10 February, 2020 16:47

New Kazakh Restrictions Hit Armenia’s Car Export Boom

By Emilio Luciano Cricchio

One of Armenia’s major car export markets, Kazakhstan, has imposed new restrictions on Armenian car imports. 

From January 1, 2020, the Kazakhstani government decided to impose greater restrictions on imported cars from Armenia, with the new trade barriers posing major problems for Armenia, as decreased demand and high earnings expectations may affect thousands. 

Armenia’s car imports tripled in 2019, with 189,000 cars receiving new customs clearance in the country, compared to 64,000 in 2018, causing a major increase in tax revenue.

Partly due to Eurasian Economic Union (EEU) exemptions, car taxes were about 10% in Armenia, significantly lower than in Kazakhstan, where they were 17%. Until January 1, 2020, Armenia benefited from these privileged conditions for the import of several hundred types of goods, including cars. 

The price of cars in Armenia had become more attractive for Kazakhstanis, due to the lower prices, and so, the number of cars with Armenian licence plates on Kazakhstan’s roads sharply increased. 

Many Armenians import cars into Armenia from the second-hand market and then re-export them, with Kazakhstan being a major export destination. 

A citizen of Kazakhstan can buy and register his car in Armenia, where the registration process takes little time. After this, due to the freedom of movement of goods and capital between EEU member states, the vehicle can then be driven to Kazakhstan. 

According to Kazakhstan law enforcement officials, the issue of cars with Armenian license plates has caused difficulty in controlling or penalizing the owners of these cars, even in cases of serious accidents. 

According to Nur.kz news website, Kazakhstan’s Deputy Minister of Internal Affairs, Marat Kozhayev said that 22,000 cars were imported into Kazakhstan from Armenia. However, he did not specify the time period these imports took place. 

To prevent this, Kazakhstan authorities are now forcing car owners with foreign license plates to register in Kazakhstan and pay state duties, or face penalties. 

However, due to protests by car owners, Kazakhstani President Kassym-Jomart Tokayev extended the time given to car owners to March 1, 2021, to register in Kazakhstan. Drivers will then have the options to either take their car out of the country once a month and re-enter the country, or pay the required taxes.

The executive body of the EEU, the Eurasian Economic Commission, has been looking into the issue, upon Armenia’s request, according to Mikhail Myasnikovich, Chairman of the Eurasian Economic Commission. 

 On January 7 2020, he said that Armenia had raised the issue, worried by the impact this would have in Armenia, adding that, “The issue should be settled by Armenia and Kazakhstan. (...) The Armenian side has complied with customs clearance rules. The question is whether the re-export of cars is in line with EEU rules.”

Speaking to CivilNet, Tigran Hovhannisyan, Chairman of the Union of Automobile Importers, said that there are now 10,000 cars in Armenia, which have been affected by Kazakhstani restrictions, adding that, "This decision by Kazakhstan means the free movement of goods and capital in the EEU has ceased to operate.”

“We have appealed to the government to take steps to speak with their Kazakhstani counterparts. If Kazakhstan does not want to open its market, then Armenia should negotiate with Russia so that the cars are not left behind,” Hovhannisyan said.

According to official data, about 90% of cars imported to Armenia by 2020 are from the second-hand market, which have been used on average for more than seven years.

Armavir region resident Gevorg imported 14 cars to Armenia between October and December 2019, though so far he has only been able to sell two. According to him, the car market has halted. “I sold two cars in January. I paid all the money to the bank. I had taken out a loan to do this job, and because of the situation, I had to sell cars cheaply to pay off the interest on the loans,” said Gevorg. 

There are also concerns about the impact this will have on the banking sector. Commercial banks lending to the sector have not denied the rumors of a "bubble" in the second-hand market. “In theory everything is possible. We have lent to this sector quite extensively,” said Armswissbank CEO, Gevorg Machanyan.

The Central Bank of Armenia has made it clear it sees no serious cause for concern. According to official data, the volume of overdue loans in the past year has been quite low, with only 0.85% of loans being overdue in 2019. However, Central Bank Board member, Martin Galstyan, acknowledges that the formerly competitive car market of Armenia is now facing problems.

“I hope that the surplus of imported cars will still be possible to export to Kazakhstan or Russia. However, the importer on the one hand and the bank on the other, which should have calculated the possible risks. It is difficult to speak of clear figures now, but it will be possible to analyze them later and get a clearer picture,” Martin Galstyan told CivilNet.

Read the article in Armenian 

Photo credit: Photolure