The Plight of Uzbekistan’s Merchants

Uznews.net reports that merchants in the Andijon region protested official interference in their business. The protest was sparked after police attempted to prevent merchants from setting up their stalls. Though the police broke up the protest with force, the merchants reportedly plan more protests.

This is at least the second market protest in Uzbekistan this month. Bazaar traders in Nukus blocked a road in the Karakalpak capital over fears that they would lose their stalls.

Reports of fairly high growth rates notwithstanding, Uzbekistan’s economy is a mess. And officials seem quite committed to making things worse for the large number of people who depend on market trading to make ends meet. The Uzbek government recently made land travel to Kyrgyzstan and Kazakhstan easier for Uzbek citizens, a move that ostensibly would make things easier for merchants from Uzbekistan to buy cheaper goods across the border to sell in Uzbekistan’s bazaars. However, import substitution policies discourage shuttle trading. This means they are doing their job of shielding domestic producers and other well-connected businesspeople from competition; benefit to the country as a whole be damned.

The Kazakh quarantine protecting Uzbeks from low quality goods was recently lifted, allowing Uzbek traders to cross the border via official crossings. Uznews.net reports that there are many obstacles for traders but that there is a payoff for the patient. But their story on the effect on shuttle trading in the Ferghana Valley of the abolishment of visa requirements between Uzbekistan and Kyrgyzstan outlines that long lines are the least of worries for merchants.

Special taxation in Uzbekistan aims, above all, at shuttle traders. In addition to excises on a wide range of goods, they should make the so-called standard payment (includes a customs duty and VAT) to the tune of 70% of the cost of industrial goods and 40% for foodstuffs, except flour.

Uzbekistan also set restrictions on goods imported to the country for private use: goods worth under $50 can be taken to the country duty-free, and customs declarations should be filled in and customs duties and taxes should be paid on goods worth more than this sum.

This means that if, for example, people decide to buy clothes for their whole family (parents, spouses and children) they have to take all their family members to Kyrgyzstan so when they return they have goods costing less than $50 each. Otherwise, they will be able to buy clothes only for themselves, even then partly, because, let us say, they want to buy a fur coat they will not be able to import it duty-free, or they will have to put it on over their coats.

That is why, the border services seem to work and, possibly, will work in a usual pattern. “I very much doubt that this agreement will have any effect on border trade,” entrepreneur Rahmonali Kudratov from Andijan said. “Uzbekistan has three times increased and introduced new rates of excises and import duties on consumer duties in recent years.”

They say that high taxes will encourage shuttle traders to continue using unofficial crossing points.

Islam Karimov likes to claim stability as one of his great achievements. But the hardships that merchants face underlines how the Uzbek government sows the seeds of instability and potential for an enormously chaotic state collapse. While there are economic issues that are legitimately difficult for the government to deal with, this should be a no-brainer. Anti-merchant policies accomplish none of their stated goals. Uzbekistan’s economic growth, insofar as it actually exists, does not come from manufactured consumer goods or food products. It comes from high resource prices. Abolishing barriers to trade and allowing merchants to create wealth would be one of the easiest economic decisions the government could make, and it would pose no threat to the state. It would pose a threat to individuals within and connected to the state though. Where these policies are incredibly effective is in guaranteeing that wealth of favored individuals remains protected from competition. And there you have Uzbek policy in a nutshell; long-term wealth and stability is sold down the river for a quick gain.

Both photos from Flickr user Valodja and licensed under Creative Commons Attribution-NonCommercial 2.0.