A bazaar business

By bne IntelliNews August 27, 2010

Clare Nuttall in Almaty -

Border closures after the Kyrgyz revolution and Kazakhstan's entry into the Customs Union with Russia have presented challenges for Central Asia's hundreds of thousands of bazaar vendors and shuttle traders this year. But the region's multi-billion-dollar bazaar trade has always proved to be enormously flexible.

At her stall in one of the many alleys of Almaty's Baraholka bazaar, Meryam, an ethnic Uighur trader from Xinjiang in western China, says stocks are low. Her stall, an Aladdin's cave of kitchenware inside an old metal transit container, looks stuffed to the roof with everything from electric kettles to cheese graters, most of them from the factories of Xinjiang and Guangzhou.

But Meryam is concerned that recent shipments have been delayed on the Chinese-Kazakh border. Although Kazakhstan's entry to the Customs Union with Russia and Belarus in July shouldn't affect external trading, consignments are reportedly being delayed while officials figure out how to comply with the new regime. If goods continue to be held up on the border, she says, some stalls will have to close temporarily. Like other traders at the Baraholka, she is uncertain as to how her business will be affected in the longer term.

Traders are, of course, used to dealing with periodic border closures and changing regulations. In late 2009, there was a ban on travelling to Xinjiang after deadly ethnic riots. The biggest problem this year has been the closure of borders between Kyrgyzstan and its neighbours. The Kazakh-Kyrgyz border was shut after the April revolution in Kyrgyzstan and remained closed for a month despite the interim government's impassioned pleas to Astana to re-open it. Even now, only three of the 12 checkpoints are operating normally. Meanwhile, Tashkent recently decided against re-opening the Uzbek-Kyrgyz border.

In Kazakhstan, this led to the closure of some market stalls and an increase in prices especially for fresh fruit and vegetables. However, the border closures had a very serious impact on the Kyrgyz side, where farmers in the north of the country found they were no longer able to export to Kazakhstan. Kyrgyzstan's usually active textiles industry also suffered, as did the tens of thousands of traders who make a living re-exporting Chinese goods via Kyrgyzstan to Kazakhstan and the rest of Central Asia.

Fake silks and spices

Over the last 20 years, the cities of Central Asia, which used to be stopping points along the fabled Silk Road, have become centres for a new type of trade - in electronic goods and designer knock-offs rather than the silks and spices of the Middle Ages. Agricultural markets in Central Asia continued to operate during Soviet times, undergoing a revival in perestroika. After the break-up of the Soviet Union, small-scale traders flooded in to fill the void when formal distribution systems collapsed. In the two decades since then, the old agricultural bazaars have ballooned into vast commercial hubs.

In total, retail and wholesale trade via the region's bazaars amounts to around $10bn a year, according to a report from the World Bank entitled, "Skeins of Silk and Borderless Bazaars: Bazaars and Trade Integration in CAREC Countries". As of 2008, imports via the bazaar logistics network accounted for at least one-fifth of total world imports to four Central Asian countries - Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan. "In popular perception, bazaars are an icon of the past that has no central place in a modern economy based on anonymous transactions. But this is a wrong perception: bazaars in Central Asia have undergone an evolution over the last 20 years, turning them into a critical underpinning of a market economy," says the World Bank report.

Bazaar trade is most active in Kyrgyzstan, the location of two of the four bazaars defined in the report as regional hubs. Dordoi bazaar near Bishkek is by far the biggest in the region, with 40,300 sales outlets, estimated monthly sales of $331m and 54,600 workers. Bishkek residents say you can buy anything in the bazaar - from fabrics and DVD players, to live animals, to firearms and illegal drugs. Its closest competitor is the Baraholka in Almaty, with 15,450 sales outlets.

Overall, around three-quarters of sales at Kyrgyz bazaars are to foreigners. Products from Dordoi end up in bazaars in Kazakhstan, Tajikistan, Uzbekistan and southern Russia. At Kyrgyzstan's other regional hub bazaar, Karasuu in the southern capital of Osh, 65-75% of all sales are to Uzbekistan, with the remainder going to the Kyrgyz Fergana Valley and Tajik traders.

Kyrgyzstan's dominance in the bazaar trade is partly thanks to its geographic location and logistics. However, according to the World Bank report, the country's authorities are the most bazaar friendly in the region. For example, the total tax burden on traders is just around 16% of income from sales. "The real edge over other Central Asian economies has come from two sources: special 'almost duty free regime' on bazaar imports; and the regulations governing bazaar trading that are more liberal than in formal Central Asian economies," says the report.

In addition to Dordoi and Karasuu, the Baraholka in Kazakhstan and Panjshanbe bazaar in Khujend, northern Tajikistan, also act as regional hubs. All four are complex trading and logistics centres, says the World Bank. "These are city-within-the-city type bazaars with large infrastructure including facilities for supplying such services as public transport, hotels, saunas, canteens, warehouses, bus terminals."

Bazaar benefits

Across the region stall holders say they benefit from operating in a bazaar environment, since as a group they are better able to resist the "predatory impulses" of the state. "Local administration in surveyed bazaars appear to impose a lesser 'hassle burden' of doing business than in other sectors of the economy," says the World Bank.

This is still the case in Uzbekistan, even though the country still has a relatively restrictive regime for market traders. Periodic clampdowns, tight border restrictions, the lack of currency convertibility and efforts to force people to use credit cards rather than cash, have hampered the growth of local bazaars, but they continue to flourish.

Throughout Central Asia, in addition to the regional and national hubs, and the local bazaars serving a single region, town or village, there are also numerous specialist bazaars for food, automobiles, fabrics - such as the Autobazaar outside Almaty or Bishkek's Medina textiles market. "What makes the bazaars of Central Asia unique is not only their sheer numbers, but also their dominance in distribution of goods through a web of national and international networks with hubs and spokes as well as involvement in both wholesale and retail trade," say the report's authors.

The products that end up at the bazaars vary enormously from the home-grown vegetables brought in each day by small farmers, to goods produced by multinationals, which use them as one of their sales channels for Central Asia. Unilever, for example, sells around 25% of its products through open markets, adapting to local sales channels. "Our distributors visit around 18,000 outlets in Kazakhstan, which has a population of around 14m. This is very high compared to developed countries," says a spokesperson for Unilever. "We have not faced serious problems in the delivery of products in good condition even to the remote areas. Counterfeit products exist, but they are not a serious threat as the majority of customers are well aware of them and avoid them."

Around one-quarter of the goods sold at Central Asia's bazaars are locally produced, with the vast majority of imports originating from China, which exported some $5bn worth of bazaar goods in 2009, according to the World Bank. Turkey and Iran, two other exporters to Central Asia, accounted for goods worth just $255m and $104m respectively in 2006. Ainagul, another trader at the Baraholka, says she flies to Urumchi, the capital of the Xinjiang region, once every few months. "I can buy cheap and fashionable clothes in Urumchi," she explains. "I buy enough to fill one container, then bring it back by road and sell the clothes in Almaty." Many other traders from Almaty, Bishkek and Osh do the same thing.

Chinese citizens also are active in Central Asian bazaars. Medina, for example, is jointly owned by Kyrgyz and Chinese business people. Around 70% of the warehouses in Karasuu are leased to Chinese, with a further 15% being leased to Uzbeks. In Tajikistan, many of the big wholesalers are Chinese citizens.

The rise of the middle class

One of the main reasons for the spectacular growth of Central Asia's bazaars is that they remain genuinely popular with residents. Most people, especially those on low incomes, say they shop at bazaars, even in prosperous cities like Almaty and Astana. In Tajikistan, the poorest of the Central Asian republics, prices of non-food goods are 15-20% higher in the shops than at the bazaars, while prices for agricultural goods can be up to 50% higher.

Even so, the increasing affluence and education of the local populations are placing new demands on the bazaars. In Kazakhstan, in particular, there have been greater efforts to ensure the quality of goods traded. According to Memst, the committee for technical regulation and metrology within Kazakhstan's Ministry of Industry and New Technologies that monitors wholesale trade in packaged goods, there are quality control issues that need to be addressed. "Unfortunately, our testing consistently identifies unsafe and defective products - often the cheapest products. The situation is worse in bazaars than in supermarkets," says a spokesperson for the committee. "To improve compliance with standards and technical regulations, in the near future we will introduce tougher penalties. We also plan to raise awareness of these issues among small businesses."

Rising incomes are also speeding up the transition of retail trade from bazaars to supermarkets, shopping centres and other formal forms of retail outlet. In Kazakhstan, bazaars are "declining but still an important channel," says Unilever's spokesperson. "Organised trade accounts for about 25% of the business in the most developed Kazakhstan market, whereas this goes down to almost nil in Tajikistan."

However, plans announced in 2008 to move all of Almaty's bazaars outside the city limits, ostensibly for sanitary reasons, haven't been carried through, though the central Green Bazaar has been considerably smartened up. Giant warehouses have mushroomed around the Baraholka, straddling the line between bazaars and shopping malls; one contains a supermarket opened by Russian retail chain Vester. But the small stalls inside transit containers or under plastic awnings continue to do a brisk trade. Even in the richest cities of the regions there are signs of a sustained decline in activity in the bazaars. Instead, they have continued to expand and evolve. "Assuming they are not banned by respective authorities, one would expect they will transform into their equivalents in modern logistics chains, ie. malls and large warehousing units," the World Bank tells bne. "After all, modern malls sprawling at the outskirts of all major cities have evolved from bazaars retaining at least one defining characteristic - a large number of traders operating under one roof."

Related Articles

Retail trade slows in Kazakhstan amid economic uncertainty

Naubet Bisenov in Almaty - A free-floating exchange regime for Kazakhstan’s currency, the tenge, is taking its toll on retail trade as the cost of imports rise. While prices have not changed ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

New Kazakh central bank governor re-adopts free floating regime

bne IntelliNews -   The National Bank of Kazakhstan, the central bank, has re-adopted a free-floating exchange regime under the new governor, Daniyar Akishev, who has ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.