editorial or donor.

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