Uncovering hidden business dynamics in former Soviet markets
Over the past decade, closer diplomatic ties and economic reforms have opened new doors between the EU and former Soviet republics. However, the expected wave of foreign investment has not fully materialised. The MARKETS project(opens in new window) studied the business environments of countries across Central Asia, the Caucasus and Eastern Europe to shed light on both formal and informal factors that impact foreign investment in these regions. “Foreign investment follows the same logic as a cost–benefit analysis everywhere: how much money can be made versus how much risk there is. The difference is about opportunities and risks offered by a particular region rather than another, which is why regional knowledge is so important,” says Abel Polese, MARKETS project coordinator. Undertaken with the support of the Marie Skłodowska-Curie Actions programme(opens in new window), the project looked beyond traditional economic indicators to understand real business dynamics.
Mapping informal practices
Drawing on expertise from economics, anthropology and governance studies, MARKETS created a diverse portfolio of case studies. From female entrepreneurship in Kyrgyzstan to gender issues of bazaar sellers in Uzbekistan and wine industry dynamics in Georgia and Moldova, researchers captured the complexity of these regions. One of the project’s major achievements was contributing to volume 3 of the Global Encyclopaedia of Informality(opens in new window), which documents and explains informal practices around the world. A team from MARKETS also coordinated the World Economic Forum’s strategic map on informality(opens in new window). These resources highlight that informality often serves as a practical solution where formal systems are inadequate. “Informality is not good or bad per se. In some cases, it helps getting things done in a situation where everything is stuck. In other cases, it paves the way to corruption,” notes Abel. The project’s nuanced perspective challenges simplistic moral judgements. “We did not look to spectacularise informality or romanticise the region, but to produce clear evidence on informality, explain how these mechanisms work and propose mitigation measures that are not necessarily repressive,” he adds. After consulting the project’s experts, the World Economic Forum’s strategic intelligence team expanded their definition of informality beyond the informal economy to include less visible and measurable aspects within policy frameworks.
Navigating risks
MARKETS identified two primary strategies to reduce investment risks in the region. The first involves building stable, predictable environments where property rights are protected – exemplified by the Baltic republics’ successful EU alignment. The second approach involves partnering with locally influential figures. “In addition to raising ethical concerns, this is highly risky as it depends on the contact’s position, which may change unpredictably, and on their continued interest to collaborate,” comments Abel. Beyond these strategies, MARKETS advocates for improved transparency through satellite accounts in national accounting systems to better track undeclared activities and tax evasion – issues that impact both public finances and a region’s investment attractiveness. The project’s findings were presented at the 24th Meeting of the Group of Experts on National Accounts(opens in new window), organised by UNECE. The research also emphasises how the war in Ukraine changed the regional investment landscape, transforming Central Asia into a hub for international trade and a route for bypassing sanctions on Russia(opens in new window). This motivated businesses to seek alternatives or produce locally. For example, cheese production in Central Asia has improved in both quantity and quality, while imports of car parts to Kyrgyzstan – the country with the second smallest GDP in the region – have soared by 5 500 %, as part of re-export routes supplying the Russian market. MARKETS offers guidance for EU policy, particularly regarding gender-based development programmes, business development services and ethical approaches to sanctions-related challenges. As Abel concludes, “The question is: do we want to promote an ethical way of doing business in the region? And if we want, what incentives can be offered?”
