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Kulbatyrov N., Nyrbossynova S.1
Industrial Cooperation as Value Added Opportunities in the Context of Globalization
The article deals with the formation of value added in the member states of the Eurasian Economic Union (Russian Federation, Republic of Kazakhstan, Kyrgyz Republic, Republic of Armenia, Republic of Belarus) and the possibility of establishing cooperative relations allowing to form a common value added chain, where each member state will have its specific role depending on its competitive advantages. The main industrial development programs were analyzed, as well as the priority sectors and several weaknesses of the industry of the EAEU member states identified. The article highlights the main problems that arise in the process of creating added value chain in the member states of the EAEU, and proposes measures for their reduction and elimination.
Key words: global value chain, Eurasian Economic Union, national economic development.
JEL F15
According to M. Porter's study, value chain (hereinafter - VC) is a set of activities that creates value for the enterprise, starting from the stage of procurement of raw material through the stage of sale of finished products, including consumer service. These stages can exist within one company, or may be divided among many firms.
Production chains can link a region, multiple countries, or a global network. As a result, a global chain of added value has developed, where one country does not produce the complete commodity, but rather participates in the formation of added value at individual stages of its development, production and sales [1]. Countries compete with others in order to infiltrate a certain link of VCs.
According to the research carried out at Duke University, the main spheres of the VCs are research and development (R&D), design, marketing and services. At the same time, the study notes that those added values are mainly concentrated in eveloped countries, while the production process occurs in developing countries in the picture below.
1 Kulbatyrov Nurlan — Deputy director, JSC "Center for Trade Policy Development",
Ministry of National Economy of the Republic of Kazakhstan. E-mail: <[email protected]>; Nyrbossynova Saltanat — Deputy director, Industry Analysis Center, JSC "Kazakhstan Industry Development Institute", Ministry for Investments and Development of the Republic of Kazakhstan.
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Design
Developing countries
Developing countries
Procurement
I
Production
Marketing
Distribution
Preproduction phase Production phase
Post production
Fig. 1. Links of VCs
Value chains are heterogeneous for different industries, enterprises, products or services. Some parts of the chains adhere to the classical pipeline structures where the product or service is subjected to sequential treatment (snake value chains), while others include the final Assembly of several intermediate goods or services (value chain spiders) [2].
Globalization is the process of increasing integration between countries, in which developed and developing countries depends on political, economic and socio-cultural processes at regional and global levels. The creation of global value chains - large-scale networks of international production and scientific-technical cooperation covering hundreds and thousands of links, allows and encourages the distribution of the technological stages of production of goods and services between producers located in several countries.
The formation of new value chains within the framework of the Eurasian Economic Union (hereinafter — EAEU) also refers to the global value chains, where each member country will have a specific role depending on its competitive advantages. The aim is to create the finished product within the territory of the EAEU, competing with the products of third countries.
Realization of the industrial cooperation potential among the member countries of the Union is one of the main areas of industrial cooperation and the main tool to stimulate economic development of member states. This industrial cooperation can be carried out in both traditional sectors and new industries of strategic importance.
The basic industries, such as metallurgy, chemical industry, food industry, engineering industry and industry of construction materials are all represented in the manufacturing industry of Kazakhstan. Companies that operate in these sectors
are mainly focused on raw materials or work in the segment of intermediate stages, which belong to the segment with the lowest added value.
In Armenia and Kyrgyzstan, the situation is similar. Russia and Belarus, however, had more innovative assets after the collapse of the Soviet Union and a significant sales market, and therefore were able to maintain and develop the VC segments with higher added value.
In the framework of the State program of industrial-innovative development for 2015-2019, the priority sectors of the manufacturing industry of Kazakhstan include 14 sectors, seven of which are export-oriented: ferrous and nonferrous metallurgy chemistry, agrochemical and petrochemical industry, electrical equipment industry, automotive industry, and food industry [3].
The industrial development program of the Russian Federation for 2012-2020 encompasses 21 sub-programs, including machinery-producing industry, chemical industry, metallurgy, light industry, timber industry, manufacturing of composite materials, etc. Some of the sub-programs are aimed at technical regulation system development, standardization and maintenance of unity of measurements, industrial biotechnology, development of engineering and industrial design, and industrial parks [4].
The industrial complex development program of the Republic of Belarus for the period till 2020 is aimed at advancing the development of export-oriented and high-tech industries, with a gradual decline in production in inefficient activities and the modernization of traditional areas of specialization (agricultural engineering, transport engineering, manufacture of building materials, etc.).
The development program of processing industry of the Kyrgyz Republic for 2013-2015 was aimed at the development of production and exports of industrial products, ensuring the competitiveness on the markets of the Customs Union, as well as increasing the share of industrial production in GDP in 17 industries: including 2 industry/mining; 14 industries in the manufacturing sector and the electricity sector as a separate industry[5].
Within the framework of the «Strategy of export-oriented industrial policy» of the Republic of Armenia, the long-term goal of the export-oriented industrial policy is the formation of new industries, which will play a role as a driving economic force by expanding the current export industries and industries with export potential; as well as the improvement of legislative framework for en-trepreneurship, modernization of infrastructure, enhanced competitiveness of Armenian products and the attraction of foreign investment. This policy focuses on 11 areas: winemaking, brandy production, diamond processing, manufacture of watches, textiles, biotechnology, pharmacology, production of canned food, bottled mineral water, bottled juices and precision engineering [6]. This is shown in the table below.
H | State programs of industrial development within the framework of the EAEU
Country Program Priority sectors
Kazakhstan State program of industrial-innovative development for 2015-2019 ferrous and nonferrous metallurgy chemistry, agrochemical and petrochemical industry, electrical equipment industry, automotive industry, food industry
Russia The industrial development program of the Russian Federation for 2012-2020 machinery-producing industry, chemical industry, metallurgy, light industry, timber industry, manufacturing of composite materials, etc.
Belarus The industrial complex development program of the Republic of Belarus for the period till 2020 export-oriented and high-tech industries, agricultural engineering, transport engineering, manufacture of building materials, etc.
Kyrgyzstan The development program of processing industry of the Kyrgyz Republic for 2013-2015 mining industry, manufacturing sector, electrical energy industry
Armenia Strategy of export-oriented industrial policy winemaking, brandy production, diamond processing, manufacture of watches, textiles, biotechnology, pharmacology, production of canned food, bottled mineral water, bottled juices and precision engineering
Source: Compiled by the authors.
Under the coordination of the value chain, several weaknesses were identified, among which were the segments of R&D and design.
In order to pass to a new stage of the value chain, it is not enough to merely attract and adapt new technologies. Equally important is the permanent development of scientific potential of the effected industries. However, R&D is one of the most difficult areas to develop, from the point of view of management, as a distinctive feature of most R&D is the unpredictability of the final results of the research and possible commercialization. As a result, large R&D expenditures cannot always guarantee greater profits or greater market share. However, the development of R&D directly affects the development of priority industries.
In the largest modern universities in the EAEU there is a need to create a stronger scientific base. For instant, Nazarbayev University has competence in robotics, a sector which has significant opportunities for all countries, but NU's robotics are suffering a setback as a result of sanctions against Russia on certain types of components qualified as "used in the defense industry". In May 2016, Agency for Technological Development was created in Russia, which will work to increase the number of established license agreements for the purpose of technology transfer to joint ventures. The possibility of joint work between Nazarbayev University and the Russian Agency of Technological Development will create a mutually beneficial environment for both countries, by increasing the competitiveness
of enterprises through their involvement in the processes of modernization and technological renewal, as well as the growth of non-oil exports.
One of the priority sectors of development in Russia, Belarus and Kazakhstan is chemical industry. Armenia and Kyrgyzstan do not have a competitive advantage in the form of their own deposits or the availability of human resources.
The development of the chemical industry in all developed countries begins with such segments as basic chemistry, which includes production of inorganic acids, alkalis and salts, and fertilizers. For example, in Japan the development of R&D in the chemical industry began as a search for jobs for a displaced labor pool, which was formed as a result of stopping large enterprises from the production of mineral nitrogen fertilizers. Factories stopped producing fertilizers, by reorientation to more compliable products produced from gas.
For time being, the most advanced cooperative sector of the chemical industry is the production of agrochemicals, which already has a functioning value chain, created by MCC "EuroChem". New methods of development and processing of phosphate ore are being developed in Russia, mined raw phosphate ore is being developed in Kazakhstan in the form of raw materials, fine and coarse ground, and directed to Ko-vdorskiy mining and processing works (Murmansk region, Russia) for processing into phosphate fertilizer. Starting in 2018, part of the raw materials will be processed in Kazakhstan. At the moment, the excess of raw materials is exported to Belarus.
One of the most promising chains of creation of value could be a collaboration of LLP "Kazphosphate" with the OJSC "Gomel chemical plant" through extension of the VC's technology. LLP "Kazphosphate" can supply phosphate rock at the OJSC "Gomel chemical plant" for the production of mineral fertilizers. Belarus is a net importer of phosphate rock from Russia at a price of 143 U.S. dollars per ton from the factory. Competition from Russia, which subsidized railway tariffs for export products, thereby lowering the prices for consumers, can be a barrier to cooperation. Transportation of mineral fertilizers on the territory of Kazakhstan costs 2157 tenge per ton per 1000 km. The distance from Karatau (Zhambyl region) to Gomel chemical plant (Belarus) is approximately 4000 km. For transportation through the territory of the Russian Federation, it's 1848 tenge per ton per 1000 km, and the distance from Kirovsk (Russia) to Gomel chemical plant (Belarus) is 2500 km. Thus, transportation of 1 ton of mineral fertilizers or mineral raw materials for Russian companies is cheaper than others, so subsidizing the railway transportation of Kazakhstan's companies export products will allow production of LLP "Kazphosphate" to be comparable in price with the Russian phosphate raw materials. In addition, it will increase cargo transportation by JSC "KTZ".
Projects in the sector of petrochemistry in Kazakhstan began to develop with the beginning of implementation of the State program of industrial-innovative development in 2010. In Belarus and Russia, this sector is the most promising and dedicated of the export-oriented development Programs of countries.
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Kazakhstan imports products mainly from Russia and China, but in 2017, JSC
§ ^ "Atyrau oil refinery" is planning to launch production technologies for deep pro-
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^ ■§ cessing of oil, the product of which will be para-xylene and benzene. Para-xylene
^ <i may be used for the following processing chain: para-xylene (JSC "Atyrau refin-
ery", Republic of Kazakhstan) sent to Russia ("SIBUR Holding") for production of granulated polyethylene terephthalate (PET), which later will be processed in Kazakhstan to produce plastic bottles. At this stage, it is necessary to conclude the Memorandum on cooperation between JSC "KazMunayGas" JSC and SIBUR Holding ability of the para-xylene in the form of raw material with the right implementation of granulated PET at its own discretion JSC "KazMunaiGas". In addition, it is necessary to consider the transportation of para-xylene, because the product is hard-transported and it requires special tank cars, which will require updates and increasing of Kazakhstan's car fleet. The production of 300 thousand tons of par-xylene per year would require approximately 280 railcars per month for transportation.
The development of polymer chemistry in Russia and Belarus creates a resource base for Kazakhstan enterprises in the production of plastic products, while maintaining the prices set for Russian and Belarusian consumers for Kazakhstan.
In the sector of machine engineering, the most promising area of cooperation is the sector of the production of equipment for oil and gas industry.
In various countries requirements are becoming more stringent for localization for the international oil and gas companies - the state stimulates the global players to participate more actively in the economy: training and hiring local workers, and developing suppliers of goods and services. If companies want to maintain and improve relations with the public authorities, in response, they will need to reconsider their approach to localization. The main advantage for Kazakhstan is the presence of consumers in the domestic market. Additionally, in the long run, the extension of the Tengiz and Karachaganak oil fields is also expected to start commercial production of the Kashagan project.
The largest Russian investors in the oil and gas sector of Kazakhstan are "LU-KOIL" company and OJSC "Gazprom". Since 1995, OJSC NK "LUKOIL" has invested 5 billion U.S. dollars in the country's economy, and OAO "Gazprom" has invested 1 billion U.S. dollars in the development of SMEs to increase local content.
It is possible to create joint ventures with Russian companies for the production of bearings, compressors, pumps and valves for the oil industry in the North East and West Kazakhstan, which would increase and develop the proportion of local content and bolster the eco-system of suppliers. It is possible to organize production on the basis of enterprises of oil and gas industry due to developed infrastructure of transport links, utility networks (electricity, water, heat, sewer connection, etc.), resources (labor, materials, raw materials, etc.).
For now, the barrier is the problem of product marketing, because production is primarily focused on the oil and gas sector, where large mining companies carry out procurement in accordance with internal procedures. At the same time, as a rule, products must comply with API standards, ASME.
For reducing barriers it is necessary to:
• Address the issue of building certification centers collaborating with international institutions such as API, ASME;
• Proceed with further training of local staff through internships and training in Russia for the really popular destinations.
It is necessary to consider the experience of BP in Azerbaijan on creation of enterprises Support Center. In 2002, BP opened an Enterprise Support Centre, which provides services to local small and medium-sized businesses, including those in the field of business education and technical skills, and assists in the search for new opportunities and information about the requirements for localization. Since 2009, this role has been played by the Electronic Support Center companies, also sponsored by BP. In cooperation with the oil and gas industry specialists center of the country continued to support local companies in search of new opportunities.
With the creation of such a Center in Kazakhstan, the largest Russian mining companies would give access to information on opportunities within the supply chain of OJSC "LUKOIL" and OJSC "Gazprom" for local entrepreneurs, as well as representatives of small and medium-sized businesses.
The machinery industry requires the creation of data-centers to ensure free access for all potential producers of information that will help in the initial level to adapt the necessary business processes. For example, the creation of a platform that enables you to centrally track the order, starting from the moment of filing to the final customer is needed.
Further cooperation with Russian and Belarusian producers of agricultural machinery can happen through developments of the design Bureau. It is expedient to carry out technology transfer with the licensing, standards, patent, and other process documentation to be eligible for subsequent upgrades of a product or technology. Another way to attract investors is the development of services (repair and maintenance of machinery and equipment specialized companies or companies manufacturers). In the life cycle of machines, the cost of the service can reach 50 % of the price.
It is necessary to stimulate and support the development of specialized companies that can form a variety of structures in the industry, based on the network interaction method. For example, foundry-mechanical, forging, metalworking, welded-assembly, assembly and other production can make a variety of networks of relations between specialized companies.
Armenia produces electrical equipment for the private sector, Kyrgyzstan produces precious metals, Belarus does not have its own raw materials and is dependent on imported raw materials, between Russia and Kazakhstan there are existing VC. Interest is the establishment of a competence Centre, which will share technology with the aim of creating better products and developing ore deposits with low content of base metal. The Centre will, in effect, take on the role of a research laboratory.
Today, the creation of the center of competence is one of the recommendations of the Unified Economic Committee. However, there is no clear understanding of the location for establishment of the Center. Each of the participating countries would like to create a Center on its own territory, associated with the desire to enhance the R&D segment in their industry. However, for the establishment of the Centre, we must consider the funding mechanism - whether all the participating countries will Finance the Center through financial institutions, second level banks, or development banks of the participating countries, and what measures of state support will be provided. It is necessary to raise these matters at the next round of discussions on the recommendations for the development of the sector of ferrous metallurgy in the countries of the EAEU.
In the ferrous sector, the only country of interest for cooperation is Russia. There is also a need to establish a competence Center by analogy with the sector of non-ferrous metallurgy.
In the framework of realization of strategy of development of ferrous metallurgy of Russia for 2014-2020 and on prospect up to 2030, Russia plans to implement projects promoting the creation of small-scale productions of special steels and alloys, as well as develop a mechanism of compensation for costs associated with the ordering of low-tonnage batches of special steels and alloys, with the aim of ensuring break-even of production.
It is necessary to consider the possibility of cooperation of domestic medium-sized enterprises, LLP "Auriscalpium Steel", LLP "Ferrum Vtor" LLP "KSP Steel" and such Russian manufacturers of special steels, as JSC "Mechel", JSC "Metallurgical plant "Electrostal", JSC "Volgograd steel works "Red October" with the aim of developing new grades of steel: austenitic (corrosion resistant) steel, functional, SMART, adaptive metal hybrid materials with further access to the markets of Central Asia and the growing market of Iran.
In Russia, the largest producer of special steels is JSC "Mechel". Metallurgical direction of Mechel includes enterprises in Russia, Ukraine and Lithuania. The company produces hot and cold rolled stainless, tool and high-speed steel. The company develops its own unique technology of steel production and quality control. There is a solid company position in the market of metallurgical products due to availability in the Group's own extensive service and sales network:
JSC "Metallurgical plant "Electrostal" - the leading Russian enterprise for the production of high-alloyed steels and alloys, whose production covers special pur-
pose steel, heat-resistant, precision and titanium alloys. The plant specialists have developed and mastered over 2,000 grades of steel and alloys.
JSC "Volgograd steel works "Red October" - one of the largest manufacturers of quality metal products, special steel grades for automobile and aviation industry, chemical, petroleum, power engineering and oil industry
The creation of enterprises for low-tonnage production in Kazakhstan will increase competition in the local market, possibly redistributing the existing personnel working at the JSC "ArcelorMittal Temirtau" with the aim of reducing the business's impact on the decisions of the state bodies that are forced to apply to them for concessions in connection with social tensions in the region. Today JSC "ArcelorMittal Temirtau" is a key manufacturer, with almost 70% of total production and employment in the sector of ferrous metallurgy, so that there is a monopolization of the domestic market, leading to unfair competition and disregard of such requirements of law as environmental regulations, the return of income to the government as the modernization or development of R&D activities.
In the industry of construction materials production, cooperation is possible in the sector of production of plastic products: plastic pipes, PVC profiles, etc. (production of polymer raw materials in Kazakhstan is not available), because the production of basic building materials: cement, concrete, wall materials in Kazakhstan covers 70% of the domestic market.
The development of the base polymer raw material for the production of building materials will allow the switch to the production of high value added products such as heat and sound insulation materials as well as floor coverings and paints and varnishes based on polymers. In addition, the development of SEZ "NIPT" will attract one of the most technologically advanced Russian companies - JSC "Kompozit", makers of composite materials, volume-reinforced carbon-carbon composite materials, adhesives, compounds, thermally conductive adhesives, paint thermostatic coating, etc.
The lack of domestic raw materials, however, hampers the development of the industry and reduces its investment attractiveness.
In the food industry, cooperation is complicated by the stiff competition from domestic producers in each country. The development of the VC is challenged by the problems associated with light production, transportation and standardization/ certification of food products. Certification of products, related primarily with food safety, is one of the main barriers to entering new markets.
Currently the territory of the Customs Union applies the technical regulations of the Customs Union "On safety of food products" (CU TR 021/2011), which established General requirements for food products issued into circulation in the territory of three countries of the Customs Union: Kazakhstan, Russia and Belarus.
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| Compliance of food products with the technical regulations is ensured by the se-
§ curity requirements and the implementation of safety requirements of technical
3 ■§ regulations of the Customs Union on certain types of food products.
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The most promising and fast-growing market is the organic products market in the EU. However, the EAEU countries struggle to be suppliers of products related to this segment, due to the absence of normative-legal acts regulating the production of organic food. According to analysts, the market volume of certified organic products in the period of 2016-2017 years will exceed 100 billion.
Thus, the establishment of cooperative chains of added value is possible in each of the sectors of the manufacturing industry, however, often businesses in all of the countries face barriers of non-commercial nature. For example, in September last year, the RF Government adopted a Resolution "On priority commodities of Russian origin, works, services performed, rendered by Russian persons, in relation to goods originating from foreign States, works, services performed, rendered by foreign persons". This document has detrimental affects on trade between countries, which in turn has a negative impact on the cooperation relations. Another example of establishing non-trade barriers is the certification of products. The need for certification of certain products separately in each of the countries leads to an increase in costs and reduction in free capital for the development of new investment projects.
In order to strengthen industrial cooperation, an analysis of all barriers between the member countries is needed. It can be conducted through businesses interviewing, which will develop measures to remove them. Equally important is the program of import substitution, which aims to reduce the import of products of third countries and increase cooperation between the existing enterprises of the member states of the Union and the creation of new joint projects. For this purpose, it is necessary to analyze the imported products market of each of the participating countries and identify goods convenient for the production.
Accessible information and organizational support to companies in search of business partners are effective instruments for creating links between enterprises of the membe
References
[1] The Chain of Maturation of Consciousness // Production Management. November 2013. URL: <http://www.up-pro.ru/library/strategy/tendencii/ css-mashinostroeniya.html>.
[2] Baldwin R., Venables A. (2010) Spiders and Snakes: Offshoring and Agglomeration in the Global Economy / National Bureau of Economic Research. URL: <http://www.nber.org/papers/w16611>.
[3] Official website of the Ministry for Investment and Development of the Republic of Kazakhstan. URL: <http://www.mid.gov.kz>.
[4] Official Internet Portal of Legal Information of the Russian Federation. URL: <www.pravo.gov.ru>.
[5] Official Website of the Ministry of Justice of the Kyrgyz Republic. URL: <http://cbd.minjust.gov.kg>.
[6] Official Website of the Government of the Republic of Armenia. URL: <http:// www.gov.am>.
Кульбатыров Н., Нырбоссынова С.1
Промышленная кооперация как возможность формирования добавленной стоимости в условиях глобализации
Рассмотрены формирование добавленной стоимости в государствах-членах Евразийского экономического союза и возможности создания кооперационных связей, позволяющих формировать общую цепь добавленных стоимостей, где каждая страна-участница будет иметь свою определенную роль в зависимости от конкурентных преимуществ. Выявлены основные проблемы, возникающие в процессе создания цепей добавленной стоимости в странах-членах союза и предложены меры по их снижению и устранению. Проанализированы основные программы промышленного развития, определены приоритетные отрасли и слабые звенья развития промышленности государств-членов данного союза.
Ключевые слова: глобальные цепи добавленной стоимости, Евразийский экономический союз, развитие экономики страны.
The article was submitted to the editors in 2016. 15 Dec.
1 Кульбатыров Нурлан — заместитель Генерального директора Центра раз-
вития торговой политики при Министерстве национальной экономики Республики Казахстан. E-mail: <[email protected]>; Нырбоссынова Салтанат — заместитель директора Центра отраслевого анализа Казахстанского института развития промышленности при Министерстве по инвестициям и развитию Республики Казахстан.
Enikleeva Z.1
EAEU: opportunity or threat? (the case of the Kyrgyz Republic)
The Kyrgyz Republic has negative trade balance almost every year since its independence. After becoming a member of the Eurasian Economic Union in August, 2015, the country met with additional obstacles in trade: necessity to comply with technical regulations, certificates of quality and conformity, absence of relevant laboratories, disputes with neighbors, etc. Negative influence on trade had last tendency in currency exchange rate with the main trade partners — the EAEU members. There are data on changes in trade, especially in export sector, of Kyrgyzstan in Soviet times, the first years of independence, and years before the entrance to the EAEU and after. The article includes information on measures of governmental export promotion, together with objection, whether Kyrgyzstan could cope with problems, it met the first year of membership in the union.
Key words: Kyrgyz Republic, Kyrgyzstan, EAEU, trade, export, import, trade balance, export promotion, Central Asia, WTO.
JEL F10
Introduction
The Kyrgyz Republic declared its independence on 31 August 1991 after the collapse of the Soviet Union. Kyrgyzstan started to introduce democratic principles of management, where centrally planned economy was replaced by the market economy.
Obtaining its independence, the Kyrgyz Republic faced a huge number of challenges: increase of inflation, corruption, population poverty, etc. Steadily growing in the Soviet Union, the Kyrgyz industry started to declinein 1990s, while markets and bazars started to appear very fast. The neighborhood with China opened abilities to local population to trade any things, like needles, household appliances, textile etc. There were opened two huge wholesale markets in the Central Asia: "Dordoi", located in Bishkek city, the capital of the country, and "Kara-Suu", located in Kara-Suu city of Osh oblast, on the south of the republic. Trade and services sector started to play a big role in the economy of the country.
1 Enikeeva Zalina — junior researcher staff, Institute of Public Policy and Administra-
tion, University of Central Asia (Kyrgyzstan). E-mail: <[email protected]>.
However,there was not any development of production of capital-intensive sectors of the economy. The volume of industrial output annually reduced by 25-28% from 1992 to 1994; and in 1995, it was 35% from the 1990 level. The greatest economic decline occurred in 1994. Rates of decline of production level happened in the construction complex as well. Volumes of construction were reduced by 72.3% from 1991 to 1994; only the beginning of construction of the huge gold-mining mill in Kumtor (1995-1997) allowed ceasing this tendency [1].
Due to institutional changes in the agricultural sector of Kyrgyzstan, there appeared more mobile, working private producers and peasant (farming) enterprises instead of large tradable agricultural enterprises. The structure of cultivated areas was changed as well: the increase of the grain area empowered more complete to fill the needs of the population in bread and flour [Ibid]. The most important stage in reforming the agricultural sector was the implementation of the private land ownership that provided an additional incentive for development of this sector and the economy of the country.
The Kyrgyz Republic conducts multi-vector policy; it establishes the necessary contacts with a purposeof inflow of appropriate investments to the country. The republic became a member of the United Nations (UN), the Organization for Security and Cooperation in Europe (OSCE), UNESCO, the Commonwealth of Independent States (CIS), the Organization of Collective Security Treaty (CSTO), the Shanghai Cooperation Organization (SCO), the Organization of Islamic Sardonically (OIC), Economic Cooperation Organization (ECO), the Cooperation Council of Turkic Speaking States (CCTS), , the Eurasian Economic Union and forges relationships not only with CIS member states, but also far abroad.
The government has consistently adhered to the policy of liberalization of foreign trade, maintaining low import tariffs and providing economic agents with freedom to export and import goods. This policy was reinforced by the accession of Kyrgyzstan to the World Trade Organization (WTO) in 1998, becoming the 135th member of the WTO and the first one among CIS countries [1].
On the 12th of August 2015 The Kyrgyz Republic got the status of official member of the Eurasian Economic Union. It became a very important event for the economic development of the Kyrgyz Republic.
Kyrgyzstan during soviet times
The Kyrgyz Soviet Socialist Republic was established as a republic of the Soviet Union on 5 December 1936. During Soviet times, the State Planning Committee of the USSR regulated commodity exchange between union republics, and the Ministry of Foreign Trade of the USSR regulated foreign trade relations [2].
Before the war the republic exported agricultural products to other republics, mostly for industrial processing: wool, leather, cotton, tobacco, cocoons, meat, oilseed crops, fruits and nuts. In 1969-1973 Kyrgyzstan exported production to more than 65 countries of the world including 20 Asian countries, 19 European, 18 African and 3 American. The Republic exported balers, hay-harvesting aggregates, monitoring and metering instruments, pumps, household and automobile electric lamps, cotton fabrics, silk and wool, knitted articles, engineering goods, antimony and non-ferrous metallurgy products etc.
Official data of the National Statistic Committee of the Kyrgyz Republic shows that 29 manufacturing enterprises supplied 59 types of commodities to 65 foreign countries with export volume of 10.5 million rubles in 1985, then 34 enterprises supplied 71 types of commodities to 80 foreign countries with export volume of 41.3 million rubles in 1987.
There was a change of export structure from mainly agricultural products before the war on export of mainly industrial products in the70-80s of the last century, with the growth of foreign states in foreign trade.
According to the author of the research "External Trade of Kyrgyzstan: History, Analysis, Estimation" E.V. Samigullin, if we compare export volumes of the republic to other foreign countries with its indices of production, then these indices are quite small. For example, the share of export of the volume of gross output of production and agriculture was only 0.1% in 1985 and 0.5% in 1987. The reason for it was that the most part of manufactured goods and significant part of agricultural goods were shipped to Moscow and Leningrad cities and other union states, due to resource allocation plans of the State Planning Committee of the USSR [2].
Additional limitation of export activity of the Kyrgyz Soviet Socialist Republic was because of the situation that all positions of the foreign trade activity had to be coordinated with the union ministry.
The separate issue is the development of the mining industry in the Kyrgyz Soviet Republic. In the second half of the 19th century, on the south of the country the first coal minesappeared. Twenty seven coal mines operated at the total capacity of about 100 thousand tons of coal per year in 1913, the Kyrgyz Soviet Republic supplied the coal to almost all Central Asia. In 40-60s the coal mining was conducted on seven mines and five open cast coal mines; the maximum was reached at 4.9 million tons in 1979.Since 1987, the mining industry has grown faster than the economy of Kyrgyzstan as a whole, due to significant investments in a number of enterprises:Kara-Balta Mining Plant, Kyrgyz Mining and Metallurgical Integrated Works, Saryjaz Tin Factory. By the end of the 80s, Kyrgyzstan produced 100% of antimony, up to 64% mercury, to 30% of rare earth products and up to 15% of uranium in the USSR [3]. The break-up of the Soviet Union made adjustments to the development of this industry particularly, and the whole country.
Kyrgyzstan: trade dynamics 1991-2015
After the declaration of their independence, many CIS countries did not have a dramatic drop in trade; moreover, in such Central Asian countries as Kazakhstan, Kyrgyzstan and Uzbekistan trade did not decrease at all in 1991-1993, while there was reduction of international economic activity as a whole [4]. It could be explained by the fact that in planned economy ex-republics did not trade with foreign countries directly, because all contracts were signed in union ministries in Moscow.
As a result of low level of external economic trade openness in the USSR, volumes of trade with foreign countries were not significant, compared to interrepublic trade. A clear example of this is presented in Table 1, with data on the dynamics of exports by commodity group of the Kyrgyz Republic in the USSR, and first years of its independence. Thus, the export of products of light industry to other republics was substantial and was growing in 1987-1992, while export of the same commodities to other, countries, was comparatively small.
Trade balance of the Kyrgyz Republic since its independence has usually been negative. Thus, thevolume of imported goods was higher than the volume of exported goods, and since 1994, negative balance between import and export has been increasing significantly, from -64.2 million U.S. dollarsto -334.3 million U.S. dollars in 1998. The main sectors, which commoditieswere exported by the country, were electrical energy industry, machinery industry, food industry, non-ferrous metal industry and textile industry. The main trade partners of Kyrgyzstan on export were Germany (37% of all exported goods), Kazakhstan (17%), Russia (16%), and Uzbekistan (8%). Most imported goods were from fuel industry, textile industry, medical industry, machinery industry and food industry in 1998. The main importers were Uzbekistan (15% of all imported goods), Russia (24%), USA (5%), Kazakhstan (9%), Turkey (4%), South Korea (3%), China (5%), Italy (3%), Germany (6%) and other countries (26%).
The only year when the trade balance of the Kyrgyz Republic was positive was 2001. It happened because of the increase of the export of gold and products of chemical industry. In 1999 — 2001 gold, that became a traditional export product from 1997 thus far, was exported to not only Germany, but the United Kingdom and Switzerland as well.
For the latest years, there is a tendency of negative trade balance in the Kyrgyz Republic (see Table 2). Import of the country is significantly higher than export for much of that time. Thus, Kyrgyzstan imported commodities for 3,937.7 million U.S. dollars in 2015, while exported only 1,646.40 million U.S. dollars.
The dynamics of trade balance is presented in the Figure 1. There was a negative trade balance (except 2001) during the period 1992-2015, it was dramatically increasing in 2011-2014, then the trade balance decreased in 2015, still being negative.
Trade policy and strategy of national economic development
Table 1
Exports of Kyrgyzstan by commodity group at domestic prices, millions of current rubles
Commodity group Interrepublic exports Extrarepublic exports
1987 1988 1989 1990 1991 1992 1987 1988 1989 1990 1991 1992
Power 42 78 80 67 188 3047 —- —- —- —- —- —-
Oil and gas 11 11 11 10 29 239 —- —- —- —- —- —-
Coal 20 22 22 22 14 1013 —- —- —- —- —- —-
Other fuel —- —- —- —- —- —- —- —- —-
Ferrous metallurgy 6 8 9 7 12 188 2 1 —- 340
Nonferrous metallurgy 122 129 124 145 492 2208 10 17 18 19 8 3454
Chemical and petroleum 23 25 24 23 218 667 —- 1 —- 273
Machinery and metal works 663 939 946 882 2010 20947 11 11 5 11 8 559
Sawmill and lumber industry 5 5 5 4 17 301 —- —- —- —- 7 185
Building materials 19 13 17 13 67 1445 —- —- —- 10
Light industry 654 651 650 640 1898 11295 3 14 10 9 3 1414
Food and beverage production 570 521 519 508 1317 3575 8 6 10 8 —- 146
Other industries 15 23 26 21 50 523 —- —- —- 2
Agriculture 114 108 96 87 182 792 23 11 6 5 3 33
Other material production 5 5 20 19 12 61 11 45
Total exports 2269 2537 2549 2446 6506 46301 55 59 51 53 41 6461
